<PAGE> 1
1933 Act Registration No. 33-02633
1940 Act File No. 811-4552
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 27 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 28 [X]
STEINROE INCOME TRUST
P. O. Box 804058, Chicago, Illinois 60680
Telephone Number: 1-800-338-2550
Jilaine Hummel Bauer Cameron S. Avery
Executive Vice-President Bell, Boyd & Lloyd
& Secretary Three First National Plaza
SteinRoe Income Trust Suite 3200
One South Wacker Drive 70 W. Madison Street
Chicago, Illinois 60606 Chicago, Illinois 60602
(Agents for Service)
It is proposed that this filing will become effective (check
appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on November 1, 1995 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
Registrant has elected to register pursuant to Rule 24f-2 an
indefinite number of shares of beneficial interest of the
following series: SteinRoe Income Fund, SteinRoe Cash Reserves,
SteinRoe Government Reserves, SteinRoe Government Income Fund,
SteinRoe Intermediate Bond Fund, and SteinRoe Limited Maturity
Income Fund. The Rule 24f-2 Notice for the fiscal year ended June
30, 1995 was filed on August 25, 1995.
Amending Parts A, B and C and filing exhibits.
<PAGE> 2
STEINROE INCOME TRUST
CROSS REFERENCE SHEET
ITEM
NO. CAPTION
----- -------
PART A (MONEY MARKET FUNDS PROSPECTUS
AND BOND FUNDS PROSPECTUS)
1 Front cover
2 Fee Table; Summary
3 (a) Financial Highlights
(b) Inapplicable
(c) [Money Market Funds] The Funds; [Bond Funds] Investment
Return
(d) [Money Market Funds] Inapplicable; [Bond Funds] Financial
Highlights
4 Organization and Description of Shares; The Funds; How the
Funds Invest; Restrictions on the Funds' Investments; Risks
and Investment Considerations; Summary--Investment Risks;
[Bond Funds] Portfolio Investments and Strategies
5 (a) Management of the Funds--Trustees and Investment Adviser
(b) Management of the Funds--Trustees and Investment Adviser,
Fees and Expenses
(c) [Money Market Funds] Inapplicable; [Bond Funds] Management
of the Funds--Portfolio Managers
(d) Inapplicable
(e) Management of the Funds--Transfer Agent
(f) Management of the Funds--Fees and Expenses; Financial
Highlights
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see statement of
additional information: General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) Summaryr
(f) Shareholder Services; Distributions and Income Taxes
(g) Distributions and Income Taxes
(h) Inapplicable
7 How to Purchase Shares
(a) Management of the Funds--Distributor
(b) How to Purchase Shares--Purchase Price and Effective Date;
Net Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inapplicable
8 (a) How to Redeem Shares; Shareholder Services
(b) How to Purchase Shares--Purchases Through Third Parties
(c) How to Redeem Shares--General Redemption Policies
(d) How to Redeem Shares--General Redemption Policies
9 Inapplicable
PART A (DEFINED CONTRIBUTION PLAN PROSPECTUSES)
1 Front cover
2 Fee Table
3 (a) Financial Highlights
(b) Inapplicable
<PAGE> 3
(c) [Cash Reserves and Government Reserves] The Funds;
[Government Income Fund, Intermediate Bond Fund, Income
Fund, and Limited Maturity Income Fund] Investment Return
(d) [Cash Reserves and Government Reserves] Inapplicable;
[Government Income Fund, Intermediate Bond Fund, Income
Fund, and Limited Maturity Income Fund] Financial
Highlights
4 Organization and Description of Shares; The Fund; How the
Fund Invests; Restrictions on the Fund's Investments; Risks
and Investment Considerations; [Limited Maturity Income
Fund, Government Income Fund, Intermediate Bond Fund, and
Income Fund] Portfolio Strategies and Investments
5 (a) Management of the Fund--Trustees and Investment Adviser
(b) Management of the Fund--Trustees and Investment Adviser,
Fees and Expenses
(c) [Cash Reserves and Government Reserves] Inapplicable;
[Government Income Fund, Intermediate Bond Fund, Income
Fund, and Limited Maturity Income Fund] Management of the
Fund--Portfolio Manager[s]
(d) Inapplicable
(e) Management of the Fund--Transfer Agent
(f) Management of the Fund--Fees and Expenses; Financial
Highlights
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see statement of
additional information: General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) For More Information
(f) Distributions and Income Taxes
(g) Distributions and Income Taxes
(h) Inapplicable
7 How to Purchase Shares
(a) Management of the Fund--Distributor
(b) How to Purchase Shares; Net Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inapplicable
8 (a) How to Redeem Shares
(b) Inapplicable
(c) Inapplicable
(d) Inapplicable
9 Inapplicable
PART B STATEMENTS OF ADDITIONAL INFORMATION
10 Cover page
11 Table of Contents
12 General Information and History
13 Investment Policies; Portfolio Investments and Strategies;
Investment Restrictions
14 Management
15(a) Inapplicable
(b) Principal Shareholders
(c) Principal Shareholders
16(a) Investment Advisory Services; Management; see prospectus:
Management of the Fund[s]
<PAGE> 4
(b) Investment Advisory Services
(c) Inapplicable
(d) Investment Advisory Services
(e) Inapplicable
(f) Inapplicable
(g) Inapplicable
(h) Custodian; Independent Auditors
(i) Transfer Agent
17(a) Portfolio Transactions
(b) Inapplicable
(c) Portfolio Transactions
(d) [Money Market Funds] Inappicable; [Bond Funds] Portfolio
Transactions
(e) [Money Market Funds] Inappicable; [Bond Funds] Portfolio
Transactions
18 General Information and History
19(a) Purchases and Redemptions; see prospectus: How to Purchase
Shares, How to Redeem Shares, Shareholder Services
(b) Purchases and Redemptions; [Money Market Funds] Additional
Information on the Determination of Net Asset Value; see
prospectus: Net Asset Value
(c) Purchases and Redemptions
20 Additional Income Tax Considerations; [Bond Funds]
Portfolio Investments and Strategies--Taxation of Options
and Futures
21(a) Distributor
(b) Inapplicable
(c) Inapplicable
22 Investment Performance
23 Financial Statements
PART C
24 Financial Statements and Exhibits
25 Persons Controlled By or Under Common Control with
Registrant
26 Number of Holders of Securities
27 Indemnification
28 Business and Other Connections of Investment Adviser
29 Principal Underwriters
30 Location of Accounts and Records
31 Management Services
32 Undertakings
<PAGE> 1
CASH RESERVES
The Fund seeks to obtain maximum current income consistent with
capital preservation and maintenance of liquidity. The Fund
invests solely in money market instruments maturing in thirteen
months or less from the time of investment.
GOVERNMENT RESERVES
The Fund seeks to obtain maximum current income consistent with
safety of capital and maintenance of liquidity. The Fund invests
in U.S. Government Securities maturing in thirteen months or less
from the date of purchase and repurchase agreements for U.S.
Government Securities regardless of the maturities of such
securities. U.S. Government Securities include securities issued
or guaranteed by the U.S. Government or by its agencies or
instrumentalities.
Each Fund is a "no-load" money market fund and attempts to
maintain its net asset value at $1.00 per share. SHARES OF THE
FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT
AND THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
There are no sales or redemption charges, and the Funds have no
12b-1 plans. The Funds are series of the STEIN ROE INCOME TRUST.
This prospectus contains information you should know before
investing in the Funds. Please read it carefully and retain it
for future reference.
A Statement of Additional Information dated November 1, 1995,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at the address shown on the back cover or by calling 1
800 338-2550.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is November 1, 1995.
<PAGE> 2
TABLE OF CONTENTS
Page
Summary ................................2
Fee Table ..............................4
Financial Highlights....................5
The Funds...............................6
How the Funds Invest ...................7
Cash Reserves........................7
Government Reserves..................8
Restrictions on the Funds' Investments .9
Risks and Investment Considerations ...10
How to Purchase Shares.................11
By Check ...........................11
By Wire.............................11
By Electronic Transfer .............12
By Exchange ........................12
Purchase Price and Effective Date ..12
Conditions of Purchase .............13
Purchases Through Third Parties.....13
How to Redeem Shares ..................13
By Written Request .................13
By Exchange.........................14
Special Redemption Privileges ......14
General Redemption Policies.........16
Shareholder Services...................17
Net Asset Value........................19
Distributions and Income Taxes.........20
Management of the Funds................21
Organization and Description of Shares.22
Certificate of Authorization ..........24
SUMMARY
Stein Roe Government Reserves ("Government Reserves") and Stein
Roe Cash Reserves ("Cash Reserves") are series of the Stein Roe
Income Trust, an open-end diversified management investment
company organized as a Massachusetts business trust. The Funds
are "no-load" funds--there are no sales or redemption charges.
(See The Funds and Organization and Description of Shares.)
NET ASSET VALUE.
Each Fund attempts to maintain its price per share at $1.00.
There is no assurance that the Funds will always be able to do so.
(See Net Asset Value.)
INVESTMENT OBJECTIVES AND POLICIES.
Each Fund is a money market fund with the objective of seeking
maximum current income consistent with safety of capital and
maintenance of liquidity. Government Reserves pursues its
objective by investing in U.S. Government Securities maturing in
thirteen months or less from the date of purchase and repurchase
agreements for U.S.
<PAGE> 3
Government Securities (regardless of the maturities of such
securities). U.S. Government Securities include securities issued
or guaranteed by the U.S. Government or by its agencies or
instrumentalities. Cash Reserves pursues its objective by
investing in a wide range of high-quality U.S. dollar-denominated
money market instruments maturing in thirteen months or less from
the date of purchase. Under normal market conditions, Cash
Reserves will invest at least 25% of its total assets in
securities of issuers in the financial services industry. The
securities in which Cash Reserves may invest generally yield more
than the securities in which Government Reserves may invest. (See
How the Funds Invest.)
INVESTMENT RISKS.
Cash Reserves' policy of normally investing at least 25% of its
assets in securities of issuers in the financial services industry
may cause the Fund to be more adversely affected by changes in
market or economic conditions and other circumstances affecting
the financial services industry. In addition, since Cash
Reserves' investment policy permits it to invest in securities of
foreign branches of U.S. banks, U.S. branches of foreign banks,
and foreign banks and their foreign branches, such as negotiable
certificates of deposit (Eurodollar CDs), and securities of
foreign governments, investment in that Fund might involve risks
that are different in some respects from an investment in a fund
that invests only in debt obligations of U.S. domestic issuers.
Because Government Reserves' investment policy permits it to
invest in / Securities that are not backed by the full faith and
credit of the U.S. Treasury, investment in that Fund might involve
risks that are different in some respects from an investment in a
fund that invests only in securities that are backed by the full
faith and credit of the U.S. Treasury. (For a discussion of
risks, see Risks and Investment Considerations.)
PURCHASES.
The minimum initial investment for each Fund is $2,500, and
additional investments must be at least $100 (only $50 for
purchases by electronic transfer). Shares may be purchased by
check, by bank wire, by electronic transfer, or by exchange from
another Stein Roe Fund. For more detailed information, see How to
Purchase Shares.
REDEMPTIONS.
For information on redeeming Fund shares, including the special
redemption privileges, see How to Redeem Shares.
DISTRIBUTIONS.
Dividends are declared each business day and are paid monthly.
Dividends will be reinvested into your Fund account unless you
elect to have them paid in cash, deposited by electronic transfer
into your bank checking account, or invested into another Stein
Roe Fund account. (See Distributions and Income Taxes and
Shareholder Services.)
ADVISER AND FEES.
Stein Roe & Farnham Incorporated (the "Adviser") is investment
adviser to the Funds. For a description of the Adviser and the
advisory fees paid by the Funds, see Management of the Funds.
<PAGE> 4
If you have any additional questions about the Funds, please feel
free to discuss them with an account representative by calling 1
800 338-2550.
FEE TABLE
Cash Government
Reserves Reserves
--------- ----------
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None
Sales Load Imposed on Reinvested Dividends None None
Deferred Sales Load None None
Redemption Fees None* None*
Exchange Fees None None
ANNUAL FUND OPERATING EXPENSES (after
expense reimbursement in the case of
Government Reserves) (as a percentage
of average net assets)
Management Fees (after expense reimburse-
ment in the case of Government Reserves) 0.50% 0.45%
12b-1 Fees None None
Other Expenses 0.22% 0.25%
----- ------
Total Fund Operating Expenses (after
expense reimbursement in the case of
Government Reserves) 0.72% 0.70%
----- ------
----- ------
____________________
*There is a $3.50 charge for wiring redemption proceeds to your
bank.
EXAMPLES.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Cash Reserves $7 $23 $40 $89
Government Reserves 7 22 39 87
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in a Fund. The table is based upon
actual expenses incurred in the last fiscal year, except for Cash
Reserves, which has been adjusted to reflect changes in the Fund's
transfer agency services and fees. (Also see Management of the
Funds--Fees and Expenses.) From time to time, the Adviser may
voluntarily absorb certain expenses of a Fund. The Adviser has
agreed to voluntarily absorb the expenses of Government Reserves
to the extent that the Fund's expenses exceed 0.7 of 1% of its
annual average net assets through October 31, 1996, subject to
earlier termination by the Adviser on 30 days' notice. Any such
absorption will temporarily lower the Fund's overall expense ratio
and increase its overall return to investors. Absent such expense
undertaking, Total Fund Operating Expenses for Government Reserves
would have been 0.75%.
For purposes of the Examples above, the figures assume that the
percentage amounts for the respective Funds listed under Annual
Fund Operating Expenses remain the same during each of the
periods, that all income dividends and capital gain distributions
are reinvested in additional Fund shares, and that, for purposes
of management fee breakpoints, if any, the Funds' respective net
assets remain at the same levels as in the most recently completed
fiscal year.
<PAGE> 5
The figures in the Examples are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown above
is useful in reviewing the Funds' expenses and in providing a
basis for comparison with other mutual funds, it should not be
used for comparison with other investments using different
assumptions or time periods.
FINANCIAL HIGHLIGHTS
The tables below reflect the results of operations of the Funds on
a per-share basis and have been audited by Ernst & Young LLP,
independent auditors. These tables should be read in conjunction
with the financial statements and notes thereto, which may be
obtained from the Trust upon request without charge.
CASH RESERVES
<TABLE>
<CAPTION>
Six
Months
Ended
Years Ended December 31, June 30, Years Ended June 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net investment income 0.075 0.061 0.060 0.032 0.081 0.079 0.068 0.044 0.028 0.028 0.048
Distributions from net
investment income (0.075) (0.061) (0.060) (0.032) (0.081) (0.079) (0.068) (0.044) (0.028) (0.028) (0.048)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
NET ASSET VALUE,
END OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Ratio of expenses to
average net assets 0.72% 0.72% 0.72% *0.70% 0.75% 0.76% 0.78% 0.78% 0.79% 0.79% 0.76%
Ratio of net investment
income to average net
assets 7.55% 6.05% 6.02% *6.36% 8.13% 7.94% 6.81% 4.40% 2.81% 2.77% 4.83%
Total return 7.79% 6.25% 6.15% *6.43% 8.41% 8.20% 6.98% 4.49% 2.83% 2.81% 4.96%
Net assets, end of
period (000 omitted) $738,634 $814,544 $962,901 $930,074 $948,018 $949,803 $840,525 $711,087 $627,110 $554,713 $498,163
<FN>
*Annualized.
</TABLE>
GOVERNMENT RESERVES
<TABLE>
<CAPTION>
Years Ended June 30,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income 0.064 0.050 0.058 0.080 0.078 0.066 0.044 0.027 0.027 0.047
Distributions from net
investment income (0.064) (0.050) (0.058) (0.080) (0.078) (0.066) (0.044) (0.027) (0.027) (0.047)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of net expenses to
average net assets (a) 1.03% 1.03% 0.87% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment
income to average net
assets (b) 6.35% 4.97% 5.75% 8.02% 7.79% 6.41% 4.27% 2.75% 2.71% 4.65%
Total return 6.57% 5.11% 5.90% 8.27% 8.05% 6.74% 4.45% 2.78% 2.74% 4.78%
Net assets, end of
period (000 omitted) $33,232 $34,799 $41,787 $50,185 $53,400 $102,860 $132,982 $104,220 $105,488 $93,318
<FN>
<PAGE> 6
(a) If Government Reserves had paid all of its expenses and there
had been no reimbursement of expenses by the Adviser, this
ratio would have been 1.07%, 1.05%, 1.04%, 0.93%, 0.98%, 0.83%,
0.79%, 0.76%, 0.75% and 0.75% for the years ended June 30, 1985
and 1986, and 1988 through 1995, respectively.
(b) Computed giving effect to the Adviser's expense limitation
undertaking.
</TABLE>
THE FUNDS
STEIN ROE CASH RESERVES ("Cash Reserves") and STEIN ROE GOVERNMENT
RESERVES ("Government Reserves") (collectively, the "Funds") are
no-load, diversified "mutual funds." Mutual funds sell their own
shares to investors and use the money they receive to invest in a
portfolio of securities. A mutual fund allows you to pool your
money with that of other investors in order to obtain professional
investment management. Mutual funds generally make it possible
for you to obtain greater diversification of your investments and
simplify your recordkeeping. Because the Funds invest only in
money market instruments, they are called "money market funds."
No-load funds do not impose commissions or charges when shares are
purchased or redeemed.
The Funds are series of the Stein Roe Income Trust (the "Trust"),
an open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
Although there can be no assurance that it will always be able to
do so, each Fund follows procedures designed to stabilize its
price per share at $1.00. The Statement of Additional Information
describes these procedures.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and recordkeeping and
accounting services to the Funds. The Adviser also manages
several other no-load mutual funds with different investment
objectives, including international funds, equity funds and
taxable and tax-exempt bond funds. To obtain prospectuses and
other information on any of those mutual funds, please call 1 800
338-2550.
Because the Funds strive to maintain a $1.00 per share value,
their return is usually quoted either as a current seven-day
yield, calculated by totaling the dividends on a Fund share for
the previous seven days and restating that yield as an annual
rate, or as an effective yield, calculated by adjusting the
current yield to assume daily compounding. Cash Reserves' current
and effective yields for the seven-day period ended September 30,
1995, were ____% and ____%, respectively. Government Reserves'
current and effective yields for the seven-day period ended
September 30, 1995, were ____% and ____%, respectively. Absent
the expense limitation referred to above, current and effective
yields for Government Reserves for the seven-day period ended
September 30, 1995, would have been ____% and ___%, respectively.
To obtain current yield information, you may call 1 800 338-2550
or write to the address shown on the back cover.
<PAGE> 7
The Funds may also quote total return figures from time to time.
The total return from an investment in a Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
Comparison of a Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. Past performance is not
necessarily indicative of future results.
HOW THE FUNDS INVEST
CASH RESERVES.
The Fund seeks to obtain maximum current income consistent with
the preservation of capital and the maintenance of liquidity by
investing all of its assets in U.S. dollar-denominated money
market instruments maturing in thirteen months or less from time
of investment. Each security must be rated (or be issued by an
issuer that is rated with respect to its short-term debt) within
the highest rating category for short-term debt by at least two
nationally recognized statistical rating organizations ("NRSRO"),
or, if unrated, determined by or under the direction of the Board
of Trustees to be of comparable quality. These securities may
include:
(1) Securities issued or guaranteed by the U.S. Government or by
its agencies or instrumentalities ("U.S. Government
Securities").
(2) Securities issued or guaranteed by the government of any
foreign country that are rated at time of purchase A or better
(or equivalent rating) by at least one NRSRO. /1/
(3) Certificates of deposit, bankers' acceptances and time
deposits of any bank (U.S. or foreign) having total assets in
excess of $1 billion, or the equivalent in other currencies
(as of the date of the most recent available financial
statements) or of any branches, agencies or subsidiaries (U.S.
or foreign) of any such bank.
(4) Commercial paper of U.S. or foreign issuers.
(5) Notes, bonds, and debentures rated at time of purchase A or
better (or equivalent rating) by at least one NRSRO.
(6) Repurchase agreements /2/ involving securities listed in (1)
above.
------------------
/1/ For a description of certain NRSRO commercial paper, note, and
bond ratings, see the Appendix to the Statement of Additional
Information.
/2/ A sale of securities to the Fund in which the seller (a bank
or securities dealer which the Adviser believes to be financially
sound) agrees to repurchase the securities at a higher price,
which includes an amount representing interest on the purchase
price, within a specified time.
------------------
<PAGE> 8
(7) Other high-quality short-term obligations.
In accordance with its investment objectives and policies, the
Fund may invest in variable and floating rate money market
instruments which provide for periodic or automatic adjustment in
coupon interest rates that are reset based on changes in amount
and directions of specified short-term interest rates.
Under normal market conditions, the Fund will invest at least 25%
of its total assets in securities of issuers in the financial
services industry (which includes, but is not limited to, banks,
personal credit and business credit institutions, and other
financial services institutions).
The Fund maintains a dollar-weighted average portfolio maturity
appropriate to its objective of maintaining a stable net asset
value per share, and not in excess of 90 days. It is a
fundamental policy /3/ that the maturity of any instrument that
grants the holder an optional right to redeem at par plus interest
and without penalty will be deemed at any time to be the next date
provided for payment on exercise of such optional redemption
right.
GOVERNMENT RESERVES.
The Fund seeks to obtain maximum current income consistent with
safety of capital and maintenance of liquidity by investment in
U.S. Government Securities maturing in thirteen months or less
from the date of purchase. These securities include:
(1) Securities issued by the U.S. Treasury.
(2) Securities issued or guaranteed as to principal and interest
by agencies or instrumentalities of the U.S. Government that
are backed by the full faith and credit guarantee of the U.S.
Government.
(3) Securities issued or guaranteed as to principal and interest
by agencies or instrumentalities of the U.S. Government that
are not backed by the full faith and credit guarantee of the
U.S. Government.
(4) Repurchase agreements for securities listed in (1), (2), and
(3) above, regardless of the maturities of such underlying
securities.
In accordance with its investment objectives and policies, the
Fund may invest in variable and floating rate money market
instruments which provide for periodic or automatic adjustment in
coupon interest rates that are reset based on changes in amount
and directions of specified short-term interest rates.
The U.S. Government Securities in which the Fund is permitted to
invest include: (i) bills, notes, bonds, and other debt
securities, differing as to maturity and rates of interest, that
are issued by and are direct obligations of the U.S. Treasury; and
(ii) other securities that are issued or guaranteed as to
principal and interest by agencies or
--------------------
/3/A fundamental policy may be changed only with the approval of a
"majority of the outstanding voting securities" of a Fund as
defined in the Investment Company Act of 1940.
-------------------
<PAGE> 9
instrumentalities of the U.S. Government and that include, but are
not limited to, Federal Farm Credit Banks, Federal Home Loan
Banks, Government National Mortgage Association, Farmers Home
Administration, Federal Home Loan Mortgage Corporation, and
Federal National Mortgage Association.
RESTRICTIONS ON THE FUNDS' INVESTMENTS
Neither Fund will: (1) invest more than 10% of its net assets in
illiquid securities, including repurchase agreements maturing in
more than seven days (however, there is otherwise no limitation on
the percentage of a Fund's assets which may be invested in
repurchase agreements); or (2) with respect to 75% of its total
assets, invest more than 5% of its total assets in the securities
of any one issuer except that this restriction does not apply to
U.S. Government Securities or repurchase agreements for such
securities. Notwithstanding the limitation on investment in a
single issuer, each Fund may invest 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.
Neither Fund may make loans except that each Fund may invest in
money market securities and enter into repurchase agreements.
Neither Fund may borrow money, except as a temporary measure for
extraordinary or emergency purposes, and then the aggregate
borrowings at any one time may not exceed 33 1/3% of its assets
(at market value). A Fund may not purchase additional securities
when its borrowings, less proceeds receivable from sales of
portfolio securities, exceed 5% of total assets.
The policies described in the preceding two paragraphs, which
summarize certain important investment restrictions of the Funds,
and Cash Reserves' policy with respect to concentration of
investment in the financial services industry, can be changed only
with the approval of a "majority of the outstanding voting
securities" of a Fund, as defined in the Investment Company Act of
1940. All of the investment restrictions are set forth in the
Statement of Additional Information.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. There can be no
guarantee that a Fund will achieve its objective or be able at all
times to maintain its net asset value per share at $1.00.
In the event of a bankruptcy or other default of a seller of a
repurchase agreement, a Fund could experience both delays in
liquidating the underlying securities and losses, including: (a)
possible decline in the value of the collateral during the period
while the Fund seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing its rights.
Each Fund's investment objective is not fundamental and may be
changed by the Board of Trustees without a vote of shareholders.
If there is a change in a Fund's investment objective,
shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial
position and needs.
<PAGE> 10
Cash Reserves' policy of investing at least 25% of its assets in
securities of issuers in the financial services industry may cause
the Fund to be more adversely affected by changes in market or
economic conditions and other circumstances affecting the
financial services industry. Because Cash Reserves' investment
policy permits it to invest in: securities of foreign branches of
U.S. banks (Eurodollars), U.S. branches of foreign banks (Yankee
dollars), and foreign banks and their foreign branches, such as
negotiable certificates of deposit; securities of foreign
governments; and securities of foreign issuers, such as commercial
paper and corporate notes, bonds and debentures, investment in
that Fund might involve risks that are different in some respects
from an investment in a fund that invests only in debt obligations
of U.S. domestic issuers. Such risks may include future political
and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on securities held in
the portfolio, possible seizure or nationalization of foreign
deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions that might
adversely affect the payment of principal and interest on
securities in the portfolio. Additionally, there may be less
public information available about foreign banks and their
branches. Foreign banks and foreign branches of foreign banks are
not regulated by U.S. banking authorities, and generally are not
bound by accounting, auditing, and financial reporting standards
comparable to U.S. banks.
Because Government Reserves' investment policy permits it to
invest in U.S. Government Securities that are not backed by the
full faith and credit of the U.S. Treasury, investment in that
Fund may involve risks that are different in some respects from an
investment in a fund that invests only in securities that are
backed by the full faith and credit of the U.S. Treasury. Such
risks may include a greater risk of loss of principal and interest
on the securities in the Fund's portfolio that are supported only
by the issuing or guaranteeing U.S. Government agency or
instrumentality since the Fund must look principally or solely to
that entity for ultimate repayment.
Each Fund may invest in securities purchased on a when-issued or
delayed-delivery basis. Although the payment terms of these
securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed and the yields then available in the market may be
greater. The Funds will make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if it is deemed advisable for
investment reasons.
Each Fund may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Fund binds itself to accept delivery of a security at the
option of the other party to the agreement.
The securities in which Cash Reserves may invest generally yield
more than the securities in which Government Reserves may invest.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in money market securities directly, each Fund
may in the future seek to achieve its investment objective by
pooling its assets with assets of other mutual
<PAGE> 11
funds managed by the Adviser for investment in another investment
company having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater operational
efficiencies and reduce costs. It is expected that any such
investment company would be managed by the Adviser in
substantially the same manner as the Fund. Shareholders of a Fund
will be given at least 30 days' prior notice of any such
investment, although they will not be entitled to vote on the
action. Such investment would be made only if the Trustees
determine it to be in the best interests of the Fund and its
shareholders.
HOW TO PURCHASE SHARES
You may purchase shares of either Fund by check, by wire, by
electronic transfer, or by exchange from your account with another
Stein Roe Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
("UGMA") accounts is $1,000; the minimum for accounts established
under an automatic investment plan (i.e., Regular Investments,
Dividend Purchase Option, or the Automatic Exchange Plan) is
$1,000 for regular accounts and $500 for UGMA accounts; and the
minimum per account for Stein Roe IRAs is $500. The initial
purchase minimum is waived for shareholders who participate in the
Stein Roe Counselor [service mark] or Stein Roe Counselor
Preferred [service mark] Programs and for clients of the Adviser.
Subsequent purchases must be at least $100, or at least $50 if you
purchase by electronic transfer. If you wish to purchase shares
to be held by a tax-sheltered retirement plan sponsored by the
Adviser, you must obtain special forms for those plans. (See
Shareholder Services.)
BY CHECK.
To make an initial purchase of shares of a Fund, please complete
and sign the Application and mail it to P.O. Box 804058, Chicago,
Illinois 60680, together with a check made payable to Stein Roe
Funds.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $100, and
the Trust generally will not accept cash, drafts, third party
checks, or checks drawn on banks outside of the United States.
Should an order to purchase shares of a Fund be cancelled because
your check does not clear, you will be responsible for any
resulting loss incurred by that Fund.
BY WIRE.
You may also pay for shares by instructing your bank to wire
federal funds (monies of member banks within the Federal Reserve
System) to the Funds' custodian bank. Your bank may charge you a
fee for sending the wire. If you are opening a new account by
wire transfer, you must first telephone the Trust to request an
account number and furnish your social security or other tax
identification number. Neither the Funds nor the Trust will be
responsible for the consequences of delays, including delays in
the banking or Federal Reserve wire systems. Your bank must
include the full name(s) in
<PAGE> 12
which your account is registered and your Fund account number, and
should address its wire as follows:
State Street Bank and Trust Company
Boston, Massachusetts
ABA Routing No. 011000028
Attention: Custody
Fund No. ____; Stein Roe _____ Reserves
Account of (exact name(s) in registration)
Shareholder Account No. ___________
Fund Numbers:
7102--Cash Reserves
7109--Government Reserves
BY ELECTRONIC TRANSFER.
You may also make subsequent investments by an electronic transfer
of funds from your bank checking account. Electronic transfer
allows you to make purchases at your request ("Special
Investments") by calling 1 800 338-2550 or at pre-scheduled
intervals ("Regular Investments"). (See Shareholder Services.)
Electronic transfer purchases are subject to a $50 minimum and a
$100,000 maximum. You may not open a new account through
electronic transfer. Should an order to purchase shares of a Fund
be cancelled because your electronic transfer does not clear, you
will be responsible for any resulting loss incurred by that Fund.
BY EXCHANGE.
You may purchase shares by exchange of shares from another Stein
Roe Fund account either by phone (if the Telephone Exchange
Privilege has been established on the account from which the
exchange is being made), by mail, in person, or automatically at
regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information under How to
Redeem Shares--By Exchange.
PURCHASE PRICE AND EFFECTIVE DATE.
Each purchase of a Fund's shares is made at that Fund's net asset
value (see Net Asset Value) as follows:
Check purchases--net asset value next determined after your check
is converted into federal funds (currently one business day after
receipt of your check). Your investment will begin earning
dividends on the day of purchase.
Wire purchases--net asset value next determined after receipt of
the wire. If your wire is received before 11:00 a.m., Chicago
time, your investment will begin earning dividends on the day of
purchase. If your wire is received at or after 11:00 a.m.,
Chicago time, your investment will begin earning dividends on the
following day.
Electronic transfer--net asset value next determined after the
Fund receives the electronic transfer from your bank. A Special
Electronic Transfer Investment order received by telephone on a
business day before 2:00 p.m., Chicago time, is effective on the
next
<PAGE> 13
business day. Your investment will begin earning dividends on the
day following the date of purchase.
CONDITIONS OF PURCHASE.
Each purchase order for a Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of that Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; however, you
may redeem the shares. The Trust reserves the right not to accept
any purchase order that it determines not to be in the best
interest of the Trust or of a Fund's shareholders. The Trust also
reserves the right to waive or lower its investment minimums for
any reason. The Trust does not issue certificates for shares.
PURCHASES THROUGH THIRD PARTIES.
You may purchase (or redeem) shares through investment dealers,
banks, or other financial institutions. These institutions may
charge for their services or place limitations on the extent to
which you may use the services offered by the Trust. There are no
charges or limitations imposed by the Trust (other than those
described in this prospectus) if shares are purchased (or
redeemed) directly from the Trust.
Some financial institutions which maintain nominee accounts with
the Funds for their clients who are Fund shareholders charge an
annual fee of up to 0.25% of the average net assets held in such
accounts for accounting, servicing, and distribution services they
provide with respect to the underlying Fund shares. A Fund may
pay a portion of those fees not to exceed the fees and expenses
the Fund would pay to its transfer agent if the shares held in
nominee name were registered on the Fund's books in the individual
names of the owners of such shares. The balance of such fees are
paid by the Adviser.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST.
You may redeem all or a portion of your shares of a Fund by
submitting a written request in "good order" to the Trust at P.O.
Box 804058, Chicago, Illinois 60680. A redemption request will be
considered to have been received in good order if the following
conditions are satisfied:
(1) the request must be in writing, indicate the number of shares
or dollar amount to be redeemed, and identify the shareholder's
account number;
(2) the request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) the request must be accompanied by any certificates for the
shares, either properly endorsed for transfer, or accompanied
by a stock assignment properly endorsed exactly as the shares
are registered;
(4) the signatures on either the written redemption request or the
certificates (or the accompanying stock power) must be
guaranteed (a signature guarantee is not a notarization, but is
a widely accepted way to protect you and the Funds by verifying
your signature);
<PAGE> 14
(5) corporations and associations must submit with each request a
completed Certificate of Authorization included in this
prospectus (or a form of resolution acceptable to the Trust);
and
(6) other supporting legal documents may be required from
organizations, executors, administrators, trustees, or others
acting on accounts not registered in their names.
BY EXCHANGE.
You may redeem all or any portion of your Fund shares and use the
proceeds to purchase shares of any other Stein Roe Fund offered
for sale in your state if your signed, properly completed
Application is on file. AN EXCHANGE TRANSACTION IS A SALE AND
PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND MAY RESULT
IN CAPITAL GAIN OR LOSS. Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. The
registration of the account to which you are making an exchange
must be exactly the same as that of the Fund account from which
the exchange is made and the amount you exchange must meet any
applicable minimum investment of the Stein Roe Fund being
purchased. Unless you have elected to receive your dividends in
cash, on an exchange of all shares, any accrued unpaid dividends
will be invested in the Stein Roe Fund to which you exchange on
the next business day. An exchange may be made by following the
redemption procedure described above under By Written Request and
indicating the Stein Roe Fund to be purchased, except that a
signature guarantee normally is not required. (See also the
discussion below of the Telephone Exchange Privilege and Automatic
Exchanges.)
SPECIAL REDEMPTION PRIVILEGES.
The Telephone Exchange Privilege and the Telephone Redemption by
Check Privilege will be established automatically for you when you
open your account unless you decline these Privileges on your
Application. Other Privileges must be specifically elected. If
you do not want the Telephone Exchange and Redemption Privileges,
check the box(es) under the section "Telephone Redemption Options"
when completing your Application. In addition, a signature
guarantee may be required to establish a Privilege after you open
your account. If you establish both the Telephone Redemption by
Wire Privilege and the Electronic Transfer Privilege, the bank
account that you designate for both Privileges must be the same.
You may not use any of the Special Redemption Privileges if you
hold certificates for any of your Fund shares. The Telephone
Redemption by Check, Telephone Redemption by Wire and Check-
Writing Privileges, and Special Electronic Transfer Redemptions
are not available to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser. (See also General
Redemption Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 1 800 338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the $2,500 initial purchase
minimum. GENERALLY, YOU WILL BE LIMITED TO FOUR TELEPHONE
EXCHANGE ROUND-TRIPS PER YEAR AND THE FUNDS MAY REFUSE REQUESTS
FOR TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A ROUND-
TRIP BEING THE EXCHANGE OUT OF A FUND INTO ANOTHER
<PAGE> 15
STEIN ROE FUND, AND THEN BACK TO THAT FUND). Also, the Trust's
general redemption policies apply to redemptions of shares by
Telephone Exchange. (See General Redemption Policies.)
The Trust reserves the right at any time without prior notice to
suspend or terminate the use of the Telephone Exchange Privilege
by any person or class of persons. The Trust believes that use of
the Telephone Exchange Privilege by investors utilizing market-
timing strategies adversely affects the Funds. THEREFORE, THE
TRUST GENERALLY WILL NOT HONOR REQUESTS FOR TELEPHONE EXCHANGES BY
SHAREHOLDERS IDENTIFIED BY THE TRUST AS "MARKET-TIMERS."
Moreover, the Trust reserves the right at any time without prior
notice to suspend, limit, modify, or terminate the Telephone
Exchange Privilege in its entirety. Because such a step would be
taken only if the Board of Trustees believes it would be in the
best interests of the Funds, the Trust expects that it would
provide shareholders with prior written notice of any such action
unless it appears that the resulting delay in the suspension,
limitation, modification, or termination of the Telephone Exchange
Privilege would adversely affect the Funds. IF THE TRUST WERE TO
SUSPEND, LIMIT, MODIFY, OR TERMINATE THE TELEPHONE EXCHANGE
PRIVILEGE, A SHAREHOLDER EXPECTING TO MAKE A TELEPHONE EXCHANGE
MIGHT FIND THAT AN EXCHANGE COULD NOT BE PROCESSED OR THAT THERE
MIGHT BE A DELAY IN THE IMPLEMENTATION OF THE EXCHANGE. (See How
to Redeem Shares--By Exchange.) During periods of volatile
economic and market conditions, you may have difficulty placing
your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange Privilege
to automatically redeem a fixed amount from your Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 1 800 338-2550. The
proceeds will be sent by check to your registered address.
Telephone Redemption by Wire Privilege. You may use this
Privilege to redeem an amount of $1,000 or more from your account
by calling 1 800 338-2550. The proceeds will be transmitted by
wire to your account at a commercial bank previously designated by
you that is a member of the Federal Reserve System. The fee for
wiring proceeds (currently $3.50 per transaction) will be deducted
from the amount wired.
Check-Writing Privilege. You may also redeem shares by writing
special checks in the amounts of $50 or more. Your checks are
drawn against a special checking account maintained with the
custodian, and you will be subject to the custodian's procedures
and rules relating to its checking accounts and to this Privilege.
Electronic Transfer Privilege. You may redeem shares by calling 1
800 338-2550 and requesting an electronic transfer ("Special
Redemption") of the proceeds to a checking account previously
designated by you at a bank that is a member of the Automated
Clearing House or at scheduled intervals ("Automatic Redemptions"-
-see Shareholder Services). Electronic transfers are subject to a
$50 minimum and a $100,000 maximum. A Special Redemption request
received by telephone after 2:00 p.m., Chicago time, is deemed
received on the next business day.
<PAGE> 16
GENERAL REDEMPTION POLICIES.
You may not cancel or revoke your redemption order once
instructions have been received and accepted. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions. Please telephone
the Trust if you have any questions about requirements for a
redemption before submitting your request. If you wish to redeem
shares held by a tax-sheltered retirement plan sponsored by the
Adviser, special procedures of those plans apply. (See
Shareholder Services--Tax-Sheltered Retirement Plans.) The Trust
reserves the right to require a properly completed Application
before making payment for shares redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon that Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares, even though
each Fund attempts to maintain its net asset value at $1.00
(rounded to the nearest one cent), and may result in a realized
capital gain or loss.
The Trust normally intends to pay proceeds of a redemption within
two business days and generally no later than seven days after
proper instructions are received. If a request for Telephone
Redemption by Wire is received before 11:00 a.m., Chicago time,
the proceeds will be paid on the day the order is received;
proceeds of an order received at or after 11:00 a.m., Chicago
time, will be paid on the next business day. The Trust will not
be responsible for the consequences of delays, including delays in
the mail, banking, or Federal Reserve wire systems. If you
attempt to redeem shares within 15 days after they have been
purchased by check or electronic transfer, the Trust may delay
payment of the redemption proceeds to you until it can verify that
payment for the purchase of those shares has been (or will be)
collected. To reduce such delays, the Trust recommends that your
purchase be made by federal funds wire through your bank.
The Trust reserves the right at any time without prior notice to
suspend, limit, modify, or terminate any Privilege or its use in
any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Funds employ
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Funds and
their transfer agent to tape-record all instructions to redeem.
In addition, callers are asked to identify the account number and
registration, and may be required to provide other forms of
identification. Written confirmations of transactions are mailed
promptly to the registered address; a legend on the confirmation
requests the shareholder to review the transactions and inform the
Fund immediately if there is a problem. If a Fund does not follow
reasonable procedures for
<PAGE> 17
protecting shareholders against loss on telephone transactions, it
may be liable for any losses due to unauthorized or fraudulent
instructions.
Generally, you may not use the Exchange Privilege or any Special
Redemption Privilege to redeem shares purchased by check (other
than certified or cashiers' checks) or electronic transfer until
15 days after their date of purchase.
The Trust reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not
have a value of at least $1,000. A shareholder would be notified
that his account is below the minimum and allowed 30 days to
increase the account before the redemption is processed.
Shares in any account you maintain with a Fund or any of the other
Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers or any Stein Roe Fund liability under the
Internal Revenue Code provisions on backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS.
You will receive a confirmation statement reflecting each of your
purchases and redemptions of shares of a Fund, as well as periodic
statements detailing distributions made by that Fund. Shares
purchased by reinvestment of dividends, by cross-reinvestment of
dividends from another Fund, or pursuant to an automatic
investment plan will be confirmed to you quarterly. In addition,
the Trust will send you semiannual and annual reports showing Fund
portfolio holdings and will provide you annually with tax
information.
FUNDS-ON-CALL [REGISTERED TRADEMARK] 24-HOUR INFORMATION SERVICE.
To access the Stein Roe Funds-on-Call [registered trademark]
automated telephone service, just call 1 800 338-2550 on any
touch-tone telephone and follow the recorded instructions. Funds-
on-Call [registered trademark] provides yields, prices, latest
dividends, account balances, last transaction, and other
information 24 hours a day, seven days a week.
FUNDS-ON-CALL [REGISTERED TRADEMARK] AUTOMATED TELEPHONE
TRANSACTIONS.
If you have established the Funds-on-Call [registered trademark]
transaction privilege (Funds-on-Call [registered trademark]
Application will be required), you may initiate Special
Investments and Redemptions, Telephone Exchanges, and Telephone
Redemptions by Check 24 hours a day, seven days a week by calling
1 800 338-2550 on a touch-tone telephone. These transactions are
subject to the terms and conditions of the individual privileges.
(See How to Purchase Shares and How to Redeem Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM.
The Adviser offers a Stein Roe Counselor [service mark] and a
Stein Roe Counselor Preferred [service mark] program. The
programs are designed to provide investment guidance in helping
investors to select a portfolio of Stein Roe Mutual Funds. The
Stein Roe Counselor
<PAGE> 18
Preferred [service mark] program, which automatically adjusts
client portfolios, has a fee of up to 1% of assets.
RECORDKEEPING AND ADMINISTRATION SERVICES.
If you oversee or administer investments for a group of investors,
we offer a variety of services.
TAX-SHELTERED RETIREMENT PLANS.
Booklets describing the following programs and special forms
necessary for establishing them are available on request. You may
use all of the Stein Roe Funds, except those investing primarily
in tax-exempt securities, in these plans. Please read the
prospectus for each fund in which you plan to invest before making
your investment.
Individual Retirement Accounts ("IRAs") for employed persons and
their non-employed spouses.
Prototype Money Purchase Pension and Profit-Sharing Plans for
self-employed individuals, partnerships, and corporations.
Simplified Employee Pension Plans permitting employers to provide
retirement benefits to their employees by utilizing IRAs while
minimizing administration and reporting requirements.
SPECIAL SERVICES.
The following special services are available to shareholders.
Please call 1 800 338-2550 or write the Trust for additional
information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size that each distribution will usually be at least
$25. The account into which distributions are to be invested may
be opened with an initial investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank checking account.
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your Application. (See How to Redeem Shares--Special
Redemption Privileges.)
Telephone Redemption by Wire Privilege--to redeem shares from your
account by phone and have the proceeds transmitted by wire to your
checking account ($1,000 minimum).
Check-Writing Privilege--to redeem shares by writing special
checks against your Fund account ($50 minimum per check).
<PAGE> 19
Special Redemption Option (electronic transfer)--to redeem shares
at any time and have the proceeds deposited directly to your bank
checking account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--to purchase Fund shares
at regular intervals directly from your bank checking account ($50
minimum; $100,000 maximum).
Special Investments (electronic transfer)--to purchase Fund shares
by telephone and pay for them by electronic transfer of funds from
your checking account ($50 minimum; $100,000 maximum).
Automatic Exchange Plan--to automatically redeem a fixed dollar
amount from your Fund account and invest it in another Stein Roe
Fund account on a regular basis ($50 minimum; $100,000 maximum).
Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank checking account ($50 minimum; $100,000 maximum).
Systematic Withdrawals--to have a fixed dollar amount, declining
balance, or fixed percentage of your account redeemed and sent at
regular intervals by check to you or another payee.
NET ASSET VALUE
The purchase and redemption price of each Fund's shares is its net
asset value per share. The net asset value of a share of each
Fund is normally determined twice each day: at 11:00 a.m., Chicago
time, and as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., Chicago time). The net asset value
per share is computed by dividing the difference between the
values of the Fund's assets and liabilities by the number of
shares outstanding and rounding to the nearest cent. Net asset
value will not be determined on days when the Exchange is closed
unless, in the judgment of the Board of Trustees, the net asset
value of a Fund should be determined on any such day, in which
case the determination will be made at 3:00 p.m., Chicago time.
Each Fund attempts to maintain its net asset value at $1.00 per
share. Portfolio securities are valued based on their amortized
cost, which does not take into account unrealized gains or losses.
Other assets and securities of a Fund for which this valuation
method does not produce a fair value are valued at a fair value
determined by the Board. The extent of any deviation between the
Fund's net asset value based upon market quotations or equivalents
and $1.00 per share based on amortized cost will be examined by
the Board of Trustees. If such deviation were to exceed 1/2 of
1%, the Board would consider what action, if any, should be taken,
including selling portfolio instruments, increasing, reducing or
suspending distributions, or redeeming shares in kind.
<PAGE> 20
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
A dividend from net income of a Fund is declared each business day
to shareholders of record immediately before 3:00 p.m., Chicago
time. (See How to Purchase Shares.) Dividends are paid monthly
and confirmed at least quarterly. If a Fund's net asset value per
share were to decline, or were believed likely to decline, below
$1.00 (rounded to the nearest cent), the Board might temporarily
reduce or suspend dividends in an effort to maintain net asset
value at $1.00 per share.
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check, (2) deposited by
electronic transfer into your bank checking account, (3) applied
to purchase shares in your account with another Stein Roe Fund, or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment
normally occurs on the payable date. The Trust reserves the right
to reinvest the proceeds and future distributions in additional
Fund shares if checks mailed to you for distributions are returned
as undeliverable or are not presented for payment within six
months.
INCOME TAXES.
Your distributions will be taxable to you, under income tax law,
whether received in cash or reinvested in additional shares. For
federal income tax purposes, any distribution that is paid in
January but was declared in the prior calendar year is deemed paid
in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gain.
Distributions of net long-term capital gain will be taxable to you
as long-term capital gain regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions.
If you are not subject to tax on your income, you will not be
required to pay tax on these amounts. Because each Fund's
investment income consists primarily of interest, it is expected
that none of the dividends paid by the Funds will qualify under
the Internal Revenue Code for the dividends received deduction
available to corporations.
For federal income tax purposes, each Fund is treated as a
separate taxable entity distinct from the other series of the
Trust.
This section is not intended to be a full discussion of income tax
laws and their effect on shareholders. You may wish to consult
your own tax advisor.
BACKUP WITHHOLDING.
If (a) you fail to (i) furnish your properly certified social
security or other tax identification number or (ii) certify that
your tax identification number is correct or that you are not
subject to backup withholding due to the underreporting of certain
income, or (b) the Internal Revenue Service informs the Trust that
your tax identification
<PAGE> 21
number is incorrect, the Trust may be required to withhold federal
income tax ("backup withholding") from certain payments (including
redemption proceeds) to you. These certifications are contained
in the Application that you should complete and return when you
open an account. The Funds must promptly pay to the IRS all
amounts withheld. Therefore, usually it is not possible for a
Fund to reimburse you for amounts withheld. However, you may
claim the amount withheld as a credit on your federal income tax
return.
MANAGEMENT OF THE FUNDS
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Funds. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. The Funds' Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing each Fund's investment
portfolio and the business affairs of the Funds and the Trust,
subject to the direction of the Board. The Adviser is registered
as an investment adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had advised and managed
mutual funds since 1949. The Adviser is a wholly-owned indirect
subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual").
In approving the use of a single combined prospectus, the Board
considered the possibility that one Fund might be liable for
misstatements in the prospectus regarding information concerning
another Fund.
FEES AND EXPENSES.
In return for its services, the Adviser receives a monthly fee
from each Fund, computed and accrued daily, based on that Fund's
average net assets. Effective November 1, 1995, the annualized
fee for each Fund is .50 of 1% on the first $500 million, .45 of
1% of the next $500 million, and .40 of 1% on assets over $1
billion. Prior to that date, that of Cash Reserves was .50 of 1%
on the first one billion dollars, 19/480 of 1% (.475 of 1%
annually) on the next five hundred million dollars, and 3/80 of 1%
(.45 of 1% annually) thereafter; and that of Government Reserves
was .50 of 1% of average net assets. The annualized fees for Cash
Reserves and Government Reserves, after the expense limitation
described under Fee Table in the case of Government Reserves,
amounted to .50% and .45% of average net assets, respectively, for
the year ended June 30, 1995.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Funds,
including computation of each Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
<PAGE> 22
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of each
Fund's portfolio securities. In doing so, the Adviser seeks to
obtain the best combination of price and execution, which involves
a number of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly-owned indirect subsidiary of Liberty Mutual, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of each Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Funds or to their shareholders. The
Distributor is a wholly-owned indirect subsidiary of Liberty
Mutual. The business address of the Distributor is 600 Atlantic
Avenue, Boston, Massachusetts 02210; however, all Fund
correspondence (including purchase and redemption orders) should
be mailed to the Trust at P.O. Box 804058, Chicago, Illinois
60680. All distribution and promotional expenses are paid by the
Adviser, including payments to the Distributor for sales of Fund
shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Funds. Foreign securities are maintained in the custody of
foreign banks and trust companies that are members of the Bank's
Global Custody Network or foreign depositories used by such
members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 3, 1986, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, six series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be
<PAGE> 23
remote, because it would be limited to circumstances in which the
disclaimer was inoperative and the Trust was unable to meet its
obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other Fund was unable to meet its obligations.
<PAGE> 24
CERTIFICATE OF AUTHORIZATION (FOR USE BY CORPORATIONS AND
ASSOCIATIONS ONLY)
A corporation or association must complete this Certificate and
submit it with the Fund Application, each written redemption,
transfer or exchange request, and each request to terminate or
change any of the Privileges or special service elections.
If the entity submitting the Certificate is an association, the
word "association" shall be deemed to appear each place the word
"corporation" appears. If the officer signing this Certificate is
named as an authorized person, another officer must countersign
the Certificate. If there is no other officer, the person signing
the Certificate must have his signature guaranteed. If you are
not sure whether you are required to complete this Certificate,
call the office of the Stein Roe Funds, 1 800 338-2550 toll-free.
The undersigned hereby certifies that he is the duly elected
Secretary of ____________________________ (the "Corporation")
(name of Corporation/Association)
and that the following individual(s):
Authorized Persons
_____________________________ __________________________
Name Title
_____________________________ __________________________
Name Title
_____________________________ __________________________
Name Title
is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or
redeem shares of that Fund payable to any person or in any manner,
or to redeem shares of that Fund and apply the proceeds of such
redemption to purchase shares of another Fund (an "exchange"), and
to execute any necessary forms in connection therewith.
Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.
If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that the
Corporation's Charter and Bylaws provide that he is the only
person authorized to so act.
Unless expressly declined on the Application (or other form
acceptable to the Funds), the undersigned further certifies that
the Corporation has authorized by resolution or otherwise the
establishment of the Telephone Exchange and Telephone Redemption
by Check Privileges for the Corporation's account with any Fund
offering any such Privilege. If elected on the Application (or
other form acceptable to the Funds), the undersigned also
certifies that the Corporation has similarly authorized
establishment of the Electronic Transfer, Telephone Redemption by
Wire, and Check-Writing Privileges for the Corporation's account
with any Fund offering said Privileges. The undersigned has
further authorized each Fund and its transfer agent to honor any
written, telephonic, or telegraphic instructions furnished
pursuant to any such Privilege by any person believed by the Fund
or its transfer agent or their agents, officers, directors,
trustees, or employees to be authorized to act on behalf of the
Corporation and agrees that neither the Fund nor its transfer
agent, their agents, officers, directors, trustees, or employees
will be liable for any loss, liability, cost, or expense for
acting upon any such instructions.
These authorizations shall continue in effect until five business
days after the Fund and its transfer agent receive written notice
from the Corporation of any change.
IN WITNESS WHEREOF, I have hereunto subscribed my name as
Secretary and affixed the seal of this Corporation this ____ day
of ________________, 19____.
IN WITNESS WHEREOF, I have hereunto subscribed my name as
Secretary and affixed the seal of this Corporation this ____ day
of ___________________, 19___.
__________________________
Secretary
__________________________
Signature Guarantee*
*Only required if the person signing the Certificate is the only
person named as "Authorized Person."
Corporate
Seal
Here
<PAGE> 25
[STEIN ROE MUTUAL FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves
Stein Roe Cash Reserves
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals
Stein Roe Managed Municipals
Stein Roe High-Yield Municipals
Stein Roe Total Return Fund
Stein Roe Prime Equities
Stein Roe Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Special Venture Fund
P.O. Box 804058
Chicago, Illinois 60680
1 800 338-2550
In Chicago, visit our Fund Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
01004
<PAGE> 1
LIMITED MATURITY INCOME FUND
The Fund seeks high current income by investing primarily in U.S.
Government and other high-quality debt securities. The dollar-
weighted average effective maturity will not exceed three years.
GOVERNMENT INCOME FUND
Seeks high current income by investing primarily in securities
issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities.
INTERMEDIATE BOND FUND
Seeks high current income by investing primarily in marketable
debt securities. The dollar-weighted average life of the Fund's
portfolio is expected to be between three and ten years.
INCOME FUND
Seeks high current income by investing principally in medium-
quality debt securities and, to a lesser extent, in lower-quality
securities which may involve greater risk. (See How the Funds
Invest--Income Fund.)
Each Fund is a "no-load" fund. There are no sales or redemption
charges, and the Funds have no 12b-1 plans. The Funds are series
of the STEIN ROE INCOME TRUST, an open-end management investment
company.
This prospectus contains information you should know before
investing in the Funds. Please read it carefully and retain it
for future reference.
A Statement of Additional Information dated November 1, 1995,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at the address shown on the back cover or by calling 1
800 338-2550.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is November 1, 1995.
<PAGE> 2
TABLE OF CONTENTS
Page
Summary.................................. 2
Fee Table................................ 4
Financial Highlights..................... 5
The Funds................................ 8
How the Funds Invest..................... 9
Limited Maturity Income Fund...........9
Government Income Fund................10
Intermediate Bond Fund................11
Income Fund...........................12
Portfolio Investments and Strategies.....14
Restrictions on the Funds' Investments ..18
Risks and Investment Considerations..... 19
How to Purchase Shares...................20
By Check..............................21
By Wire...............................21
By Electronic Transfer............... 22
By Exchange.......................... 22
Purchase Price and Effective Date.... 22
Conditions of Purchase............... 22
Purchases Through Third Parties.......22
How to Redeem Shares.................... 23
By Written Request................... 23
By Exchange.......................... 23
Special Redemption Privileges........ 24
General Redemption Policies.......... 25
Shareholder Services.................... 26
Net Asset Value......................... 28
Distributions and Income Taxes...........29
Investment Return....................... 30
Management of the Funds..................30
Organization and Description of Shares.. 32
Certificate of Authorization.............34
SUMMARY
Stein Roe Limited Maturity Income Fund ("Limited Maturity Income
Fund"), Stein Roe Government Income Fund ("Government Income
Fund"), Stein Roe Intermediate Bond Fund ("Intermediate Bond
Fund"), and Stein Roe Income Fund ("Income Fund") are series of
the Stein Roe Income Trust, an open-end diversified management
investment company organized as a Massachusetts business trust.
Each Fund is a "no-load" fund. There are no sales or redemption
charges. (See The Funds and Organization and Description of
Shares.)
INVESTMENT OBJECTIVES AND POLICIES.
Each Fund seeks high current income. The Funds seek to achieve
their objective by investing primarily in debt obligations of
various types.
<PAGE> 3
LIMITED MATURITY INCOME FUND seeks to provide a high level of
current income, consistent with the preservation of capital. It
attempts to achieve its objective by investing primarily in
securities issued or guaranteed as to principal and interest by
the U.S. Government or by its agencies or instrumentalities ("U.S.
Government Securities") and other high-quality fixed-income
securities.
GOVERNMENT INCOME FUND seeks high current income by investing
primarily in U.S. Government Securities. In addition, the Fund is
permitted to invest up to 20% of its assets in other types of debt
securities, including collateralized mortgage obligations.
INTERMEDIATE BOND FUND pursues a high level of current income,
consistent with capital preservation, by investing primarily in
marketable debt securities. At least 60% of the Fund's assets
will be invested in debt securities rated within the three highest
grades assigned by Moody's or by S&P, or in U.S. Government
Securities, commercial paper, and certain bank obligations. Under
normal market conditions, the Fund invests at least 65% of its
assets in securities with an average life of between three and ten
years, and expects that the dollar-weighted average life of its
portfolio will be between three and ten years.
INCOME FUND seeks high current income by investing principally in
medium-quality debt securities (such as securities rated A or Baa
by Moody's or A or BBB by S&P), with at least 60% of its assets
invested in medium- or higher-quality debt securities. Medium-
quality debt securities may have speculative characteristics. The
Income Fund may also invest to a lesser extent in securities of
lower quality, which may entail greater risk. Lower-quality
securities are commonly referred to as "junk bonds."
For a more detailed discussion of each Fund's investment
objectives and policies, please see How the Funds Invest and
Portfolio Investments and Strategies. There is, of course, no
assurance that the Funds will achieve their investment objectives.
INVESTMENT RISKS.
The risks inherent in each Fund depend primarily upon the term and
quality of the obligations in that Fund's portfolio, as well as on
market conditions. Interest rate fluctuations will affect a
Fund's net asset value, but not the income received by the Fund
from its portfolio securities. However, because yields on debt
securities available for purchase by a Fund vary over time, no
specific yield on shares of a Fund can be assured. Limited
Maturity Income Fund is appropriate for investors who seek higher
yields than are usually available from money market instruments
with stable prices and shorter maturities, but who also want less
net asset fluctuation than that of a longer-term fund.
Intermediate Bond Fund is appropriate for investors who seek high
income with less net asset value fluctuation from interest rate
changes than that of a longer-term fund and who can accept greater
levels of credit and other risks associated with securities that
are rated below investment grade. Government Income Fund is
designed for investors who seek high income with minimum risk
other than the risk of changes in net asset value caused by
fluctuations in prevailing levels of interest rates. Income Fund
is designed for investors who seek a still higher level of income
and who can accept greater levels of credit and other risks
associated with securities of medium or lower quality. Limited
Maturity Income Fund, Intermediate Bond Fund, and Income Fund may
invest in foreign securities, which may entail a greater degree of
risk than investing
<PAGE> 4
in securities of domestic issuers. Please see Restrictions on the
Funds' Investments and Risks and Investment Considerations for
further information.
PURCHASES.
The minimum initial investment is $2,500. Additional investments
must be at least $100 (only $50 for purchases by electronic
transfer). Shares may be purchased by check, by bank wire, by
electronic transfer, or by exchange from another Stein Roe Fund.
(See How to Purchase Shares.)
REDEMPTIONS.
For information on redeeming Fund shares, including the special
redemption privileges, please see How to Redeem Shares.
DISTRIBUTIONS.
Dividends are declared each business day and are paid monthly.
Dividends will be reinvested into your Fund account unless you
elect to have them paid in cash, deposited by electronic transfer
into your bank checking account, or invested into another Stein
Roe Fund account. (See Distributions and Income Taxes and
Shareholder Services.)
MANAGEMENT AND FEES.
Stein Roe & Farnham Incorporated (the "Adviser") is investment
adviser to the Funds. For a description of the Adviser and the
fees paid by the Funds, see Management of the Funds.
If you have any additional questions about the Funds, please feel
free to discuss them with an account representative by calling 1
800 338-2550.
FEE TABLE
Limited Govern- Inter-
Maturity ment mediate
Income Income Bond Income
Fund Fund Fund Fund
-------- ------- ------ ------
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None None
Sales Load Imposed on Reinvested
Dividends None None None None
Deferred Sales Load None None None None
Redemption Fees None* None* None* None*
Exchange Fees None None None None
ANNUAL FUND OPERATING EXPENSES
(after expense reimbursement in
the case of each Fund) (as a
percentage of average net assets)
Management Fees (after expense
reimbursement in the case of
each Fund) 0.00% 0.51% 0.49% 0.60%
12b-1 Fees None None None None
Other Expenses (after expense
reimbursement in the case of
Limited Maturity Income Fund) 0.65% 0.49% 0.21% 0.22%
----- ----- ----- -----
Total Fund Operating Expenses
(after expense reimbursement in
the case of each Fund) 0.65% 1.00% 0.70% 0.82%
----- ----- ----- -----
----- ----- ----- -----
*There is a $3.50 charge for wiring redemption proceeds to your
bank.
EXAMPLES.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
<PAGE> 5
1 year 3 years 5 years 10 years
------- -------- ------- --------
Limited Maturity
Income Fund $7 $21 $36 $81
Government Income Fund 10 32 55 122
Intermediate Bond Fund 7 22 39 87
Income Fund 8 26 46 101
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in a Fund. The table is based upon
actual expenses incurred in the last fiscal year, adjusted for
each Fund's expense limitation in effect on November 1, 1995.
From time to time, the Adviser may voluntarily absorb certain
expenses of a Fund. The Adviser has agreed to voluntarily absorb
the expenses of Limited Maturity Income Fund for expenses in
excess of 0.65 of 1% of average net assets (effective November 1,
1995); Government Income Fund for expenses in excess of 1% of
average net assets; Intermediate Bond Fund for expenses in excess
of 0.70 of 1% of average net assets (effective May 1, 1995); and
Income Fund for expenses in excess of 0.82 of 1% of average net
assets. These commitments expire on October 31, 1996, subject to
earlier termination by the Adviser on 30 days' notice, except for
Income Fund, in which case it expires on October 31, 1998. Prior
to November 1, 1995, the Adviser undertook to reimburse Limited
Maturity Income Fund for expenses in excess of 0.45 of 1%. Absent
such expense undertakings, Management Fees, Other Expenses and
Total Fund Operating Expenses for Limited Maturity Income Fund
would have been 0.60%, 0.67% and 1.27%; and Total Fund Operating
Expenses for Government Income Fund, Intermediate Bond Fund, and
Income Fund would have been 1.09%, 0.71% and 0.85%, respectively.
Any such absorption will temporarily lower a Fund's overall
expense ratio and increase its overall return to investors. (Also
see Management of the Funds--Fees and Expenses.)
For purposes of the Examples above, the figures assume that the
percentage amounts listed for the respective Funds under Annual
Fund Operating Expenses remain the same during each of the
periods, that all income dividends and capital gain distributions
are reinvested in additional Fund shares, and that, for purposes
of management fee breakpoints, if any, the Funds' respective net
assets remain at the same levels as in the most recently completed
fiscal year.
The figures in the Examples are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown above
is useful in reviewing the Funds' expenses and in providing a
basis for comparison with other mutual funds, it should not be
used for comparison with other investments using different
assumptions or time periods.
FINANCIAL HIGHLIGHTS
The tables below reflect the results of operations of the Funds on
a per-share basis. The tables for Limited Maturity Income Fund
and Income Fund and information for the years beginning after June
30, 1987 for Government Income Fund and Intermediate Bond Fund
have been audited by Ernst & Young LLP, independent auditors. All
of the auditors' reports related to information for these periods
were unqualified. These tables should be read in conjunction with
the respective Fund's financial statements and notes
<PAGE> 6
thereto. The Funds' annual report, which may be obtained from the
Trust upon request without charge, contains additional performance
information.
LIMITED MATURITY INCOME FUND
Period
Ended
June 30, Years Ended June 30,
1993 (a) 1994 1995
-------- ------- ------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.01 $9.61
-------- ------- ------
Income from Investment Operation
Net investment income .12 .47 .56
Net realized and unrealized gains
on investments .01 (.40) .09
-------- ------- ------
Total from investment operations .13 .07 .65
Distributions from net investment
income (.12) (.47) (.56)
-------- ------- ------
NET ASSET VALUE, END OF PERIOD $10.01 $9.61 $9.70
-------- ------- ------
-------- ------- ------
Ratio of net expenses to average
net assets (b) *0.45% 0.45% 0.45%
Ratio of net investment income to
average net assets (c) *4.18% 4.81% 5.83%
Portfolio turnover rate **20% 122% 64%
Total return **1.43% 0.66% 6.96%
Net assets, end of period
(000 omitted) $7,619 $35,383 $27,907
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
Period
Ended
June 30, Years Ended June 30,
1986(a) 1987 1988 1989 1990 1991 1992 1993 1994 1995
-------- ---- ----- ------ ------ ----- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $10.10 $ 9.79 $ 9.59 $ 9.77 $ 9.66 $ 9.81 $10.40 $10.46 $ 9.48
------ ---- ----- ------ ------ ----- ------ ------ ------- ------
Income from Investment
Operations
Net investment income .24 .72 .74 .78 .76 .75 .72 .64 .56 .62
Net realized and
unrealized gains
(losses) on investments .10 (.31) (.15) .18 (.11) .15 .59 .31 (.77) .37
------ ---- ----- ------ ------ ----- ------ ------ ------- ------
Total from investment
operations .34 .41 .59 .96 .65 .90 1.31 .95 (.21) .99
Distributions
Net investment income (.24) (.72) (.74) (.78) (.76) (.75) (.72) (.64) (.56) (.62)
Net realized capital
gains -- -- (.05) -- -- -- -- (.25) (.01) --
In excess of realized
gains -- -- -- -- -- -- -- -- (.20) --
------ ---- ----- ------ ------ ----- ------ ------ ------- ------
Total distributions (.24) (.72) (.79) (.78) (.76) (.75) (.72) (.89) (.77) (.62)
------ ---- ----- ------ ------ ----- ------ ------ ------- ------
NET ASSET VALUE,
END OF PERIOD $10.10 $ 9.79 $ 9.59 $ 9.77 $ 9.66 $ 9.81 $10.40 $10.46 $ 9.48 $ 9.85
------ ---- ----- ------ ------ ----- ------ ------ ------- ------
------ ---- ----- ------ ------ ----- ------ ------ ------- ------
Ratio of expenses to
average net assets (b) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.99% 0.95% 0.98% 1.00%
Ratio of net investment
income to average net
assets (c) *7.61% 7.13% 7.68% 8.19% 7.90% 7.65% 7.05% 6.25% 5.49% 6.56%
Portfolio turnover rate **91% 205% 237% 239% 181% 136% 139% 170% 167% 225%
Total return **3.35% 4.01% 6.35% 10.61% 6.92% 9.61% 13.75% 9.60% (2.26%) 10.94%
Net assets, end of
period (000 omitted) $11,970 $22,656 $26,859 $32,011 $46,853 $49,952 $58,978 $61,591 $45,836 $37,280
</TABLE>
<PAGE> 7
INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
Years Ended June 30,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $8.89 $9.92 $8.77 $8.51 $8.65 $8.38 $8.53 $8.99 $9.26 $8.44
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from Investment
Operations
Net investment income .84 .74 .68 .74 .73 .69 .69 .65 .56 .58
Net realized and
unrealized gains
(losses) on investments 1.03 (.41) (.12) .14 (.28) .16 .46 .27 (.59) .23
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations 1.87 .33 .56 .88 .45 .85 1.15 .92 (.03) .81
Distributions
Net investment income (.84) (.74) (.68) (.74) (.72) (.70) (.69) (.65) (.56) (.58)
Net realized capital gains -- (.74) (.14) -- -- -- -- -- (.08) --
In excess of realized
gains -- -- -- -- -- -- -- -- (.15) --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (.84) (1.48) (.82) (.74) (.72) (.70) (.69) (.65) (.79) (.58)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD $9.92 $8.77 $8.51 $8.65 $8.38 $8.53 $8.99 $9.26 $8.44 $8.67
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ratio of expenses to
average net assets (b) 0.69% 0.68% 0.73% 0.73% 0.74% 0.73% 0.70% 0.67% 0.70% 0.70%
Ratio of net investment
income to average net
assets (c) 9.03% 7.94% 7.97% 8.71% 8.60% 8.17% 7.87% 7.22% 6.20% 6.94%
Portfolio turnover rate 334% 230% 273% 197% 296% 239% 202% 214% 206% 162%
Total return 21.90% 3.40% 6.92% 10.97% 5.33% 10.62% 14.02% 10.59% (0.47%) 10.11%
Net assets, end of
period (000 omitted) $183,440 $188,674 $162,225 $165,056 $161,439 $184,444 $242,948 $311,728 $302,507 $301,733
</TABLE>
<PAGE> 8
INCOME FUND
<TABLE>
<CAPTION>
Period
Ended
June 30, Years Ended June 30,
1986(a) 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $ 9.94 $ 9.71 $ 9.60 $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income .30 .98 .95 .95 .92 .80 .76 .75 .69 .71
Net realized and
unrealized gains (losses)
on investments (.06) (.23) (.11) .05 (.70) -- .56 .59 (.74) .43
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations .24 .75 .84 1.00 .22 .80 1.32 1.34 (.05) 1.13
Distributions from net
investment income (.30) (.98) (.95) (.95) (.92) (.80) (.76) (.75) (.69) (.71)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $ 9.94 $ 9.71 $ 9.60 $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36 $ 9.79
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets (b) *1.00% 0.96% 0.91% 0.90% 0.93% 0.95% 0.90% 0.82% 0.82% 0.82%
Ratio of net investment
income to average net
assets (c) *10.07% 9.90% 10.08% 9.97% 10.02% 8.98% 8.20% 7.62% 6.94% 7.55%
Portfolio turnover rate **84% 153% 158% 94% 90% 77% 76% 39% 53% 64%
Total return **2.42% 7.70% 9.38% 11.06% 2.48% 9.30% 15.30% 14.64% (0.69%) 12.79%
Net assets, end of
period (000 omitted) $32,034 $91,916 $96,611 $110,376 $89,023 $93,952 $112,706 $151,594 $158,886 $174,327
<FN>
*Annualized.
**Not annualized.
(a) Government Income Fund and Income Fund commenced operations on
March 5, 1986 and Limited Maturity Income Fund commenced
operations on March 11, 1993.
(b) If the Funds had paid all of their expenses and there had been
no reimbursement of expenses by the Adviser, these ratios would
have been: for Limited Maturity Income Fund, 3.63% for the
period ended June 30, 1993 and 1.14% and 1.27% for the years
ended June 30, 1994 and 1995; for Government Income Fund, 3.33%
for the period ended June 30, 1986, and 1.44%, 1.37%, 1.21%,
and 1.07% for the years ended June 30, 1987 through 1990,
respectively, and 1.09% for the year ended June 30, 1995; for
Intermediate Bond Fund, 0.71% for the year ended June 30, 1995;
and for Income Fund, 2.01% for the period ended June 30, 1986
and 0.83% and 0.85% for the years ended June 30, 1994 and 1995,
respectively.
(c) Computed giving effect to the Adviser's expense limitation
undertaking.
</TABLE>
THE FUNDS
The mutual funds offered by this prospectus are STEIN ROE LIMITED
MATURITY INCOME FUND ("Limited Maturity Income Fund"), STEIN ROE
GOVERNMENT INCOME FUND ("Government Income Fund"), STEIN ROE
INTERMEDIATE BOND FUND ("Intermediate Bond Fund"), and STEIN ROE
INCOME FUND ("Income Fund") (collectively, the "Funds"). Each of
the Funds is a no-load, diversified "mutual fund." No-load funds
do not impose commissions or charges when shares are purchased or
redeemed. Mutual funds sell their own shares to investors and
invest the proceeds in a portfolio of securities. A mutual fund
allows you to pool your money with that of other investors in
order to obtain professional investment management. Mutual funds
generally make it possible for
<PAGE> 9
you to obtain greater diversification of your investments and
simplify your recordkeeping.
The Funds are series of the Stein Roe Income Trust (the "Trust"),
an open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") is investment
adviser to the Funds. The Adviser also manages several other no-
load mutual funds with different investment objectives, including
equity funds, international funds, tax-exempt bond funds, and
money market funds. To obtain prospectuses and other information
on any of those mutual funds, please call 1 800 338-2550.
HOW THE FUNDS INVEST
Each Fund seeks a high level of current income. Each Fund
invests as described below. Further information on portfolio
investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
LIMITED MATURITY INCOME FUND.
This Fund's investment objective is to provide a high level of
current income, consistent with the preservation of capital. The
Fund attempts to achieve its objective by investing primarily in
securities issued or guaranteed as to principal and interest by
the U.S. Government or by its agencies or instrumentalities ("U.S.
Government Securities") and other high-quality fixed-income
securities. Depending on market conditions, the Fund may invest a
substantial portion of its assets in mortgage-backed debt
securities issued by GNMA, FNMA, and FHLMC.
In addition, the Fund may invest in principal portions or coupon
portions of U.S. Government Securities that have been separated
(stripped) by banks, brokerage firms, or other entities. Stripped
securities are usually sold separately in the form of receipts or
certificates representing undivided interests in the stripped
portion and are not considered to be issued or guaranteed by the
U.S. Government. Stripped securities may be more volatile than
non-stripped securities. The staff of the Securities and Exchange
Commission believes that stripped securities are illiquid. The
Fund has temporarily agreed to treat stripped securities as
subject to the Fund's restriction on investment in illiquid
securities.
The Fund may also invest in other types of debt securities;
however, under normal circumstances, at least 65% of the Fund's
total assets will be invested in U.S. Government Securities, non-
U.S. Government Securities that are rated at least AA by Standard
& Poor's Corporation ("S&P") or Aa by Moody's Investors Service,
Inc. ("Moody's") and high-quality money market instruments. The
Fund may invest up to 35% of its assets in other debt securities
that are rated at least investment grade (BBB by S&P or Baa by
Moody's). Securities rated BBB by S&P or Baa by Moody's are
neither highly protected nor poorly secured. Such securities have
some speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a
weakened
<PAGE> 10
capacity of the issuers of such securities to make principal and
interest payments than is the case for issuers of higher grade
securities. If the rating of a security held by the Fund is lost
or reduced below investment grade, the Fund is not required to
dispose of the security, but the Adviser will consider that fact
in determining whether the Fund should continue to hold the
security.
Under normal circumstances, the dollar-weighted average maturity
of the portfolio is expected to be no more than ten years. The
average dollar-weighted maturity of the portfolio is the dollar-
weighted average of the stated maturities of all debt instruments
held in the portfolio. In addition, it is expected that under
normal circumstances, the Fund will invest at least 65% of its
total assets in securities with an effective maturity of three
years or less and that the dollar-weighted average effective
maturity of the portfolio will not exceed three years. The
effective maturity of a debt instrument is the weighted average
period over which the Adviser expects the principal to be paid,
and differs from stated maturity in that it estimates the effect
of expected principal prepayments and call provisions. With
respect to GNMA securities and other mortgage-backed securities,
the effective maturity is likely to be substantially less than the
stated maturity of the mortgages in the underlying pools. With
respect to obligations with call provisions, the effective
maturity is typically the next call date on which the obligation
reasonably may be expected to be called. Securities without
prepayment or call provisions generally have an effective maturity
equal to their stated maturity. During periods of rising interest
rates, the effective maturity of mortgage-backed securities and
callable obligations may increase because they are less likely to
be prepaid, which may result in greater net asset value
fluctuation.
GOVERNMENT INCOME FUND.
This Fund's investment objective is to provide a high level of
current income. It invests primarily in U.S. Government
Securities. Depending on market conditions, the Fund may invest a
substantial portion of its assets in mortgage-backed debt
securities issued by GNMA, FNMA, and FHLMC.
Because the Fund's investment policy permits it to invest in U.S.
Government Securities that are not backed by the full faith and
credit of the U.S. Treasury, investment in the Fund may involve
risks that are different in some respects from an investment in a
fund that invests only in securities that are backed by the full
faith and credit of the U.S. Treasury. Such risks may include a
greater risk of loss of principal and interest on the securities
in the Fund's portfolio that are supported only by the issuing or
guaranteeing U.S. Government agency or instrumentality since the
Fund must look principally or solely to that entity for ultimate
repayment.
Under normal market conditions, the Fund will invest at least 80%
of its assets in U.S. Government Securities. The Fund may also
invest up to 20% of its assets in other types of debt securities,
including collateralized mortgage obligations ("CMOs") and
principal portions or coupon portions of U.S. Government
Securities that have been separated (stripped) by banks, brokerage
firms, or other entities. Stripped securities are usually sold
separately in the form of receipts or certificates representing
undivided interests in the stripped portion. CMOs are securities
collateralized by mortgages and mortgage-backed securities. CMOs
are not guaranteed by either the U.S. Government or by its
agencies or instrumentalities. Stripped securities may be more
volatile than non-
<PAGE> 11
stripped securities. The staff of the Securities and Exchange
Commission believes that stripped securities are illiquid. The
Fund has temporarily agreed to treat stripped securities as
subject to the Fund's restriction on investment in illiquid
securities. The Fund will invest in debt securities rated at
least investment grade or, if unrated, deemed by the Adviser to be
of comparable quality. Securities rated in the fourth grade are
neither highly protected nor poorly secured. Such securities have
some speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity of the issuers of such securities to make
principal and interest payments than is the case for issuers of
higher grade securities. If the rating of a security held by the
Fund is lost or reduced below investment grade, the Fund is not
required to dispose of the security, but the Adviser will consider
that fact in determining whether the Fund should continue to hold
the security.
INTERMEDIATE BOND FUND.
This Fund's investment objective is to provide a high level of
current income, consistent with the preservation of capital, by
investing primarily in marketable debt securities. Under normal
market conditions, the Fund will invest at least 65% of the value
of its total assets (taken at market value at the time of
investment) in convertible and non-convertible bonds and
debentures, and at least 60% of its assets will be invested in the
following:
(1) Marketable straight-debt securities of domestic issuers, and
of foreign issuers payable in U.S. dollars, rated at time of
purchase within the three highest grades assigned by Moody's or
by S&P;
(2) U.S. Government Securities;
(3) Commercial paper rated Prime-1 by Moody's or A-1 by S&P at
time of purchase, or, if unrated, issued or guaranteed by a
corporation with any outstanding debt rated Aa or better by
Moody's or AA or better by S&P; and
(4) Bank obligations, including repurchase agreements, of banks
having total assets in excess of $1 billion.
Under normal market conditions, the Fund invests at least 65% of
its assets in securities with an average life of between three and
ten years, and expects that the dollar-weighted average life of
its portfolio will be between three and ten years. Average life
is the weighted average period over which the Adviser expects the
principal to be paid, and differs from stated maturity in that it
estimates the effect of expected principal prepayments and call
provisions. With respect to GNMA securities and other mortgage-
backed securities, average life is likely to be substantially less
than the stated maturity of the mortgages in the underlying pools.
With respect to obligations with call provisions, average life is
typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an average life equal to their
stated maturity. During periods of rising interest rates, the
average life of mortgage-backed securities and callable
obligations may increase substantially because they are not likely
to be prepaid, which may result in greater net asset value
fluctuation.
<PAGE> 12
The Fund also may invest in other debt securities (including those
convertible into or carrying warrants to purchase common stocks or
other equity interests, and privately placed debt securities),
preferred stocks, and marketable common stocks that the Adviser
considers likely to yield relatively high income in relation to
cost.
The Fund may invest up to 35% of its total assets in debt
securities that are rated below investment grade and that, on
balance, are considered predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal
according to the terms of the obligation and, therefore, carry
greater investment risk, including the possibility of issuer
default and bankruptcy. An economic downturn could severely
disrupt this market and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and
interest. In addition, lower-quality bonds are less sensitive to
interest rate changes than higher-quality instruments (see Risks
and Investment Considerations) and generally are more sensitive to
adverse economic changes or individual corporate developments.
During a period of adverse economic changes, including a period of
rising interest rates, issuers of such bonds may experience
difficulty in servicing their principal and interest payment
obligations.
Achievement of the Fund's investment objective will be more
dependent on the Adviser's credit analysis than would be the case
if the Fund were investing exclusively in investment grade debt
securities. Since the ratings of rating services (which evaluate
the safety of principal and interest payments, not market risks)
are used only as preliminary indicators of investment quality, the
Adviser employs its own credit research and analysis, from which
it has developed a credit rating system based upon comparative
credit analyses of issuers within the same industry. These
analyses may take into consideration such quantitative factors as
an issuer's present and potential liquidity, profitability,
internal capability to generate funds, debt/equity ratio and debt
servicing capabilities, and such qualitative factors as an
assessment of management, industry characteristics, accounting
methodology, and foreign business exposure.
Debt securities that are rated below investment grade tend to be
less marketable than higher-quality debt securities because the
market for them is less broad. The market for unrated debt
securities is even narrower. During periods of thin trading in
these markets, the spread between bid and asked prices is likely
to increase significantly, and the Fund may have greater
difficulty selling its portfolio securities. (See Net Asset
Value.) The market value of these securities and their liquidity
may be affected by adverse publicity and investor perceptions.
For the fiscal year ended June 30, 1995, the Fund's portfolio was
invested, on average, as follows: high-quality short-term
instruments, 4.1%; U.S. Government Securities, 39.3%; AAA, 6.3%;
AA, 7.2%; A, 13.3%; BBB, 21.2%; BB, 8.1%; and unrated, 0.5%. The
ratings are based on a dollar-weighted average, computed monthly,
and reflect the higher of S&P or Moody's ratings. The ratings do
not necessarily reflect the current or future composition of the
Fund.
INCOME FUND.
The investment objective of Income Fund is to provide a high level
of current income. Consistent with that investment objective,
capital preservation and capital appreciation are regarded as
secondary objectives.
<PAGE> 13
Income Fund attempts to achieve its objective by investing
principally in medium-quality debt securities, which are
obligations of issuers that the Adviser believes possess adequate,
but not outstanding, capacities to service their debt securities,
such as securities rated A or Baa by Moody's or A or BBB by S&P.
The Adviser generally attributes to medium-quality securities the
same characteristics as do rating services.
Although the Income Fund will invest at least 60% of its assets in
medium- or higher-quality securities, it may also invest to a
lesser extent in securities of lower quality (in the case of rated
securities, having a rating by Moody's or S&P of not less than C).
Although the Fund can invest up to 40% of its assets in lower-
quality securities, it does not intend to invest more than 35% in
lower-quality securities. Lower-quality debt securities are
obligations of issuers that are predominantly speculative with
respect to the issuer's capacity to pay interest and repay
principal, and are commonly referred to as "junk bonds." The
Income Fund may invest in lower-quality debt securities; for
example, if the Adviser believes the financial condition of the
issuers or the protection offered to the particular obligations is
stronger than is indicated by low ratings or otherwise. The
Income Fund may invest in higher-quality securities; for example,
under extraordinary economic or financial market conditions, or
when the spreads between the yields on medium- and high-quality
securities are relatively narrow.
Some issuers of debt securities choose not to have their
securities rated by a rating service, and the Income Fund may
invest in unrated securities that the Adviser believes are
suitable for investment.
Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer
default or bankruptcy. An economic downturn could severely
disrupt this market and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and
interest. In addition, lower-quality bonds are less sensitive to
interest rate changes than higher-quality instruments (see Risks
and Investment Considerations) and generally are more sensitive to
adverse economic changes or individual corporate developments.
During a period of adverse economic changes, including a period of
rising interest rates, issuers of such bonds may experience
difficulty in servicing their principal and interest payment
obligations.
Achievement of the Income Fund's investment objective will be more
dependent on the Adviser's credit analysis than would be the case
if the Income Fund were investing in higher-quality debt
securities. Since the ratings of rating services (which evaluate
the safety of principal and interest payments, not market risks)
are used only as preliminary indicators of investment quality, the
Adviser employs its own credit research and analysis, from which
it has developed a credit rating system based upon comparative
credit analyses of issuers within the same industry. These
analyses may take into consideration such quantitative factors as
an issuer's present and potential liquidity, profitability,
internal capability to generate funds, debt/equity ratio and debt
servicing capabilities, and such qualitative factors as an
assessment of management, industry characteristics, accounting
methodology, and foreign business exposure.
Medium- and lower-quality debt securities tend to be less
marketable than higher-quality debt securities because the market
for them is less broad. The market for unrated
<PAGE> 14
debt securities is even narrower. During periods of thin trading
in these markets, the spread between bid and asked prices is
likely to increase significantly, and the Income Fund may have
greater difficulty selling its portfolio securities. (See Net
Asset Value.) The market value of these securities and their
liquidity may be affected by adverse publicity and investor
perceptions.
Under normal market conditions, the Income Fund will invest at
least 65% of the value of its total assets (taken at market value)
in convertible and non-convertible bonds and debentures. Such
securities may be accompanied by the right to acquire equity
securities evidenced by warrants attached to the security or
acquired as part of a unit with the security. Equity securities
acquired by conversion or exercise of such a right may be retained
by the Income Fund for a sufficient time to permit orderly
disposition thereof or to establish long-term holding periods for
federal income tax purposes.
The Income Fund may invest up to 35% of its total assets in other
debt securities, marketable preferred and common stocks, and
foreign and municipal securities that the Adviser considers likely
to yield relatively high income in relation to costs, and rights
to acquire such securities. (Municipal securities are securities
issued by or on behalf of state and local governments, the
interest on which is generally exempt from federal income tax.)
Any assets not otherwise invested may be invested in money market
instruments.
For the fiscal year ended June 30, 1995, the Income Fund's
portfolio was invested, on average, as follows: high-quality
short-term instruments, 3.9%; U.S. Government Securities, 12.6%;
AAA, 3.5%; AA, 2.6%; A, 11.0%; BBB, 37.5%; BB, 25.3%; B, 1.5%; and
unrated, 2.1%. The ratings are based on a dollar-weighted
average, computed monthly, and reflect the higher of S&P or
Moody's ratings. The ratings do not necessarily reflect the
current or future composition of the Income Fund.
PORTFOLIO INVESTMENTS AND STRATEGIES
U.S. GOVERNMENT SECURITIES.
U.S. Government Securities include: (i) bills, notes, bonds, and
other debt securities, differing as to maturity and rates of
interest, that are issued by and are direct obligations of the
U.S. Treasury; and (ii) other securities that are issued or
guaranteed as to principal and interest by the U.S. Government or
by its agencies or instrumentalities and that include, but are not
limited to, Government National Mortgage Association ("GNMA"),
Federal Farm Credit Banks, Federal Home Loan Banks, Farmers Home
Administration, Federal Home Loan Mortgage Corporation ("FHLMC"),
and Federal National Mortgage Association ("FNMA"). U.S.
Government Securities are generally viewed by the Adviser as being
among the safest of debt securities with respect to the timely
payment of principal and interest (but not with respect to any
premium paid on purchase), but generally bear a lower rate of
interest than corporate debt securities. However, they are
subject to market risk like other debt securities, and therefore
the Fund's shares can be expected to fluctuate in value.
DERIVATIVES.
Consistent with its objective, each Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange traded
<PAGE> 15
options, futures contracts, futures options, securities
collateralized by underlying pools of mortgages or other
receivables, and other instruments, the value of which is
"derived" from the performance of an underlying asset or a
"benchmark" such as a security index, an interest rate, or a
currency ("Derivatives"). No Fund expects to invest more than 5%
of its net assets in any type of Derivative except: for each Fund,
options, futures contracts, and futures options; for each Fund
other than Income Fund, mortgage or other asset-backed securities;
and, for Limited Maturity Income Fund, floating rate instruments.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because it is more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
MORTGAGE AND OTHER ASSET-BACKED DEBT SECURITIES. Each of Limited
Maturity Income Fund, Government Income Fund, and Intermediate
Bond Fund may invest in securities secured by mortgages or other
assets such as automobile or home improvement loans and credit
card receivables. These instruments may be issued or guaranteed
by the U.S. Government or by its agencies or instrumentalities or
by private entities such as commercial, mortgage and investment
banks and financial companies or financial subsidiaries of
industrial companies.
Securities issued by GNMA represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the
Farmers Home Administration, or guaranteed by the Veterans
Administration. Securities issued by FNMA and FHLMC, U.S.
Government-sponsored corporations, also represent an interest in a
pool of mortgages.
The timely payment of principal and interest on GNMA securities is
guaranteed by GNMA and backed by the full faith and credit of the
U.S. Treasury. FNMA guarantees full and timely payment of
interest and principal on FNMA securities. FHLMC guarantees
timely payment of interest and ultimate collection of principal on
FHLMC securities. FNMA and FHLMC securities are not backed by the
full faith and credit of the U.S. Treasury.
Mortgage-backed debt securities, such as those issued by GNMA,
FNMA, and FHLMC, are of the "modified pass-through type," which
means the interest and principal payments on mortgages in the pool
are "passed through" to investors. During periods of declining
interest rates, there is increased likelihood that mortgages will
be prepaid, with a resulting loss of the full-term benefit of any
premium paid by the Fund on purchase of such securities; in
addition, the proceeds of prepayment would likely be invested at
lower interest rates.
<PAGE> 16
Mortgage-backed securities provide either a pro rata interest in
underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") which represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities and are usually issued in multiple classes each
of which has different payment rights, pre-payment risks, and
yield characteristics. Mortgage-backed securities involve the
risk of pre-payment of the underlying mortgages at a faster or
slower rate than the established schedule. Pre-payments generally
increase with falling interest rates and decrease with rising
rates but they also are influenced by economic, social, and market
factors. If mortgages are pre-paid during periods of declining
interest rates, there would be a resulting loss of the full-term
benefit of any premium paid by the Fund on purchase of the CMO,
and the proceeds of pre-payment would likely be invested at lower
interest rates. Each Fund tends to invest in CMOs of classes
known as planned amortization classes ("PACs") which have pre-
payment protection features tending to make them less susceptible
to price volatility.
Non-mortgage asset-backed securities usually have less pre-payment
risk than mortgage-backed securities, but have the risk that the
collateral will not be available to support payments on the
underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.
Asset-backed securities tend to experience greater price
volatility than straight debt securities.
FLOATING RATE INSTRUMENTS. Limited Maturity Income Fund may also
invest in floating rate instruments which provide for periodic
adjustments in coupon interest rates that are automatically reset
based on changes in amount and direction of specified market
interest rates. In addition, the adjusted duration of some of
these instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with an
adjusted duration of 2 would increase by approximately 2%.
FUTURES AND OPTIONS. Each Fund may purchase and write both call
options and put options on securities, indexes and foreign
currencies, and enter into interest rate, index and foreign
currency futures contracts and options on such futures contracts
and purchase other types of forward or investment contracts linked
to individual securities, indexes or other benchmarks in order to,
consistent with its investment objective, provide additional
revenue, or to hedge against changes in security prices, interest
rates, or currency fluctuations. Each Fund may write a call or
put option only if the option is covered. As the writer of a
covered call option, the Fund foregoes, during the option's life,
the opportunity to profit from increases in market value of the
security covering the call option above the sum of the premium and
the exercise price of the call. There can be no assurance that a
liquid market will exist when a Fund seeks to close out a
position.
<PAGE> 17
Because of low margin deposits required, the use of futures
contracts involves a high degree of leverage, and may result in
losses in excess of the amount of the margin deposit. Foreign
currency futures and options are permitted only if a Fund is
permitted to invest in foreign securities.
FOREIGN SECURITIES.
Each of Limited Maturity Income Fund, Intermediate Bond Fund, and
Income Fund may invest in foreign securities. No Fund will invest
in a foreign security if, as a result of such investment, more
than 25% of its total assets would be invested in foreign
securities. For purposes of this restriction, foreign debt
securities do not include securities represented by American
Depositary Receipts ("ADRs"), foreign debt securities denominated
in U.S. dollars, or securities guaranteed by a U.S. person such as
a corporation domiciled in the United States that is a parent or
affiliate of the issuer of the securities being guaranteed. The
Funds may invest in sponsored or unsponsored ADRs. In addition
to, or in lieu of, such direct investment, a Fund may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars, and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Funds may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
At June 30, 1995, no portion of any Fund's assets was invested in
foreign securities as defined above, and no Fund intends to invest
more than 5% of its net assets in foreign securities. (See Risks
and Investment Considerations.)
LENDING OF PORTFOLIO SECURITIES.
Subject to certain restrictions, each Fund may lend its portfolio
securities to broker-dealers and banks. Any such loan must be
continuously secured by collateral in cash or cash equivalents
maintained on a current basis in an amount at least equal to the
market value of the securities loaned by the Fund. The Fund would
continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and would also
receive an additional return that may be in the form of a fixed
fee or a percentage of the collateral. The Fund would have the
right to call the loan and obtain the securities loaned at any
time on notice of not more than five business days. In the event
of bankruptcy or other default of the borrower, the Fund could
experience both delays in liquidating the loan collateral or
recovering the loaned securities and losses including (a) possible
decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to
enforce its rights thereto, (b) possible subnormal levels of
income and lack of access to income during this period, and (c)
expenses of enforcing its rights.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; STANDBY COMMITMENTS.
Each Fund's assets may include securities purchased on a when-
issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time the
purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. A Fund makes such commitments
only with the intention of actually
<PAGE> 18
acquiring the securities, but may sell the securities before
settlement date if the Adviser deems it advisable for investment
reasons. Securities purchased in this manner involve a risk of
loss if the value of the security purchased declines before the
settlement date.
When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that a Fund will sell
securities with a commitment to purchase similar, but not
identical, securities at a future date. Generally, the securities
are repurchased at a price lower than the sales price. Dollar
roll transactions involve the risk of restrictions on the Fund's
ability to repurchase the security if the counterparty becomes
insolvent; an adverse change in the price of the security during
the period of the roll or that the value the security repurchased
will be less than the security sold; and transaction costs
exceeding the return earned by the Fund on the sales proceeds of
the dollar roll.
Each Fund may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Fund binds itself to accept delivery of a security at the
option of the other party to the agreement.
PORTFOLIO TURNOVER.
In attempting to attain its objective, each Fund may sell
portfolio securities without regard to the period of time they
have been held. Further, the Adviser may purchase and sell
securities for the portfolios of Limited Maturity Income Fund,
Government Income Fund, and the Income Fund with a view to
maximizing current return, even if portfolio changes would cause
the realization of capital gains. Although the weighted average
effective maturity of the Limited Maturity Income Fund's portfolio
generally will not exceed three years and the average stated
maturity of the portfolios of Government Income Fund and the
Income Fund generally will exceed ten years, the Adviser may
adjust the average effective maturity of a Fund's portfolio from
time to time, depending on its assessment of the relative yields
available on securities of different maturities and its
expectations of future changes in interest rates. As a result,
the turnover rate of the Funds may vary from year to year. The
turnover rate for Limited Maturity Income Fund may exceed 100%,
but is not expected to exceed 200% under normal market conditions.
A high rate of portfolio turnover may result in increased
transaction expenses and the realization of capital gains (which
may be taxable) or losses. (See Financial Highlights and
Distributions and Income Taxes.)
RESTRICTIONS ON THE FUNDS' INVESTMENTS
No Fund may invest in a security if, as a result of such
investment: (1) with respect to 75% of its assets, more than 5% of
its total assets would be invested in the securities of any one
issuer, except for U.S. Government Securities or repurchase
agreements for such securities, or (2) 25% or more of its total
assets would be invested in the securities of a group of issuers
in the same industry, except that this restriction does not apply
to U.S. Government Securities. Notwithstanding these limitations,
each Fund may invest all of its assets in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund.
No Fund may make loans, except that, consistent with its
investment policies and restrictions, each Fund may: (1) invest up
to 100% of its net assets in publicly offered or
<PAGE> 19
privately placed debt securities, (2) lend its portfolio
securities under certain conditions, and (3) enter into repurchase
agreements. /1/ No Fund may borrow money, except as a temporary
measure for extraordinary or emergency purposes and then the
aggregate borrowings at any one time (including reverse repurchase
agreements and dollar rolls) may not exceed 33 1/3% of its assets
(at market value). Additional securities may not be purchased
when borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets.
The policies set forth in the second and third paragraphs under
Restrictions on the Funds' Investments (but not the footnote) are
fundamental policies of each Fund. /2/ The Statement of
Additional Information contains all of the investment
restrictions.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although each Fund
seeks to reduce risk by investing in a diversified portfolio, this
does not eliminate all risk. The risks inherent in each Fund
depend primarily upon the term and quality of the obligations in
that Fund's portfolio, as well as on market conditions.
A decline in prevailing levels of interest rates generally
increases the value of securities in a Fund's portfolio, while an
increase in rates usually reduces the value of those securities.
As a result, interest rate fluctuations will affect a Fund's net
asset value, but not the income received by the Fund from its
portfolio securities. (Because yields on debt securities
available for purchase by a Fund vary over time, no specific yield
on shares of a Fund can be assured.) In addition, if the bonds in
a Fund's portfolio contain call, prepayment or redemption
provisions, during a period of declining interest rates, these
securities are likely to be redeemed, and the Fund will probably
be unable to replace them with securities having as great a yield.
Limited Maturity Income Fund is appropriate for investors who seek
higher yields than are usually available from money market
instruments with stable prices and shorter maturities, but who
also want less net asset fluctuation than that of a longer-term
fund; unlike money market funds, however, the Fund does not seek
to maintain a stable net asset value and may not be able to return
dollar-for-dollar the money invested. Intermediate Bond Fund is
appropriate for investors who seek high income with less net asset
value fluctuation from interest rate changes than that of a
longer-term fund, and who can accept greater levels of credit and
other risks associated with securities that are rated below
investment grade. Government Income Fund is designed for
investors who seek high income with minimum risk other than the
risk of changes in net asset value caused by fluctuations in
prevailing levels of interest rates. Income Fund is designed
-----------------------
/1/ A repurchase agreement involves a sale of securities to a Fund
with the concurrent agreement of the seller (bank or securities
dealer) to repurchase the securities at the same price plus an
amount equal to an agreed-upon interest rate within a specified
time. In the event of a bankruptcy or other default of a seller
of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying securities and losses. No Fund may
invest more than 15% of its net assets in repurchase agreements
maturing in more than seven days and other illiquid securities.
/2/ A fundamental policy may be changed only with the approval of
a "majority of the outstanding vote securities" of a Fund as
defined in the Investment Company Act.
--------------------------------
<PAGE> 20
for investors who seek a higher level of income and who can accept
greater levels of credit and other risks associated with
securities of medium or lower quality.
Investments in foreign securities, including ADRs, represent both
risks and opportunities not typically associated with investments
in domestic issuers. Risks of foreign investing include currency
risk, less complete financial information on issuers, less market
liquidity, more market volatility, less well-developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
Each of Limited Maturity Income Fund, Intermediate Bond Fund, and
Income Fund may enter into foreign currency forward contracts and
use options and futures contracts as described elsewhere in this
prospectus to limit or reduce foreign currency risk.
There can be no assurance that a Fund will achieve its objective,
nor can a Fund assure that payments of interest and principal on
portfolio securities will be made when due. If, after purchase by
a Fund, the rating of a portfolio security is lost or reduced, the
Fund would not be required to sell the security, but the Adviser
would consider such a change in deciding whether the Fund should
retain the security in its portfolio.
The investment objective of each Fund is not fundamental and may
be changed by the Board of Trustees without a vote of
shareholders. If there were a change in a Fund's investment
objective, such change may result in the Fund having an investment
objective different from the objective that the shareholder
considered appropriate at the time of investment in the Fund.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, each Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by the Adviser
for investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. It is expected that any such investment company
would be managed by the Adviser in substantially the same manner
as the Fund. There are no present plans to convert any Fund to
the Master Fund/Feeder Fund structure. If a Fund were to convert
to the Master Fund/Feeder Fund structure, shareholders of that
Fund would be given at least 30 days' prior notice, although they
would not be entitled to vote on the action. Such investment
would be made only if the Trustees determine it to be in the best
interests of a Fund and its shareholders.
HOW TO PURCHASE SHARES
You may purchase shares of any of the Funds by check, by wire, by
electronic transfer, or by exchange from your account with another
Stein Roe Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
("UGMA") accounts is $1,000; the minimum for accounts established
under an
<PAGE> 21
automatic investment plan (i.e., Regular Investments, Dividend
Purchase Option, or the Automatic Exchange Plan) is $1,000 for
regular accounts and $500 for UGMA accounts; and the minimum per
account for Stein Roe IRAs is $500. The initial purchase minimum
is waived for shareholders who participate in the Stein Roe
Counselor [Service mark] or Stein Roe Counselor Preferred [Service
mark] Programs. Subsequent purchases must be at least $100, or at
least $50 if you purchase by electronic transfer. If you wish to
purchase shares to be held by a tax-sheltered retirement plan
sponsored by the Adviser, you must obtain special forms for those
plans. (See Shareholder Services.)
BY CHECK.
To make an initial purchase of shares of a Fund, please complete
and sign the Application and mail it to P.O. Box 804058, Chicago,
Illinois 60680, together with a check made payable to Stein Roe
Funds.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $100, and
the Trust generally will not accept cash, drafts, third party
checks, or checks drawn on banks outside of the United States.
Should an order to purchase shares of a Fund be cancelled because
your check does not clear, you will be responsible for any
resulting loss incurred by that Fund.
BY WIRE.
You may also pay for shares by instructing your bank to wire
federal funds (monies of member banks within the Federal Reserve
System) to the Funds' custodian bank. Your bank may charge you a
fee for sending the wire. If you are opening a new account by
wire transfer, you must first telephone the Trust to request an
account number and furnish your social security or other tax
identification number. Neither the Funds nor the Trust will be
responsible for the consequences of delays, including delays in
the banking or Federal Reserve wire systems. Your bank must
include the full name(s) in which your account is registered and
your Fund account number, and should address its wire as follows:
State Street Bank and Trust Company
Boston, Massachusetts
ABA Routing No. 011000028
Attention: Custody
Fund No. ____; Stein Roe _______ Fund
Account of (exact name(s) in registration)
Shareholder Account No. ___________
Fund Numbers:
7116--Government Income Fund
7107--Intermediate Bond Fund
7118--Income Fund
7122--Limited Maturity Income Fund
<PAGE> 22
BY ELECTRONIC TRANSFER.
You may also make subsequent investments by an electronic transfer
of funds from your bank checking account. Electronic transfer
allows you to make purchases at your request ("Special
Investments") by calling 1 800 338-2550 or at pre-scheduled
intervals ("Regular Investments"). (See Shareholder Services.)
Electronic transfer purchases are subject to a $50 minimum and a
$100,000 maximum. You may not open a new account through
electronic transfer. Should an order to purchase shares of a Fund
be cancelled because your electronic transfer does not clear, you
will be responsible for any resulting loss incurred by that Fund.
BY EXCHANGE.
You may purchase shares by exchange of shares from another Stein
Roe Fund account either by phone (if the Telephone Exchange
Privilege has been established on the account from which the
exchange is being made), by mail, in person, or automatically at
regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information under How to
Redeem Shares--By Exchange.
PURCHASE PRICE AND EFFECTIVE DATE.
Each purchase of a Fund's shares is made at that Fund's net asset
value (see Net Asset Value) next determined after receipt of
payment as follows:
A purchase by check or wire transfer is made at the net asset
value next determined after receipt by the Fund of the check or
wire transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment order
received by telephone on a business day before 2:00 p.m., Chicago
time, is effective on the next business day. Shares begin earning
dividends on the day following the day on which they are
purchased.
CONDITIONS OF PURCHASE.
Each purchase order for a Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of that Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; however, you
may redeem the shares. The Trust reserves the right not to accept
any purchase order that it determines not to be in the best
interest of the Trust or of a Fund's shareholders. The Trust also
reserves the right to waive or lower its investment minimums for
any reason. The Trust does not issue certificates for shares.
PURCHASES THROUGH THIRD PARTIES.
You may purchase (or redeem) shares through investment dealers,
banks, or other financial institutions. These institutions may
charge for their services or place limitations on the extent to
which you may use the services offered by the Trust. There are no
charges or limitations imposed by the Trust (other than those
described in this prospectus) if shares are purchased (or
redeemed) directly from the Trust.
Some financial institutions which maintain nominee accounts with
the Funds for their clients who are Fund shareholders charge an
annual fee of up to 0.25% of the average net assets held in such
accounts for accounting, servicing, and distribution services they
<PAGE> 23
provide with respect to the underlying Fund shares. A Fund may
pay a portion of those fees not to exceed the fees and expenses
the Fund would pay to its transfer agent if the shares held in
nominee name were registered on the Fund's books in the individual
names of the owners of such shares. The balance of such fees are
paid by the Adviser.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST.
You may redeem all or a portion of your shares of a Fund by
submitting a written request in "good order" to the Trust at P.O.
Box 804058, Chicago, Illinois 60680. A redemption request will be
considered to have been received in good order if the following
conditions are satisfied:
(1) the request must be in writing, indicate the number of shares
or dollar amount to be redeemed, and identify the shareholder's
account number;
(2) the request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) the request must be accompanied by any certificates for the
shares, either properly endorsed for transfer, or accompanied
by a stock assignment properly endorsed exactly as the shares
are registered;
(4) the signatures on either the written redemption request or
the certificates (or the accompanying stock power) must be
guaranteed (a signature guarantee is not a notarization, but is
a widely accepted way to protect you and the Funds by verifying
your signature);
(5) corporations and associations must submit with each request a
completed Certificate of Authorization included in this
prospectus (or a form of resolution acceptable to the Trust);
and
(6) other supporting legal documents may be required from
organizations, executors, administrators, trustees, or others
acting on accounts not registered in their names.
BY EXCHANGE.
You may redeem all or any portion of your Fund shares and use the
proceeds to purchase shares of any other Stein Roe Fund offered
for sale in your state if your signed, properly completed
Application is on file. AN EXCHANGE TRANSACTION IS A SALE AND
PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND MAY RESULT
IN CAPITAL GAIN OR LOSS. Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. The
registration of the account to which you are making an exchange
must be exactly the same as that of the Fund account from which
the exchange is made and the amount you exchange must meet any
applicable minimum investment of the Stein Roe Fund being
purchased. Unless you have elected to receive your dividends in
cash, on an exchange of all shares, any accrued unpaid dividends
will be invested in the Stein Roe Fund to which you exchange on
the next business day. An exchange may be made by following the
redemption procedure described above under By Written Request and
indicating the Stein Roe Fund to be purchased, except that a
signature guarantee normally is not required. (See also the
discussion below of the Telephone Exchange Privilege and Automatic
Exchanges.)
<PAGE> 24
SPECIAL REDEMPTION PRIVILEGES.
The Telephone Exchange Privilege and the Telephone Redemption by
Check Privilege will be established automatically for you when you
open your account unless you decline these Privileges on your
Application. Other Privileges must be specifically elected. If
you do not want the Telephone Exchange and Redemption Privileges,
check the box(es) under the section "Telephone Redemption Options"
when completing your Application. In addition, a signature
guarantee may be required to establish a Privilege after you open
your account.
You may not use any of the Special Redemption Privileges if you
hold certificates for any of your Fund shares. The Telephone
Redemption by Check Privilege and Special Electronic Transfer
Redemptions are not available to redeem shares held by a tax-
sheltered retirement plan sponsored by the Adviser. (See also
General Redemption Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 1 800 338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the $2,500 initial purchase
minimum. GENERALLY, YOU WILL BE LIMITED TO FOUR TELEPHONE
EXCHANGE ROUND-TRIPS PER YEAR AND THE FUNDS MAY REFUSE REQUESTS
FOR TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A ROUND-
TRIP BEING THE EXCHANGE OUT OF A FUND INTO ANOTHER STEIN ROE FUND,
AND THEN BACK TO THAT FUND). Also, the Trust's general redemption
policies apply to redemptions of shares by Telephone Exchange.
(See General Redemption Policies.)
The Trust reserves the right at any time without prior notice to
suspend or terminate the use of the Telephone Exchange Privilege
by any person or class of persons. The Trust believes that use of
the Telephone Exchange Privilege by investors utilizing market-
timing strategies adversely affects the Funds. THEREFORE, THE
TRUST GENERALLY WILL NOT HONOR REQUESTS FOR TELEPHONE EXCHANGES BY
SHAREHOLDERS IDENTIFIED BY THE TRUST AS "MARKET-TIMERS."
Moreover, the Trust reserves the right at any time without prior
notice to suspend, limit, modify, or terminate the Telephone
Exchange Privilege in its entirety. Because such a step would be
taken only if the Board of Trustees believes it would be in the
best interests of the Funds, the Trust expects that it would
provide shareholders with prior written notice of any such action
unless it appears that the resulting delay in the suspension,
limitation, modification, or termination of the Telephone Exchange
Privilege would adversely affect the Funds. IF THE TRUST WERE TO
SUSPEND, LIMIT, MODIFY, OR TERMINATE THE TELEPHONE EXCHANGE
PRIVILEGE, A SHAREHOLDER EXPECTING TO MAKE A TELEPHONE EXCHANGE
MIGHT FIND THAT AN EXCHANGE COULD NOT BE PROCESSED OR THAT THERE
MIGHT BE A DELAY IN THE IMPLEMENTATION OF THE EXCHANGE. (See How
to Redeem Shares--By Exchange.) During periods of volatile
economic and market conditions, you may have difficulty placing
your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange Privilege
to automatically redeem a fixed amount from your Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 1
<PAGE> 25
800 338-2550. The proceeds will be sent by check to your
registered address. The Telephone Redemption by Check Privilege
is not available to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser.
Telephone Redemption by Wire Privilege . You may use this
Privilege to redeem an amount of $1,000 or more from your account
by calling 1 800 338-2550. The proceeds will be transmitted by
wire to your account at a commercial bank previously designated by
you that is a member of the Federal Reserve System. The fee for
wiring proceeds (currently $3.50 per transaction) will be deducted
from the amount wired.
Electronic Transfer Privilege. You may redeem shares by calling 1
800 338-2550 and requesting an electronic transfer ("Special
Redemption") of the proceeds to a checking account previously
designated by you at a bank that is a member of the Automated
Clearing House or at scheduled intervals ("Automatic Redemptions"-
-see Shareholder Services). Electronic transfers are subject to a
$50 minimum and a $100,000 maximum. A Special Redemption request
received by telephone after 2:00 p.m., Chicago time, is deemed
received on the next business day.
GENERAL REDEMPTION POLICIES.
You may not cancel or revoke your redemption order once
instructions have been received and accepted. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions. Please telephone
the Trust if you have any questions about requirements for a
redemption before submitting your request. If you wish to redeem
shares held by a tax-sheltered retirement plan sponsored by the
Adviser, special procedures of those plans apply to such
redemptions. (See Shareholder Services--Tax-Sheltered Retirement
Plans.) The Trust reserves the right to require a properly
completed Application before making payment for shares redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon that Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the
Funds intend to pay proceeds of a Telephone Redemption paid by
wire on the next business day. If you attempt to redeem shares
within 15 days after they have been purchased by check or
electronic transfer, the Trust may delay payment of the redemption
proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such
delays, the Trust recommends that your purchase be made by federal
funds wire through your bank.
The Trust reserves the right at any time without prior notice to
suspend, limit, modify, or terminate any Privilege or its use in
any manner by any person or class. A shareholder would be
notified that his account is below the minimum and allowed 30 days
to increase the account before the redemption is processed.
<PAGE> 26
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Funds employ
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Funds and
their transfer agent to tape-record all instructions to redeem.
In addition, callers are asked to identify the account number and
registration, and may be required to provide other forms of
identification. Written confirmations of transactions are mailed
promptly to the registered address; a legend on the confirmation
requests the shareholder to review the transactions and inform the
Fund immediately if there is a problem. If a Fund does not follow
reasonable procedures for protecting shareholders against loss on
telephone transactions, it may be liable for any losses due to
unauthorized or fraudulent instructions.
Generally, you may not use the Exchange Privilege or any Special
Redemption Privilege to redeem shares purchased by check (other
than certified or cashiers' checks) or electronic transfer until
15 days after their date of purchase.
The Trust reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not
have a value of at least $1,000. A shareholder would be notified
that his account is below the minimum and allowed 30 days to
increase the account before the redemption is processed.
Shares in any account you maintain with a Fund or any of the other
Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers or any Stein Roe Fund liability under the
Internal Revenue Code provisions on backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS.
You will receive a confirmation statement reflecting each of your
purchases and redemptions of shares of a Fund, as well as periodic
statements detailing distributions made by that Fund. Shares
purchased by reinvestment of dividends, by cross-reinvestment of
dividends from another Fund, or pursuant to an automatic
investment plan will be confirmed to you quarterly. In addition,
the Trust will send you semiannual and annual reports showing Fund
portfolio holdings and will provide you annually with tax
information.
FUNDS-ON-CALL [REGISTERED MARK] 24-HOUR INFORMATION SERVICE.
To access the Stein Roe Funds-on-Call [Registered mark] automated
telephone service, just call 1 800 338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-Call
[Registered mark] provides yields, prices, latest dividends,
account balances, last transaction, and other information 24 hours
a day, seven days a week.
<PAGE> 27
FUNDS-ON-CALL [REGISTERED MARK] AUTOMATED TELEPHONE TRANSACTIONS.
If you have established the Funds-on-Call [Registered mark]
transaction privilege (Funds-on-Call [Registered mark] Application
will be required), you may initiate Special Investments and
Redemptions, Telephone Exchanges, and Telephone Redemptions by
Check 24 hours a day, seven days a week by calling 1 800 338-2550
on a touch-tone telephone. These transactions are subject to the
terms and conditions of the individual privileges. (See How to
Purchase Shares and How to Redeem Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM.
The Adviser offers a Stein Roe Counselor [Service mark] and a
Stein Roe Counselor Preferred [Service mark] program. The
programs are designed to provide investment guidance in helping
investors to select a portfolio of Stein Roe Mutual Funds. The
Stein Roe Counselor Preferred [Service mark] program, which
automatically adjusts client portfolios, has a fee of up to 1% of
assets.
RECORDKEEPING AND ADMINISTRATION SERVICES.
If you oversee or administer investments for a group of investors,
we offer a variety of services.
TAX-SHELTERED RETIREMENT PLANS.
Booklets describing the following programs and special forms
necessary for establishing them are available on request. You may
use all of the Stein Roe Funds, except those investing primarily
in tax-exempt securities, in these plans. Please read the
prospectus for each fund in which you plan to invest before making
your investment.
Individual Retirement Accounts ("IRAs") for employed persons and
their non-employed spouses.
Prototype Money Purchase Pension and Profit-Sharing Plans for
self-employed individuals, partnerships, and corporations.
Simplified Employee Pension Plans permitting employers to provide
retirement benefits to their employees by utilizing IRAs while
minimizing administration and reporting requirements.
SPECIAL SERVICES.
The following special services are available to shareholders.
Please call 1 800 338-2550 or write the Trust for additional
information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size that each distribution will usually be at least
$25. The account into which distributions are to be invested may
be opened with an initial investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank checking account.
Telephone Redemption by Wire Privilege--to redeem shares from your
account by phone and have the proceeds transmitted by wire to your
checking account ($1,000 minimum).
<PAGE> 28
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your Application. (See How to Redeem Shares--Special
Redemption Privileges.)
Special Redemption Option (electronic transfer)--to redeem shares
at any time and have the proceeds deposited directly to your bank
checking account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--to purchase Fund shares
at regular intervals directly from your bank checking account ($50
minimum; $100,000 maximum).
Special Investments (electronic transfer)--to purchase Fund shares
by telephone and pay for them by electronic transfer of funds from
your checking account ($50 minimum; $100,000 maximum).
Automatic Exchange Plan--to automatically redeem a fixed dollar
amount from your Fund account and invest it in another Stein Roe
Fund account on a regular basis ($50 minimum; $100,000 maximum).
Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank checking account ($50 minimum; $100,000 maximum).
Systematic Withdrawals--to have a fixed dollar amount, declining
balance, or fixed percentage of your account redeemed and sent at
regular intervals by check to you or another payee.
NET ASSET VALUE
The purchase and redemption price of each Fund's shares is its net
asset value per share. The net asset value of a share of each
Fund is determined as of the close of trading on the New York
Stock Exchange (currently 3:00 p.m., Chicago time) by dividing the
difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Net asset value will not be
determined on days when the Exchange is closed unless, in the
judgment of the Board of Trustees, the net asset value of a Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
Securities for which market quotations are readily available at
the time of valuation are valued on that basis. Long-term
straight-debt securities for which market quotations are not
readily available are valued at a fair value based on valuations
provided by pricing services approved by the Board, which may
employ electronic data processing techniques, including a matrix
system, to determine valuations. Short-term debt securities with
remaining maturities of 60 days or less are valued at their
amortized cost, which does not take into account unrealized gains
or losses. The Board believes that the amortized cost represents
a fair value for such securities. Short-term debt securities with
remaining maturities of more than 60 days for which market
quotations are not readily available are valued by use of a matrix
prepared by the Adviser based on
<PAGE> 29
quotations for comparable securities. Other assets and securities
held by a Fund for which these valuation methods do not produce a
fair value are valued by a method that the Board believes will
determine a fair value.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are declared each business day, paid monthly, and
confirmed at least quarterly. Each Fund intends to distribute by
the end of each calendar year at least 98% of any net capital
gains realized from the sale of securities during the twelve-month
period ended October 31 in that year. The Funds intend to
distribute any undistributed net investment income and net
realized capital gains in the following year.
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check, (2) deposited by
electronic transfer into your bank checking account, (3) applied
to purchase shares in your account with another Stein Roe Fund, or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment
normally occurs on the payable date. The Trust reserves the right
to reinvest the proceeds and future distributions in additional
Fund shares if checks mailed to you for distributions are returned
as undeliverable or are not presented for payment within six
months.
INCOME TAXES.
Your distributions will be taxable to you, under income tax law,
whether received in cash or reinvested in additional shares. For
federal income tax purposes, any distribution that is paid in
January but was declared in the prior calendar year is deemed paid
in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gain.
Distributions of net long-term capital gain will be taxable to you
as long-term capital gain regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions.
If you are not subject to tax on your income, you will not be
required to pay tax on these amounts.
If you redeem shares of a Fund held for six months or less, any
loss on the sale of those shares will be a long-term capital loss
to the extent of any distributions of long-term capital gain you
have received with respect to those shares.
For federal income tax purposes, each Fund is treated as a
separate taxable entity distinct from the other series of the
Trust.
This section is not intended to be a full discussion of income tax
laws and their effect on shareholders. You may wish to consult
your own tax advisor.
<PAGE> 30
BACKUP WITHHOLDING.
If (a) you fail to (i) furnish your properly certified social
security or other tax identification number or (ii) certify that
your tax identification number is correct or that you are not
subject to backup withholding due to the underreporting of certain
income, or (b) the Internal Revenue Service informs the Trust that
your tax identification number is incorrect, the Trust may be
required to withhold federal income tax ("backup withholding")
from certain payments (including redemption proceeds) to you.
These certifications are contained in the Application that you
should complete and return when you open an account. The Funds
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for a Fund to reimburse you for amounts
withheld. However, you may claim the amount withheld as a credit
on your federal income tax return.
INVESTMENT RETURN
The total return from an investment in a Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
The yield of a Fund is calculated by dividing its net investment
income per share (a hypothetical figure as defined in the SEC
rules) during a 30-day period by the net asset value per share on
the last day of the period. The yield formula provides for
semiannual compounding, which assumes that net investment income
is earned and reinvested at a constant rate and annualized at the
end of a six-month period.
Comparison of a Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. Yield figures are not based on
actual dividends paid. Past performance is not necessarily
indicative of future results. To obtain current yield or total
return information, you may call 1 800 338-2550 or write to the
address shown on the back cover.
MANAGEMENT OF THE FUNDS
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Funds. See Management in the
Statement of Additional Information for the names of and other
information about the trustees and officers.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
investment portfolios and the business
<PAGE> 31
affairs of the Funds and the Trust, subject to the direction of
the Board. The Adviser is registered as an investment adviser
under the Investment Advisers Act of 1940.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had advised and managed
mutual funds since 1949. The Adviser is a wholly-owned indirect
subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual").
In approving the use of a single combined prospectus, the Board
considered the possibility that one Fund might be liable for
misstatements in the prospectus regarding information concerning
another Fund.
PORTFOLIO MANAGERS.
Michael T. Kennedy has been portfolio manager of Government Income
Fund and Intermediate Bond Fund since 1988. He is a vice-
president of the Trust, a senior vice president of the Adviser,
and has been associated with the Adviser since 1987. From 1984 to
1987, he was employed by Homewood Federal Savings and Loan. A
chartered financial analyst and a chartered investment counselor,
he received his B.S. degree from Marquette University in 1984 and
his M.M. from Northwestern University in 1988. Mr. Kennedy is
secretary of the Adviser's Fixed Income Policy Committee and
managed $414 million in mutual fund assets for the Adviser as of
June 30, 1995. Mr. Kennedy is also associate portfolio manager of
Income Fund and Limited Maturity Income Fund.
Steven P. Luetger has been portfolio manager of Limited Maturity
Income Fund since February 1995 and is associate portfolio manager
of Government Income Fund and Intermediate Bond Fund. Mr. Luetger
joined the Adviser in 1978 and is a senior vice president. He
received his B.A. from Knox College in 1975 and M.B.A. from the
University of Chicago in 1980. As of June 30, 1995, Mr. Luetger
managed $28 in mutual fund assets for the Adviser.
Ann H. Benjamin, a vice-president of the Trust, became portfolio
manager of the Income Fund in January, 1990. She is a senior vice
president of the Adviser and has been associated with the Adviser
since 1989. A chartered financial analyst, she received her
B.B.A. from Chatham College in 1980 and her M.A. from Carnegie
Mellon University in 1985. Ms. Benjamin managed $212 million in
mutual fund assets for the Adviser as of June 30, 1995, serves as
High-Yield Credit Research Manager for the Adviser, and is a
member of the Adviser's Fixed-Income Credit Review Committee.
FEES AND EXPENSES.
In return for its investment advisory and administrative services,
the Adviser receives a monthly fee from each Fund based on its
average net assets, computed and accrued daily. The annualized
fee for Limited Maturity Income Fund is .60 of 1% of the first
$100 million of average net assets, .55 of 1% of the next $100
million, and .50 of 1% thereafter; that of Intermediate Bond Fund
is .50 of 1% of average net assets; that of Government Income Fund
is .60 of 1% of the first $100 million and .55 of 1% thereafter;
and that of Income Fund is .65 of 1% of the first $100 million and
.60 of 1% thereafter. For the fiscal year ended June 30, 1995,
pursuant to the expense undertaking described under Fee Table, the
Adviser reimbursed Limited Maturity Income Fund $234,580,
resulting in a net payment by the Adviser to the Fund of $62,279.
For the fiscal year ended June 30, 1995, the fees for Government
Income Fund, Intermediate Bond Fund
<PAGE> 32
and Income Fund, after each Fund's expense limitation described
under Fee Table, amounted to .51%, .49% and .60% of average net
assets, respectively.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Funds including
computation of each Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts for the
Funds. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly-owned indirect subsidiary of Liberty
Mutual, is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
DISTRIBUTOR.
The shares of each Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Funds or to their shareholders. The
Distributor is a wholly-owned indirect subsidiary of Liberty
Mutual. The business address of the Distributor is 600 Atlantic
Avenue, Boston, Massachusetts 02210; however, all Fund
correspondence (including purchase and redemption orders) should
be mailed to the Trust at P.O. Box 804058, Chicago, Illinois
60680. All distribution and promotional expenses are paid by the
Adviser, including payments to the Distributor for sales of Fund
shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Funds. Foreign securities are maintained in the custody of
foreign banks and trust companies that are members of the Bank's
Global Custody Network or foreign depositories used by such
members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 3, 1986, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, six series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
<PAGE> 33
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust is
also believed to be remote, because it would be limited to claims
to which the disclaimer did not apply and to circumstances in
which the other Fund was unable to meet its obligations.
<PAGE> 34
CERTIFICATE OF AUTHORIZATION (FOR USE BY CORPORATIONS AND
ASSOCIATIONS ONLY)
A corporation or association must complete this Certificate and
submit it with the Fund Application, each written redemption,
transfer or exchange request, and each request to terminate or
change any of the Privileges or special service elections.
If the entity submitting the Certificate is an association, the
word "association" shall be deemed to appear each place the word
"corporation" appears. If the officer signing this Certificate is
named as an authorized person, another officer must countersign
the Certificate. If there is no other officer, the person signing
the Certificate must have his signature guaranteed. If you are
not sure whether you are required to complete this Certificate,
call the office of the Stein Roe Funds, 1 800 338-2550 toll-free.
The undersigned hereby certifies that he is the duly elected
Secretary of ____________________________ (the "Corporation")
(name of Corporation/Association)
and that the following individual(s):
Authorized Persons
_____________________________ __________________________
Name Title
_____________________________ __________________________
Name Title
_____________________________ __________________________
Name Title
is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or
redeem shares of that Fund payable to any person or in any manner,
or to redeem shares of that Fund and apply the proceeds of such
redemption to purchase shares of another Fund (an "exchange"), and
to execute any necessary forms in connection therewith.
Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.
If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that the
Corporation's Charter and Bylaws provide that he is the only
person authorized to so act.
Unless expressly declined on the Application (or other form
acceptable to the Funds), the undersigned further certifies that
the Corporation has authorized by resolution or otherwise the
establishment of the Telephone Exchange and Telephone Redemption
by Check Privileges for the Corporation's account with any Fund
offering any such Privilege. If elected on the Application (or
other form acceptable to the Funds), the undersigned also
certifies that the Corporation has similarly authorized
establishment of the Electronic Transfer, Telephone Redemption by
Wire, and Check-Writing Privileges for the Corporation's account
with any Fund offering said Privileges. The undersigned has
further authorized each Fund and its transfer agent to honor any
written, telephonic, or telegraphic instructions furnished
pursuant to any such Privilege by any person believed by the Fund
or its transfer agent or their agents, officers, directors,
trustees, or employees to be authorized to act on behalf of the
Corporation and agrees that neither the Fund nor its transfer
agent, their agents, officers, directors, trustees, or employees
will be liable for any loss, liability, cost, or expense for
acting upon any such instructions.
These authorizations shall continue in effect until five business
days after the Fund and its transfer agent receive written notice
from the Corporation of any change.
IN WITNESS WHEREOF, I have hereunto subscribed my name as
Secretary and affixed the seal of this Corporation this ____ day
of ___________________, 19___.
__________________________
Secretary
__________________________
Signature Guarantee*
*Only required if the person signing the Certificate is the only
person named as "Authorized Person."
Corporate
Seal
Here
<PAGE> 35
[STEIN ROE MUTUAL FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves
Stein Roe Cash Reserves
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals
Stein Roe Managed Municipals
Stein Roe High-Yield Municipals
Stein Roe Total Return Fund
Stein Roe Prime Equities
Stein Roe Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Special Venture Fund
P.O. Box 804058
Chicago, Illinois 60680
1 800 338-2550
In Chicago, visit our Fund Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
02009
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE CASH RESERVES
The Fund seeks to obtain maximum current income consistent with
capital preservation and maintenance of liquidity. The Fund
invests solely in money market instruments maturing in thirteen
months or less from time of investment.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" money market fund and attempts to maintain
its net asset value at $1.00 per share. SHARES OF THE FUND ARE
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE
CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE. There are no sales or
redemption charges, and the Fund has no 12b-1 plan.
The Fund is a series of the STEIN ROE INCOME TRUST, an open-end
management investment company. This prospectus contains
information you should know before investing in the Fund. Please
read it carefully and retain it for future reference.
A Statement of Additional Information dated November 1, 1995,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 1
800 322-1130. The Statement of Additional Information contains
information relating to other series of the Stein Roe Income Trust
that may not be available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1995
TABLE OF CONTENTS
Page
Fee Table ....................2
Financial Highlights..........2
The Fund......................3
How the Fund Invests..........4
Restrictions on the Fund's
Investments ................5
Risks and Investment
Considerations ..............5
How to Purchase Shares .......6
How to Redeem Shares .........6
Net Asset Value ..............7
Distributions and Income
Taxes........................7
Management of the Fund........8
Organization and Description
of Shares...................9
For More Information..........9
___________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None*
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets)
Management Fees 0.50%
12b-1 Fees None
Other Expenses 0.22%
-----
Total Fund Operating Expenses 0.72%
-----
-----
________________
*There is a $3.50 charge for wiring redemption proceeds to your
bank.
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$7 $23 $40 $89
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year, adjusted to
reflect the change in transfer agency services and fees. (Also
see Management of the Fund--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts for the Fund listed under Annual Fund Operating
Expenses remain the same during each of the periods, that all
income dividends and capital gain distributions are reinvested in
additional Fund shares, and that, for purposes of management fee
breakpoints, the Fund's net assets remain at the same level as in
the most recently completed fiscal year. The figures in the
Example are not necessarily indicative of past or future expenses,
and actual expenses may be greater or less than those shown.
Although information such as that shown above is useful in
reviewing the Fund's expenses and in providing a basis for
comparison with other mutual funds, it should not be used for
comparison with other investments using different assumptions or
time periods. The example does not reflect any charges or
expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction
with the financial statements and notes thereto, which may be
obtained from the Trust upon request without charge.
<TABLE>
<CAPTION>
Six
Months
Ended
Years Ended December 31, June 30, Years Ended June 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net investment income 0.075 0.061 0.060 0.032 0.081 0.079 0.068 0.044 0.028 0.028 0.048
Distributions from net
investment income (0.075) (0.061) (0.060) (0.032) (0.081) (0.079) (0.068) (0.044) (0.028) (0.028) (0.048)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
NET ASSET VALUE,
END OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Ratio of expenses to
average net assets 0.72% 0.72% 0.72% *0.70% 0.75% 0.76% 0.78% 0.78% 0.79% 0.79% 0.76%
Ratio of net investment
income to average net
assets 7.55% 6.05% 6.02% *6.36% 8.13% 7.94% 6.81% 4.40% 2.81% 2.77% 4.83%
Total return 7.79% 6.25% 6.15% *6.43% 8.41% 8.20% 6.98% 4.49% 2.83% 2.81% 4.96%
Net assets, end of
period (000 omitted) $738,634 $814,544 $962,901 $930,074 $948,018 $949,803 $840,525 $711,087 $627,110 $554,713 $498,163
<FN>
*Annualized.
</TABLE>
___________________________
THE FUND
STEIN ROE CASH RESERVES (the "Fund") is a no-load, diversified
"mutual fund." Mutual funds sell their own shares to investors
and use the money they receive to invest in a portfolio of
securities. A mutual fund allows you to pool your money with that
of other investors in order to obtain professional investment
management. Mutual funds generally make it possible for you to
obtain greater diversification of your investments and simplify
your recordkeeping. Because the Fund invests only in money market
instruments, it is called a "money market fund." No-load funds do
not impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the Stein Roe Income Trust (the "Trust"),
an open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory and administrative services to the Fund. The
Adviser also manages several other no-load mutual funds with
different investment objectives, including equity funds,
international funds, money market funds, and taxable and tax-
exempt bond funds. To obtain prospectuses and other information
on opening a regular account in any of these mutual funds, please
call 1 800 338-2550.
Although there can be no assurance that it will always be able to
do so, the Fund follows procedures designed to stabilize its price
per share at $1.00. The Statement of Additional Information
describes these procedures.
Because the Fund strives to maintain a $1.00 per share value, its
return is usually quoted either as a current seven-day yield,
calculated by totaling the dividends on a Fund share for the
previous seven days and restating that yield as an annual rate, or
as an effective yield, calculated by adjusting the current yield
to assume daily compounding. The Fund's current and effective
yields for the seven-day period ended September 30, 1995, were
___% and ___%, respectively. To obtain current yield information,
you may call 1 800 338-2550.
The Fund may also quote total return figures from time to time.
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Past performance is not necessarily indicative of future
results.
___________________________
HOW THE FUND INVESTS
The Fund seeks to obtain maximum current income consistent with
the preservation of capital and the maintenance of liquidity by
investing all of its assets in U.S. dollar-denominated money
market instruments maturing in thirteen months or less from time
of investment. Each security must be rated (or be issued by an
issuer that is rated with respect to its short-term debt) within
the highest rating category for short-term debt by at least two
nationally recognized statistical rating organizations ("NRSRO"),
or, if unrated, determined by or under the direction of the Board
of Trustees to be of comparable quality. These securities may
include:
(1) Securities issued or guaranteed by the U.S. Government or by
its agencies or instrumentalities ("U.S. Government
Securities").
(2) Securities issued or guaranteed by the government of any
foreign country that are rated at time of purchase A or better
(or equivalent rating) by at least one NRSRO. /1/
(3) Certificates of deposit, bankers' acceptances and time
deposits of any bank (U.S. or foreign) having total assets in
excess of $1 billion, or the equivalent in other currencies (as
of the date of the most recent available financial statements)
or of any branches, agencies or subsidiaries (U.S. or foreign)
of any such bank.
(4) Commercial paper of U.S. or foreign issuers.
(5) Notes, bonds, and debentures rated at time of purchase A or
better (or equivalent rating) by at least one NRSRO.
(6) Repurchase agreements /2/ involving securities listed in (1)
above.
__________________
/1/ For a description of certain NRSRO commercial paper, note, and
bond ratings, see the Appendix to the Statement of Additional
Information.
/2/ A sale of securities to the Fund in which the seller (a bank
or securities dealer which the Adviser believes to be
financially sound) agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time.
_____________________
(7) Other high-quality short-term obligations.
In accordance with its investment objectives and policies, the
Fund may invest in variable and floating rate money market
instruments which provide for periodic or automatic adjustment in
coupon interest rates that are reset based on changes in amount
and directions of specified short-term interest rates.
Under normal market conditions, the Fund will invest at least 25%
of its total assets in securities of issuers in the financial
services industry (which includes, but is not limited to, banks,
personal credit and business credit institutions, and other
financial services institutions).
The Fund maintains a dollar-weighted average portfolio maturity
appropriate to its objective of maintaining a stable net asset
value per share, and not in excess of 90 days. It is a
fundamental policy that the maturity of any instrument that grants
the holder an optional right to redeem at par plus interest and
without penalty will be deemed at any time to be the next date
provided for payment on exercise of such optional redemption
right.
___________________________
RESTRICTIONS ON THE
FUND'S INVESTMENTS
The Fund will not: (1) invest more than 10% of its net assets in
illiquid securities, including repurchase agreements maturing in
more than seven days (however, there is otherwise no limitation on
the percentage of the Fund's assets which may be invested in
repurchase agreements); or (2) with respect to 75% of its total
assets, invest more than 5% of its total assets in the securities
of any one issuer except that this restriction does not apply to
U.S. Government Securities or repurchase agreements for such
securities. Notwithstanding the limitation on investments in a
single issuer, the Fund may invest all of its assets in another
registered investment company having the same investment objective
and substantially similar investment policies as the Fund.
The Fund may not make loans except that it may invest in money
market securities and enter into repurchase agreements. The Fund
may not borrow money, except as a temporary measure for
extraordinary or emergency purposes, and then the aggregate
borrowings at any one time may not exceed 33 1/3% of its assets
(at market value). The Fund may not purchase additional
securities when its borrowings, less proceeds receivable from
sales of portfolio securities, exceed 5% of total assets.
The policies described in the preceding two paragraphs, which
summarize certain important investment restrictions of the Fund,
and the policy with respect to concentration of investment in the
financial services industry, can be changed only with the approval
of a "majority of the outstanding voting securities" of the Fund,
as defined in the Investment Company Act of 1940. All of the
investment restrictions are set forth in the Statement of
Additional Information.
___________________________
RISKS AND INVESTMENT
CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. There can be no
guarantee that the Fund will achieve its objective or be able at
all times to maintain its net asset value per share at $1.00.
In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and losses, including: (a)
possible decline in the value of the collateral during the period
while the Fund seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing its rights.
The Fund's investment objective is not fundamental and may be
changed by the Board of Trustees without a vote of shareholders.
If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial
position and needs.
The Fund's policy of investing at least 25% of its assets in
securities of issuers in the financial services industry may cause
the Fund to be more adversely affected by changes in market or
economic conditions and other circumstances affecting the
financial services industry. Because the Fund's investment policy
permits it to invest in: securities of foreign branches of U.S.
banks (Eurodollars), U.S. branches of foreign banks (Yankee
dollars), and foreign banks and their foreign branches, such as
negotiable certificates of deposit; securities of foreign
governments; and securities of foreign issuers, such as commercial
paper and corporate notes, bonds and debentures, investment in the
Fund might involve risks that are different in some respects from
an investment in a fund that invests only in debt obligations of
U.S. domestic issuers. Such risks may include future political
and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on securities held in
the portfolio, possible seizure or nationalization of foreign
deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions that might
adversely affect the payment of principal and interest on
securities in the portfolio. Additionally, there may be less
public information available about foreign banks and their
branches. Foreign banks and foreign branches of foreign banks are
not regulated by U.S. banking authorities, and generally are not
bound by accounting, auditing, and financial reporting standards
comparable to U.S. banks.
The Fund may invest in securities purchased on a when-issued or
delayed-delivery basis. Although the payment terms of these
securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed and the yields then available in the market may be
greater. The Fund will make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if it is deemed advisable for
investment reasons.
The Fund may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Fund binds itself to accept delivery of a security at the
option of the other party to the agreement.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in money market securities directly, the Fund
may in the future seek to achieve its investment objective by
pooling all of its assets with assets of other mutual funds
managed by the Adviser for investment in another registered
investment company having the same investment objective and
substantially the same investment policies and restrictions as the
Fund. It is expected that any such investment company would be
managed by the Adviser in substantially the same manner as the
Fund. The purpose of such an arrangement is to achieve greater
operational efficiencies and reduce costs. Shareholders of the
Fund will be given at least 30 days' prior notice of any such
investment, although they will not be entitled to vote on the
action. Such investment would be made only if the trustees
determine it to be in the best interests of the Fund and its
shareholders.
___________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; however, you
may redeem the shares. The Trust reserves the right not to accept
any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.
___________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.
___________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is normally determined twice each day: at 11:00 a.m., Chicago
time, and as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., Chicago time). The net asset value
per share is computed by dividing the difference between the
values of the Fund's assets and liabilities by the number of
shares outstanding and rounding to the nearest cent. Net asset
value will not be determined on days when the Exchange is closed
unless, in the judgment of the Board of Trustees, the net asset
value of the Fund should be determined on any such day, in which
case the determination will be made at 3:00 p.m., Chicago time.
The Fund attempts to maintain its net asset value at $1.00 per
share. Portfolio securities are valued based on their amortized
cost, which does not take into account unrealized gains or losses.
Other assets and securities of the Fund for which this valuation
method does not produce a fair value are valued at a fair value
determined by the Board. The extent of any deviation between the
Fund's net asset value based upon market quotations or equivalents
and $1.00 per share based on amortized cost will be examined by
the Board of Trustees. If such deviation were to exceed 1/2 of
1%, the Board would consider what action, if any, should be taken,
including selling portfolio instruments, increasing, reducing or
suspending distributions, or redeeming shares in kind.
___________________________
DISTRIBUTIONS AND
INCOME TAXES
DISTRIBUTIONS.
A dividend from net income of the Fund is declared each business
day to shareholders of record immediately before 3:00 p.m.,
Chicago time. Dividends credited to your account are distributed
monthly. If the Fund's net asset value per share were to decline,
or were believed likely to decline, below $1.00 (rounded to the
nearest cent), the Board might temporarily reduce or suspend
dividends in an effort to maintain net asset value at $1.00 per
share.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital gain
distributions will be reinvested in additional shares of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
___________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. The Fund's Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing the Fund's investment portfolio
and the business affairs of the Fund and the Trust, subject to the
direction of the Board. The Adviser is registered as an
investment adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had advised and managed
mutual funds since 1949. The Adviser is a wholly-owned indirect
subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual").
FEES AND EXPENSES.
In return for its services, the Adviser receives a monthly fee
from the Fund, computed and accrued daily, based on the Fund's
average net assets. Effective November 1, 1995, the annualized
fee is .50 of 1% on the first $500 million, .45 of 1% of the next
$500 million, and .40 of 1% on assets over $1 billion. Prior to
that date, the fee was .50 of 1% on the first one billion
dollars, 19/480 of 1% (.475 of 1% annually) on the next five
hundred million dollars, and 3/80 of 1% (.45 of 1% annually)
thereafter. The annualized fee amounted to .50% of average net
assets for the year ended June 30, 1995.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of the
Fund's portfolio securities. In doing so, the Adviser seeks to
obtain the best combination of price and execution, which involves
a number of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly-owned indirect subsidiary of Liberty Mutual, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly-owned indirect subsidiary of Liberty
Mutual. The business address of the Distributor is 600 Atlantic
Avenue, Boston, Massachusetts 02210; however, all Fund
correspondence (including purchase and redemption orders) should
be mailed to the Trust at P.O. Box 804058, Chicago, Illinois
60680. All distribution and promotional expenses are paid by the
Adviser, including payments to the Distributor for sales of Fund
shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)
___________________________
ORGANIZATION AND
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 3, 1986, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, six series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust is
also believed to be remote, because it would be limited to claims
to which the disclaimer did not apply and to circumstances in
which the other series was unable to meet its obligations.
___________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 1 800 322-
1130 for more information about this Fund.
__________________
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE GOVERNMENT RESERVES
The Fund seeks to obtain maximum current income consistent with
safety of capital and maintenance of liquidity. The Fund invests
in U.S. Government Securities maturing in thirteen months or less
from the date of purchase and repurchase agreements for U.S.
Government Securities regardless of the maturities of such
securities. U.S. Government Securities include securities issued
or guaranteed by the U.S. Government or by its agencies or
instrumentalities.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" money market fund and attempts to maintain
its net asset value at $1.00 per share. SHARES OF THE FUND ARE
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT AND THERE
CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund is a
series of the STEIN ROE INCOME TRUST, an open-end management
investment company. This prospectus contains information you
should know before investing in the Fund. Please read it
carefully and retain it for future reference.
A Statement of Additional Information dated November 1, 1995,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 1
800 322-1130. The Statement of Additional Information contains
information relating to other series of the Stein Roe Income Trust
that may not be available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1995
TABLE OF CONTENTS
Page
Fee Table .............................2
Financial Highlights...................2
The Fund...............................3
How the Fund Invests...................4
Restrictions on the Fund's Investments 4
Risks and Investment Considerations... 5
How to Purchase Shares................ 6
How to Redeem Shares.................. 6
Net Asset Value .......................7
Distributions and Income Taxes.........7
Management of the Fund.................7
Organization and Description of Shares.8
For More Information...................9
___________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None*
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (after expense
reimbursement) (as a percentage of average net assets)
Management Fees (after expense reimbursement) 0.45%
12b-1 Fees None
Other Expenses 0.25%
-----
Total Fund Operating Expenses (after expense
reimbursement) 0.70%
-----
-----
___________________
*There is a $3.50 charge for wiring redemption proceeds to your
bank.
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
7 22 39 87
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year. (Also see
Management of the Fund--Fees and Expenses.) From time to time,
the Adviser may voluntarily absorb certain expenses of the Fund.
The Adviser has agreed to voluntarily absorb the Fund's expenses
to the extent that they exceed 0.70 of 1% of average net assets
through October 31, 1996, subject to earlier termination by the
Adviser on 30 days' notice. Any such absorption will temporarily
lower the Fund's overall expense ratio and increase its overall
return to investors. Absent such expense undertaking, Total Fund
Operating Expenses would have been 0.75%.
For purposes of the Example above, the figures assume that the
percentage amounts for the Fund listed under Annual Fund Operating
Expenses remain the same during each of the periods and that all
income dividends and capital gain distributions are reinvested in
additional Fund shares. The figures in the Example are not
necessarily indicative of past or future expenses, and actual
expenses may be greater or less than those shown. Although
information such as that shown above is useful in reviewing the
Fund's expenses and in providing a basis for comparison with other
mutual funds, it should not be used for comparison with other
investments using different assumptions or time periods. The
example does not reflect any charges or expenses related to your
employer's plan.
___________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction
with the financial statements and notes thereto, which may be
obtained from the Trust upon request without charge.
<TABLE>
<CAPTION>
Years Ended June 30,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income 0.064 0.050 0.058 0.080 0.078 0.066 0.044 0.027 0.027 0.047
Distributions from net
investment income (0.064) (0.050) (0.058) (0.080) (0.078) (0.066) (0.044) (0.027) (0.027) (0.047)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of net expenses to
average net assets (a) 1.03% 1.03% 0.87% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment
income to average net
assets (b) 6.35% 4.97% 5.75% 8.02% 7.79% 6.41% 4.27% 2.75% 2.71% 4.65%
Total return 6.57% 5.11% 5.90% 8.27% 8.05% 6.74% 4.45% 2.78% 2.74% 4.78%
Net assets, end of
period (000 omitted) $33,232 $34,799 $41,787 $50,185 $53,400 $102,860 $132,982 $104,220 $105,488 $93,318
<FN>
(a) If the Fund had paid all of its expenses and there
had been no reimbursement of expenses by the Adviser, this
ratio would have been 1.07%, 1.05%, 1.04%, 0.93%, 0.98%, 0.83%,
0.79%, 0.76%, 0.75% and 0.75% for the years ended June 30, 1985
and 1986, and 1988 through 1995, respectively.
(b) Computed giving effect to the Adviser's expense limitation
undertaking.
___________________________
THE FUND
STEIN ROE GOVERNMENT RESERVES (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a portfolio
of securities. A mutual fund allows you to pool your money with
that of other investors in order to obtain professional investment
management. Mutual funds generally make it possible for you to
obtain greater diversification of your investments and simplify
your recordkeeping. Because the Fund invests only in money market
instruments, it is called a "money market fund." No-load funds do
not impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the Stein Roe Income Trust (the "Trust"),
an open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory and administrative services to the Fund. The
Adviser also manages several other no-load mutual funds with
different investment objectives, including equity funds,
international funds, money market funds, and taxable and tax-
exempt bond funds. To obtain prospectuses and other information on
opening a regular account in any of these mutual funds, please
call 1 800 338-2550.
Although there can be no assurance that it will always be able to
do so, the Fund follows procedures designed to stabilize its price
per share at $1.00. The Statement of Additional Information
describes these procedures.
Because the Fund strives to maintain a $1.00 per share value, its
return is usually quoted either as a current seven-day yield,
calculated by totaling the dividends on a Fund share for the
previous seven days and restating that yield as an annual rate, or
as an effective yield, calculated by adjusting the current yield
to assume daily compounding. The Fund's current and effective
yields for the seven-day period ended September 30, 1995, were
___% and ___%, respectively. Absent the expense limitation
referred to above, current and effective yields for the seven-day
period ended September 30, 1995, would have been ___% and ___%,
respectively. To obtain current yield information, you may call 1
800 338-2550.
The Fund may also quote total return figures from time to time.
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Past performance is not necessarily indicative of future
results.
___________________________
HOW THE FUND INVESTS
The Fund seeks to obtain maximum current income consistent with
safety of capital and maintenance of liquidity by investment in
U.S. Government Securities maturing in thirteen months or less
from the date of purchase. These securities include:
(1)Securities issued by the U.S. Treasury.
(2)Securities issued or guaranteed as to principal and interest by
agencies or instrumentalities of the U.S. Government that are
backed by the full faith and credit guarantee of the U.S.
Government.
(3)Securities issued or guaranteed as to principal and interest by
agencies or instrumentalities of the U.S. Government that are
not backed by the full faith and credit guarantee of the U.S.
Government.
(4)Repurchase agreements /1/ for securities listed in (1), (2),
and (3) above, regardless of the maturities of such underlying
securities.
-----------------
/1/ A sale of securities to the Fund in which the seller (a bank
or securities dealer which the Adviser believes to be financially
sound) agrees to repurchase the securities at a higher price,
which includes an amount representing interest on the purchase
price, within a specified time.
------------------
The U.S. Government Securities in which the Fund is permitted to
invest include: (i) bills, notes, bonds, and other debt
securities, differing as to maturity and rates of interest, that
are issued by and are direct obligations of the U.S. Treasury; and
(ii) other securities that are issued or guaranteed as to
principal and interest by agencies or instrumentalities of the
U.S. Government and that include, but are not limited to, Federal
Farm Credit Banks, Federal Home Loan Banks, Government National
Mortgage Association, Farmers Home Administration, Federal Home
Loan Mortgage Corporation, and Federal National Mortgage
Association.
In accordance with its investment objectives and policies, the
Fund may invest in variable and floating rate money market
instruments which provide for periodic or automatic adjustment in
coupon interest rates that are reset based on changes in amount
and directions of specified short-term interest rates.
___________________________
RESTRICTIONS ON THE
FUND'S INVESTMENTS
The Fund will not: (1) invest more than 10% of its net assets in
illiquid securities, including repurchase agreements maturing in
more than seven days (however, there is otherwise no limitation on
the percentage of the Fund's assets which may be invested in
repurchase agreements); or (2) with respect to 75% of its total
assets, invest more than 5% of its total assets in the securities
of any one issuer except that this restriction does not apply to
U.S. Government Securities or repurchase agreements for such
securities. Notwithstanding the limitation on investments in a
single issuer, the Fund may invest all of its assets in another
registered investment company having the same investment objective
and substantially similar investment policies as the Fund.
The Fund may not make loans except that it may invest in money
market securities and enter into repurchase agreements. The Fund
may not borrow money, except as a temporary measure for
extraordinary or emergency purposes, and then the aggregate
borrowings at any one time may not exceed 33 1/3% of its assets
(at market value). The Fund may not purchase additional
securities when its borrowings, less proceeds receivable from
sales of portfolio securities, exceed 5% of total assets.
The policies described in the preceding two paragraphs, which
summarize certain important investment restrictions of the Fund,
can be changed only with the approval of a "majority of the
outstanding voting securities" of the Fund, as defined in the
Investment Company Act of 1940. All of the investment
restrictions are set forth in the Statement of Additional
Information.
___________________________
RISKS AND INVESTMENT
CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. There can be no
guarantee that the Fund will achieve its objective or be able at
all times to maintain its net asset value per share at $1.00.
In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and losses, including: (a)
possible decline in the value of the collateral during the period
while the Fund seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing its rights.
The Fund's investment objective is not fundamental and may be
changed by the Board of Trustees without a vote of shareholders.
If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial
position and needs.
Because the Fund's investment policy permits it to invest in U.S.
Government Securities that are not backed by the full faith and
credit of the U.S. Treasury, investment in the Fund may involve
risks that are different in some respects from an investment in a
fund that invests only in securities that are backed by the full
faith and credit of the U.S. Treasury. Such risks may include a
greater risk of loss of principal and interest on the securities
in the Fund's portfolio that are supported only by the issuing or
guaranteeing U.S. Government agency or instrumentality since the
Fund must look principally or solely to that entity for ultimate
repayment.
The Fund may invest in securities purchased on a when-issued or
delayed-delivery basis. Although the payment terms of these
securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed and the yields then available in the market may be
greater. The Fund will make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if it is deemed advisable for
investment reasons.
The Fund may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Fund binds itself to accept delivery of a security at the
option of the other party to the agreement.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in money market securities directly, the Fund
may in the future seek to achieve its investment objective by
pooling all of its assets with assets of other mutual funds
managed by the Adviser for investment in another investment
company having the same investment objective and substantially the
same investment policies and restrictions as the Fund. It is
expected that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund. The purpose
of such an arrangement is to achieve greater operational
efficiencies and reduce costs. Shareholders of the Fund will be
given at least 30 days' prior notice of any such investment,
although they will not be entitled to vote on the action. Such
investment would be made only if the trustees determine it to be
in the best interests of the Fund and its shareholders.
___________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; however, you
may redeem the shares. The Trust reserves the right not to accept
any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.
___________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.
___________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is normally determined twice each day: at 11:00 a.m., Chicago
time, and as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., Chicago time). The net asset value
per share is computed by dividing the difference between the
values of the Fund's assets and liabilities by the number of
shares outstanding and rounding to the nearest cent. Net asset
value will not be determined on days when the Exchange is closed
unless, in the judgment of the Board of Trustees, the net asset
value of the Fund should be determined on any such day, in which
case the determination will be made at 3:00 p.m., Chicago time.
The Fund attempts to maintain its net asset value at $1.00 per
share. Portfolio securities are valued based on their amortized
cost, which does not take into account unrealized gains or losses.
Other assets and securities of the Fund for which this valuation
method does not produce a fair value are valued at a fair value
determined by the Board. The extent of any deviation between the
Fund's net asset value based upon market quotations or equivalents
and $1.00 per share based on amortized cost will be examined by
the Board of Trustees. If such deviation were to exceed 1/2 of
1%, the Board would consider what action, if any, should be taken,
including selling portfolio instruments, increasing, reducing or
suspending distributions, or redeeming shares in kind.
___________________________
DISTRIBUTIONS AND
INCOME TAXES
DISTRIBUTIONS.
A dividend from net income of the Fund is declared each business
day to shareholders of record immediately before 3:00 p.m.,
Chicago time. Dividends credited to your account are distributed
monthly. If the Fund's net asset value per share were to decline,
or were believed likely to decline, below $1.00 (rounded to the
nearest cent), the Board might temporarily reduce or suspend
dividends in an effort to maintain net asset value at $1.00 per
share.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital gain
distributions will be reinvested in additional shares of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
___________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. The Fund's Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing the Fund's investment portfolio
and the business affairs of the Fund and the Trust, subject to the
direction of the Board. The Adviser is registered as an
investment adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had advised and managed
mutual funds since 1949. The Adviser is a wholly-owned indirect
subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual").
FEES AND EXPENSES.
In return for its services, the Adviser receives a monthly fee
from the Fund, computed and accrued daily, based on the Fund's
average net assets. Effective November 1, 1995, the annualized
fee is .50 of 1% on the first $500 million, .45 of 1% of the next
$500 million, and .40 of 1% on assets over $1 billion. Prior to
that date, the fee was .50 of 1% of average net assets. The
annualized fee, after the expense limitation described under Fee
Table amounted to .45% of average net assets, for the year ended
June 30, 1995.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of the
Fund's portfolio securities. In doing so, the Adviser seeks to
obtain the best combination of price and execution, which involves
a number of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly-owned indirect subsidiary of Liberty Mutual, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly-owned indirect subsidiary of Liberty
Mutual. The business address of the Distributor is 600 Atlantic
Avenue, Boston, Massachusetts 02210; however, all Fund
correspondence (including purchase and redemption orders) should
be mailed to the Trust at P.O. Box 804058, Chicago, Illinois
60680. All distribution and promotional expenses are paid by the
Adviser, including payments to the Distributor for sales of Fund
shares.
CUSTODIAN.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, is the custodian for the Fund. (See
Custodian in the Statement of Additional Information.)
___________________________
ORGANIZATION AND
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 3, 1986, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, six series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust is
also believed to be remote, because it would be limited to claims
to which the disclaimer did not apply and to circumstances in
which the other series was unable to meet its obligations.
___________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 1 800 322-
1130 for more information about this Fund.
_________________
<PAGE>
[STEINROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE LIMITED MATURITY INCOME FUND
The Fund seeks high current income by investing primarily in U.S.
Government and other high-quality debt securities. The dollar-
weighted average effective maturity will not exceed three years.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INCOME TRUST, an open-end management investment
company.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated November 1, 1995,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 1 800
322-1130. The Statement of Additional Information contains
information relating to other series of the Stein Roe Income Trust
that may not be available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1995
TABLE OF CONTENTS
Page
Fee Table .................................2
Financial Highlights.......................2
The Fund...................................3
How the Fund Invests.......................3
Portfolio Investments and Strategies.......4
Restrictions on the Fund's Investments ....7
Risks and Investment Considerations .......8
How to Purchase Shares ....................9
How to Redeem Shares ......................9
Net Asset Value ..........................10
Distributions and Income Taxes............10
Investment Return.........................10
Management of the Fund....................11
Organization and Description of Shares....12
For More Information......................12
___________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (after expense
reimbursement) (as a percentage of average
net assets)
Management Fees (after expense reimbursement) 0.00%
12b-1 Fees None
Other Expenses (after expense reimbursement) 0.65%
------
Total Fund Operating Expenses (after expense
reimbursement) 0.65%
------
------
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of each
time period:
1 year 3 years 5 years 10 years
------- -------- ------- --------
$7 $21 $36 $81
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year, adjusted for the
expense limitation in effect on November 1, 1995. From time to
time, the Adviser may voluntarily absorb certain expenses of the
Fund. The Adviser has agreed to voluntarily absorb the Fund's
expenses to the extent they exceed 0.65% of average net assets
through October 31, 1996, subject to earlier termination by the
Adviser on 30 days' notice. Any such absorption will temporarily
lower the Fund's overall expense ratio and increase its overall
return to investors. Prior to November 1, 1995, the Adviser
undertook to reimburse the Fund for expenses in excess of 0.45%.
Absent such expense undertaking, the Management Fees, Other
Expenses, and Total Fund Operating Expenses would have been 0.60%,
0.67%, and 1.27%, respectively. (Also see Management of the Fund--
Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same during each of the periods, and that all
income dividends and capital gain distributions are reinvested in
additional Fund shares.
The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less than
those shown. Although information such as that shown above is
useful in reviewing the Fund's expenses and in providing a basis
for comparison with other mutual funds, it should not be used for
comparison with other investments using different assumptions or
time periods. The example does not reflect any charges or expenses
related to your employer's plan.
________________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on a
per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction with
the Fund's financial statements and notes thereto. The Fund's
annual report, which may be obtained from the Trust upon request
without charge, contains additional performance information.
Period
Ended
June 30, Years Ended June 30,
1993 (a) 1994 1995
-------- ------- ------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.01 $9.61
-------- ------- ------
Income from Investment Operation
Net investment income .12 .47 .56
Net realized and unrealized gains
on investments .01 (.40) .09
-------- ------- ------
Total from investment operations .13 .07 .65
Distributions from net investment
income (.12) (.47) (.56)
-------- ------- ------
NET ASSET VALUE, END OF PERIOD $10.01 $9.61 $9.70
-------- ------- ------
-------- ------- ------
Ratio of net expenses to average
net assets (b) *0.45% 0.45% 0.45%
Ratio of net investment income to
average net assets (c) *4.18% 4.81% 5.83%
Portfolio turnover rate **20% 122% 64%
Total return **1.43% 0.66% 6.96%
Net assets, end of period
(000 omitted) $7,619 $35,383 $27,907
*Annualized.
**Not annualized.
(a) The Fund commenced operations on March 11, 1993.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the Adviser, these ratios would
have been 3.63% for the period ended June 30, 1993 and 1.14%
and 1.27% for the years ended June 30, 1994 and 1995.
(c) Computed giving effect to the Adviser's expense limitation
undertaking.
___________________________
THE FUND
STEIN ROE LIMITED MATURITY INCOME FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and invest the proceeds in a portfolio of securities. A
mutual fund allows you to pool your money with that of other
investors in order to obtain professional investment management and
economies of scale from the sharing of expenses. Mutual funds
generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping. No-load funds do not impose commissions or charges
when shares are purchased or redeemed.
The Fund is a series of the Stein Roe Income Trust (the "Trust"),
an open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory and administrative services to the Fund. The
Adviser also manages several other no-load mutual funds with
different investment objectives, including equity funds,
international funds, other taxable bond funds, tax-exempt bond
funds, and money market funds. To obtain prospectuses and other
information on opening a regular account in any of these mutual
funds, please call 1 800 338-2550.
___________________________
HOW THE FUND INVESTS
The Fund's investment objective is to provide a high level of
current income, consistent with the preservation of capital. The
Fund attempts to achieve its objective by investing primarily in
securities issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies or instrumentalities ("U.S.
Government Securities") and other high-quality fixed-income
securities. Depending on market conditions, the Fund may invest a
substantial portion of its assets in mortgage-backed debt
securities issued by GNMA, FNMA, and FHLMC. Further information on
portfolio investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
In addition, the Fund may invest in principal portions or coupon
portions of U.S. Government Securities that have been separated
(stripped) by banks, brokerage firms, or other entities. Stripped
securities are usually sold separately in the form of receipts or
certificates representing undivided interests in the stripped
portion and are not considered to be issued or guaranteed by the
U.S. Government. Stripped securities may be more volatile than
non-stripped securities. The staff of the Securities and Exchange
Commission believes that stripped securities are illiquid. The
Fund has temporarily agreed to treat stripped securities as subject
to the Fund's restriction on investment in illiquid securities.
The Fund may also invest in other types of debt securities;
however, under normal circumstances, at least 65% of the Fund's
total assets will be invested in U.S. Government Securities, non-
U.S. Government Securities that are rated at least AA by Standard &
Poor's Corporation ("S&P") or Aa by Moody's Investors Service, Inc.
("Moody's") and high-quality money market instruments. The Fund
may invest up to 35% of its assets in other debt securities that
are rated at least investment grade (BBB by S&P or Baa by Moody's).
Securities rated BBB by S&P or by Moody's are neither highly
protected nor poorly secured. Such securities have some
speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity
of the issuers of such securities to make principal and interest
payments than is the case for issuers of higher grade securities.
If the rating of a security held by the Fund is lost or reduced
below investment grade, the Fund is not required to dispose of the
security, but the Adviser will consider that fact in determining
whether the Fund should continue to hold the security.
Under normal circumstances, the dollar-weighted average maturity of
the portfolio is expected to be no more than ten years. The
average dollar-weighted maturity of the portfolio is the dollar-
weighted average of the stated maturities of all debt instruments
held in the portfolio. In addition, it is expected that under
normal circumstances, the Fund will invest at least 65% of its
total assets in securities with an effective maturity of three
years or less and that the dollar-weighted average effective
maturity of the portfolio will not exceed three years. The
effective maturity of a debt instrument is the weighted average
period over which the Adviser expects the principal to be paid, and
differs from stated maturity in that it estimates the effect of
expected principal prepayments and call provisions. With respect
to GNMA securities and other mortgage-backed securities, the
effective maturity is likely to be substantially less than the
stated maturity of the mortgages in the underlying pools. With
respect to obligations with call provisions, the effective maturity
is typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an effective maturity equal to their
stated maturity. During periods of rising interest rates, the
effective maturity of mortgage-backed securities and callable
obligations may increase because they are less likely to be
prepaid, which may result in greater net asset value fluctuation.
___________________________
PORTFOLIO INVESTMENTS
AND STRATEGIES
U.S. GOVERNMENT SECURITIES.
U.S. Government Securities include: (i) bills, notes, bonds, and
other debt securities, differing as to maturity and rates of
interest, that are issued by and are direct obligations of the U.S.
Treasury; and (ii) other securities that are issued or guaranteed
as to principal and interest by the U.S. Government or by its
agencies or instrumentalities and that include, but are not limited
to, Government National Mortgage Association ("GNMA"), Federal Farm
Credit Banks, Federal Home Loan Banks, Farmers Home Administration,
Federal Home Loan Mortgage Corporation ("FHLMC"), and Federal
National Mortgage Association ("FNMA"). U.S. Government Securities
are generally viewed by the Adviser as being among the safest of
debt securities with respect to the timely payment of principal and
interest (but not with respect to any premium paid on purchase),
but generally bear a lower rate of interest than corporate debt
securities. However, they are subject to market risk like other
debt securities, and therefore the Fund's shares can be expected to
fluctuate in value.
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad array
of financial instruments and securities, including conventional
exchange-traded and non-exchange traded options, futures contracts,
futures options, securities collateralized by underlying pools of
mortgages or other receivables, and other instruments, the value of
which is "derived" from the performance of an underlying asset or a
"benchmark" such as a security index, an interest rate, or a
currency ("Derivatives"). The Fund does not expect to invest more
than 5% of its net assets in any type of Derivative except for
options, futures contracts, futures options, mortgage or other
asset-backed securities, and floating rate instruments.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because it is more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less marketable
than exchange-traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
MORTGAGE AND OTHER ASSET-BACKED SECURITIES. The Fund may invest in
securities secured by mortgages or other assets such as automobile
or home improvement loans and credit card receivables. These
instruments may be issued or guaranteed by the U.S. Government or
by its agencies or instrumentalities or by private entities such as
commercial, mortgage and investment banks and financial companies
or financial subsidiaries of industrial companies.
Securities issued by GNMA represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the
Farmers Home Administration, or guaranteed by the Veterans
Administration. Securities issued by FNMA and FHLMC, U.S.
Government-sponsored corporations, also represent an interest in a
pool of mortgages.
The timely payment of principal and interest on GNMA securities is
guaranteed by GNMA and backed by the full faith and credit of the
U.S. Treasury. FNMA guarantees full and timely payment of interest
and principal on FNMA securities. FHLMC guarantees timely payment
of interest and ultimate collection of principal on FHLMC
securities. FNMA and FHLMC securities are not backed by the full
faith and credit of the U.S. Treasury.
Mortgage-backed debt securities, such as those issued by GNMA,
FNMA, and FHLMC, are of the "modified pass-through type," which
means the interest and principal payments on mortgages in the pool
are "passed through" to investors. During periods of declining
interest rates, there is increased likelihood that mortgages will
be prepaid, with a resulting loss of the full-term benefit of any
premium paid by the Fund on purchase of such securities; in
addition, the proceeds of prepayment would likely be invested at
lower interest rates.
Mortgage-backed securities provide either a pro rata interest in
underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") which represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities and are usually issued in multiple classes each
of which has different payment rights, pre-payment risks, and yield
characteristics. Mortgage-backed securities involve the risk of
pre-payment on the underlying mortgages at a faster or slower rate
than the established schedule. Pre-payments generally increase
with falling interest rates and decrease with rising rates but they
also are influenced by economic, social, and market factors. If
mortgages are pre-paid during periods of declining interest rates,
there would be a resulting loss of the full-term benefit of any
premium paid by the Fund on purchase of the CMO, and the proceeds
of pre-payment would likely be invested at lower interest rates.
The Fund tends to invest in CMOs of classes known as planned
amortization classes ("PACs") which have pre-payment protection
features tending to make them less susceptible to price volatility.
Non-mortgage asset-backed securities usually have less pre-payment
risk than mortgage-backed securities, but have the risk that the
collateral will not be available to support payments on the
underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.
Asset-backed securities tend to experience greater price volatility
than straight debt securities.
FLOATING RATE INSTRUMENTS. The Fund may also invest in floating
rate instruments which provide for periodic adjustments in coupon
interest rates that are automatically reset based on changes in
amount and direction of specified market interest rates. In
addition, the adjusted duration of some of these instruments may be
materially shorter than their stated maturities. To the extent
such instruments are subject to lifetime or periodic interest rate
caps or floors, such instruments may experience greater price
volatility than debt instruments without such features. Adjusted
duration is an inverse relationship between market price and
interest rates and refers to the approximate percentage change in
price for a 100 basis point change in yield. For example, if
interest rates decrease by 100 basis points, a market price of a
security with an adjusted duration of 2 would increase by
approximately 2%.
FUTURES AND OPTIONS. The Fund may purchase and write both call
options and put options on securities, indexes and foreign
currencies, and enter into interest rate, index and foreign
currency futures contracts and options on such futures contracts
and purchase other types of forward or investment contracts linked
to individual securities, indexes or other benchmarks in order to,
consistent with its investment objective, provide additional
revenue, or to hedge against changes in security prices, interest
rates, or currency fluctuations. The Fund may write a call or put
option only if the option is covered. As the writer of a covered
call option, the Fund foregoes, during the option's life, the
opportunity to profit from increases in market value of the
security covering the call option above the sum of the premium and
the exercise price of the call. There can be no assurance that a
liquid market will exist when the Fund seeks to close out a
position. Because of low margin deposits required, the use of
futures contracts involves a high degree of leverage, and may
result in losses in excess of the amount of the margin deposit.
FOREIGN SECURITIES.
Although the Fund may invest in foreign securities, it will not
invest in a foreign security if, as a result of such investment,
more than 25% of its total assets would be invested in foreign
securities. For purposes of this restriction, foreign securities
do not include securities represented by American Depositary
Receipts ("ADRs"), foreign debt securities denominated in U.S.
dollars, or securities guaranteed by a U.S. person such as a
corporation domiciled in the United States that is a parent or
affiliate of the issuer of the securities being guaranteed. The
Fund may invest in sponsored or unsponsored ADRs. In addition to,
or in lieu of, such direct investment, the Fund may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars, and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
At June 30, 1995, no assets of the Fund were invested in foreign
securities as defined above, and the Fund does not intend to invest
more than 5% of its net assets in such securities. (See Risks and
Investment Considerations.)
LENDING OF PORTFOLIO SECURITIES.
Subject to certain restrictions, the Fund may lend its portfolio
securities to broker-dealers and banks. Any such loan must be
continuously secured by collateral in cash or cash equivalents
maintained on a current basis in an amount at least equal to the
market value of the securities loaned by the Fund. The Fund would
continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and would also receive
an additional return that may be in the form of a fixed fee or a
percentage of the collateral. The Fund would have the right to
call the loan and obtain the securities loaned at any time on
notice of not more than five business days. In the event of
bankruptcy or other default of the borrower, the Fund could
experience both delays in liquidating the loan collateral or
recovering the loaned securities and losses including (a) possible
decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to enforce
its rights thereto, (b) possible subnormal levels of income and
lack of access to income during this period, and (c) expenses of
enforcing its rights.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; STANDBY COMMITMENTS.
The Fund's assets may include securities purchased on a when-issued
or delayed-delivery basis. Although the payment and interest terms
of these securities are established at the time the purchaser
enters into the commitment, the securities may be delivered and
paid for a month or more after the date of purchase, when their
value may have changed. The Fund makes such commitments only with
the intention of actually acquiring the securities, but may sell
the securities before settlement date if the Adviser deems it
advisable for investment reasons. Securities purchased in this
manner involve a risk of loss if the value of the security
purchased declines before settlement date.
When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that the Fund will sell
securities with a commitment to purchase similar, but not
identical, securities at a future date. Generally, the securities
are repurchased at a price lower than the sales price. Dollar roll
transactions involve the risk of restrictions on the Fund's ability
to repurchase the security if the counterparty becomes insolvent;
an adverse change in the price of the security during the period of
the roll or that the value of the security repurchased will be less
than the security sold; and transaction costs exceeding the return
earned by the Fund on the sales proceeds of the dollar roll.
The Fund may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Fund binds itself to accept delivery of a security at the
option of the other party to the agreement.
PORTFOLIO TURNOVER.
In attempting to attain its objective, the Fund may sell portfolio
securities without regard to the period of time they have been
held. Further, the Adviser may purchase and sell securities for
the Fund's portfolio with a view to maximizing current return, even
if portfolio changes would cause the realization of capital gains.
Although the weighted average effective maturity of the Fund's
portfolio generally will not exceed three years, the Adviser may
adjust the average effective maturity of the Fund's portfolio from
time to time, depending on its assessment of the relative yields
available on securities of different maturities and its
expectations of future changes in interest rates. As a result, the
turnover rate of the Fund may vary from year to year, and it may
exceed 100%, but is not expected to exceed 200% under normal market
conditions. A high rate of portfolio turnover may result in
increased transaction expenses and the realization of capital gains
(which may be taxable) or losses. (See Financial Highlights and
Distributions and Income Taxes.)
___________________________
RESTRICTIONS ON THE
FUND'S INVESTMENTS
The Fund may not invest in a security if, as a result of such
investment: (1) with respect to 75% of its assets, more than 5% of
its total assets would be invested in the securities of any one
issuer, except for U.S. Government Securities or repurchase
agreements for such securities, or (2) 25% or more of its total
assets would be invested in the securities of a group of issuers in
the same industry, except that this restriction does not apply to
U.S. Government Securities. Notwithstanding these limitations, the
Fund may invest all of its assets in another registered investment
company having the same investment objective and substantially
similar investment policies as the Fund.
The Fund may not make loans, except that, consistent with its
investment policies and restrictions, it may: (1) invest up to 100%
of its net assets in publicly offered or privately placed debt
securities, (2) lend its portfolio securities under certain
circumstances, and (3) enter into repurchase agreements./1/ The
Fund may not borrow money, except as a temporary measure for
extraordinary or emergency purposes, and then the Fund's aggregate
borrowings at any one time (including reverse repurchase agreements
and dollar rolls) may not exceed 33 1/3% of its total assets (at
market value). Additional securities may not be purchased when
borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets.
The policies set forth in the first two paragraphs under
Restrictions on the Fund's Investments (but not the footnote) are
fundamental policies of the Fund. The Statement of Additional
Information contains all of the investment restrictions.
-----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund with the concurrent agreement of the seller (bank or
securities dealer) to repurchase the securities at the same price
plus an amount equal to an agreed-upon interest rate within a
specified time. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses. The
Fund may not invest more than 10% of its net assets in repurchase
agreements maturing in more than seven days and other illiquid
securities.
-----------------
___________________________
RISKS AND INVESTMENT
CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although the Fund seeks
to reduce risk by investing in a diversified portfolio, this does
not eliminate all risk. The risks inherent in the Fund depend
primarily upon the term and quality of the obligations in the
Fund's portfolio, as well as on market conditions.
A decline in prevailing levels of interest rates generally
increases the value of securities in the Fund's portfolio, while an
increase in rates usually reduces the value of those securities.
As a result, interest rate fluctuations will affect the Fund's net
asset value, but not the income received by the Fund from its
portfolio securities. (Because yields on debt securities available
for purchase by the Fund vary over time, no specific yield on
shares of the Fund can be assured.) In addition, if the bonds in
the Fund's portfolio contain call, prepayment or redemption
provisions, during a period of declining interest rates, these
securities are likely to be redeemed, and the Fund will probably be
unable to replace them with securities having as great a yield.
The Fund is appropriate for investors who seek higher yields than
are usually available from money market instruments with stable
prices and shorter maturities, but who also want less net asset
fluctuation than that of a longer-term fund. Unlike money market
funds, however, the Fund does not seek to maintain a stable net
asset value and may not be able to return dollar-for-dollar the
money invested.
Investments in foreign securities, including ADRs, represent both
risks and opportunities not typically associated with investments
in domestic issuers. Risks of foreign investing include currency
risk, less complete financial information on issuers, less market
liquidity, more market volatility, less well-developed and
regulated markets, and greater political instability. In addition,
various restrictions by foreign governments on investments by non-
residents may apply, including imposition of exchange controls and
withholding taxes on dividends, and seizure or nationalization of
investments owned by non-residents. Foreign investments also tend
to involve higher transaction and custody costs.
The Fund may enter into foreign currency forward contracts and use
options and futures contracts as described elsewhere in this
prospectus to limit or reduce foreign currency risk.
There can be no assurance that the Fund will achieve its objective,
nor can the Fund assure that payments of interest and principal on
portfolio securities will be made when due. If, after purchase by
the Fund, the rating of a portfolio security is lost or reduced,
the Fund would not be required to sell the security, but the
Adviser would consider such a change in deciding whether the Fund
should retain the security in its portfolio.
The Fund's investment objective is not fundamental and may be
changed by the Board of Trustees without a vote of shareholders.
If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial
position and needs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by the Adviser for
investment in another investment company having the same investment
objective and substantially the same investment policies and
restrictions as the Fund. The purpose of such arrangement is to
achieve greater operational efficiencies and reduce costs. It is
expected that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund. Shareholders
of the Fund will be given at least 30 days' prior notice of any
such investment, although they will not be entitled to vote on the
action. Such investment would be made only if the trustees
determine it to be in the best interests of the Fund and its
shareholders.
___________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer. Shares
are sold to eligible defined contribution plans at the Fund's net
asset value (see Net Asset Value) next determined after receipt of
payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order has
been accepted, you may not cancel or revoke it; however, you may
redeem the shares. The Trust reserves the right not to accept any
purchase order that it determines not to be in the best interest of
the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.
___________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is open.
For more information about how to redeem your shares of the Fund
through your employer's plan, including any charges that may be
imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase shares
of any other Stein Roe Fund available through your employer's
defined contribution plan. (An exchange is commonly referred to as
a "transfer.") Before exercising the Exchange Privilege, you
should obtain the prospectus for the Stein Roe Fund in which you
wish to invest and read it carefully. Contact your plan
administrator for instructions on how to exchange your shares or to
obtain prospectuses of other Stein Roe Funds available through your
plan. The Fund reserves the right to suspend, limit, modify, or
terminate the Exchange Privilege or its use in any manner by any
person or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.
___________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York State
Exchange (currently 3:00 p.m., Chicago time) by dividing the
difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Net asset value will not be
determined on days when the Exchange is closed unless, in the
judgment of the Board of Trustees, the net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
Securities for which market quotations are readily available at the
time of valuation are valued on that basis. Long-term straight-
debt securities for which market quotations are not readily
available are valued at a fair value based on valuations provided
by pricing services approved by the Board, which may employ
electronic data processing techniques, including a matrix system,
to determine valuations. Short-term debt securities with remaining
maturities of 60 days or less are valued at their amortized cost,
which does not take into account unrealized gains or losses. The
Board believes that the amortized cost represents a fair value for
such securities. Short-term debt securities with remaining
maturities of more than 60 days for which market quotations are not
readily available are valued by use of a matrix prepared by the
Adviser based on quotations for comparable securities. Other
assets and securities held by the Fund for which these valuation
methods do not produce a fair value are valued by a method that the
Board believes will determine a fair value.
___________________________
DISTRIBUTIONS AND
INCOME TAXES
DISTRIBUTIONS.
Income dividends are declared each business day and are paid
monthly. The Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the twelve-month period ended October
31 in that year. The Fund intends to distribute any undistributed
net investment income and net realized capital gains in the
following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital gain
distributions will be reinvested in additional shares of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company" for
federal income tax purposes and to meet all other requirements that
are necessary for it to be relieved of federal taxes on income and
gain it distributes. The Fund will distribute substantially all of
its ordinary income and net capital gains on a current basis.
Generally, Fund distributions are taxable as ordinary income,
except that any distributions of net long-term capital gains will
be taxed as such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-exempt
treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You
should consult your tax advisor to determine the suitability of the
Fund as an investment through such a plan and the tax treatment of
distributions (including distributions of amounts attributable
through an investment in the Fund) from such a plan. This section
is not intended to be a full discussion of income tax laws and
their effect on shareholders.
___________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
The yield of the Fund is calculated by dividing its net investment
income per share (a hypothetical figure as defined in the SEC
rules) during a 30-day period by the net asset value per share on
the last day of the period. The yield formula provides for
semiannual compounding, which assumes that net investment income is
earned and reinvested at a constant rate and annualized at the end
of a six-month period.
Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does not
reflect any charges or expenses related to your employer's plan.
Yield figures are not based on actual dividends paid. Past
performance is not necessarily indicative of future results. To
obtain current yield or total return information, you may call 1
800 338-2550.
___________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and other information about
the trustees and officers. The Fund's Adviser, Stein Roe & Farnham
Incorporated, One South Wacker Drive, Chicago, Illinois 60606, is
responsible for managing the Fund's investment portfolio and the
business affairs of the Fund and the Trust, subject to the
direction of the Board. The Adviser is registered as an investment
adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had advised and managed
mutual funds since 1949. The Adviser is a wholly-owned indirect
subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual").
PORTFOLIO MANAGER.
Steven P. Luetger has been portfolio manager of the Fund since
February, 1995 and is a vice-president of the Fund. He is a senior
vice president of the Adviser and has been associated with the
Adviser since 1978. Mr. Luetger received his B.A. from Knox
College in 1975 and M.B.A. from the University of Chicago in 1980.
As of June 30, 1995, he was responsible for managing $28 million in
mutual fund assets. Mr. Luetger is assisted in managing the Fund
by Michael T. Kennedy. Mr. Kennedy is a vice-president of the
Trust, a senior vice president of the Adviser, and has been
associated with the Adviser since 1987. From 1984 to 1987, he was
employed by Homewood Federal Savings and Loan. A chartered
financial analyst and a chartered investment counselor, he received
his B.S. degree from Marquette University in 1984 and his M.M. from
Northwestern University in 1988.
FEES AND EXPENSES.
In return for its services, the Adviser receives a monthly fee from
the Fund based on the Fund's average net assets, computed and
accrued daily. The annualized fee that the Fund has agreed to pay
is 0.60 of 1% of the first $100 million of average net assets, 0.55
of 1% of the next $100 million, and 0.50 of 1% thereafter. For the
fiscal year ended June 30, 1995, pursuant to the expense
undertaking described under Fee Table, the Adviser reimbursed the
Fund $234,580, resulting in a net payment by the Adviser to the
Fund of $62,279.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts for the
Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly-owned indirect subsidiary of Liberty Mutual, is the
agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly-owned indirect subsidiary of Liberty
Mutual. The business address of the Distributor is 600 Atlantic
Avenue, Boston, Massachusetts 02210; however, all Fund
correspondence (including purchase and redemption orders) should be
mailed to the Trust at P.O. Box 804058, Chicago, Illinois 60680.
All distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the Fund.
Foreign securities are maintained in the custody of foreign banks
and trust companies that are members of the Bank's Global Custody
Network or foreign depositories used by such members. (See
Custodian in the Statement of Additional Information.)
___________________________
ORGANIZATION AND
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 3, 1986, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the Trust's
shareholders or its trustees. The Trust may issue an unlimited
number of shares, in one or more series as the Board may authorize.
Currently, six series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or having
been a shareholder. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is believed to
be remote, because it would be limited to circumstances in which
the disclaimer was inoperative and the Trust was unable to meet its
obligations.
The risk of a particular series incurring financial loss on account
of unsatisfied liability of another series of the Trust is also
believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other series was unable to meet its obligations.
___________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 1 800 322-
1130 for more information about this Fund.
_________________
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[STEINROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE GOVERNMENT INCOME FUND
The Fund seeks high current income by investing primarily in
securities issued or guaranteed by the U.S. Government or by its
agencies or instrumentalities.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INCOME TRUST, an open-end management investment
company.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated November 1, 1995,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 1
800 322-1130. The Statement of Additional Information contains
information relating to other series of the Stein Roe Income Trust
that may not be available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1995
TABLE OF CONTENTS
Page
Fee Table .................................2
Financial Highlights.......................2
The Fund...................................3
How the Fund Invests.......................4
Portfolio Investments and Strategies.......4
Restrictions on the Fund's Investments ....7
Risks and Investment Considerations .......7
How to Purchase Shares ....................8
How to Redeem Shares ......................8
Net Asset Value ...........................9
Distributions and Income Taxes.............9
Investment Return.........................10
Management of the Fund....................10
Organization and Description of Shares....11
For More Information .....................12
___________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (after expense
reimbursement) (as a percentage of average
net assets)
Management Fees (after expense reimbursement) 0.51%
12b-1 Fees None
Other Expenses 0.49%
------
Total Fund Operating Expenses (after
expense reimbursement) 1.00%
------
------
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------- -------- ------- --------
$10 $32 $55 $122
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year. From time to
time, the Adviser may voluntarily absorb certain expenses of the
Fund. The Adviser has agreed to voluntarily absorb the Fund's
expenses to the extent they exceed 1% of average net assets
through October 31, 1996, subject to earlier termination by the
Adviser on 30 days' notice. Any such absorption will temporarily
lower the Fund's overall expense ratio and increase its overall
return to investors. Absent such expense undertaking, Operating
Expenses would have been 1.09%. (Also see Management of the Fund-
-Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same during each of the periods, that all
income dividends and capital gain distributions are reinvested in
additional Fund shares, and that, for purposes of management fee
breakpoints, the Fund's net assets remain at the same level as in
the most recently completed fiscal year.
The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown above
is useful in reviewing the Fund's expenses and in providing a
basis for comparison with other mutual funds, it should not be
used for comparison with other investments using different
assumptions or time periods. The example does not reflect any
charges or expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis. The information for the years beginning after
June 30, 1987 has been audited by Ernst & Young LLP, independent
auditors. All of the auditors' reports related to information for
these periods were unqualified. The table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust upon request without charge, contains additional performance
information.
</TABLE>
<TABLE>
<CAPTION>
Period
Ended
June 30, Years Ended June 30,
1986(a) 1987 1988 1989 1990 1991 1992 1993 1994 1995
-------- ---- ----- ------ ------ ----- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $10.10 $ 9.79 $ 9.59 $ 9.77 $ 9.66 $ 9.81 $10.40 $10.46 $ 9.48
------ ---- ----- ------ ------ ----- ------ ------ ------- ------
Income from Investment
Operations
Net investment income .24 .72 .74 .78 .76 .75 .72 .64 .56 .62
Net realized and
unrealized gains
(losses) on investments .10 (.31) (.15) .18 (.11) .15 .59 .31 (.77) .37
------ ---- ----- ------ ------ ----- ------ ------ ------- ------
Total from investment
operations .34 .41 .59 .96 .65 .90 1.31 .95 (.21) .99
Distributions
Net investment income (.24) (.72) (.74) (.78) (.76) (.75) (.72) (.64) (.56) (.62)
Net realized capital
gains -- -- (.05) -- -- -- -- (.25) (.01) --
In excess of realized
gains -- -- -- -- -- -- -- -- (.20) --
------ ---- ----- ------ ------ ----- ------ ------ ------- ------
Total distributions (.24) (.72) (.79) (.78) (.76) (.75) (.72) (.89) (.77) (.62)
------ ---- ----- ------ ------ ----- ------ ------ ------- ------
NET ASSET VALUE,
END OF PERIOD $10.10 $ 9.79 $ 9.59 $ 9.77 $ 9.66 $ 9.81 $10.40 $10.46 $ 9.48 $ 9.85
------ ---- ----- ------ ------ ----- ------ ------ ------- ------
------ ---- ----- ------ ------ ----- ------ ------ ------- ------
Ratio of expenses to
average net assets (b) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 0.99% 0.95% 0.98% 1.00%
Ratio of net investment
income to average net
assets (c) *7.61% 7.13% 7.68% 8.19% 7.90% 7.65% 7.05% 6.25% 5.49% 6.56%
Portfolio turnover rate **91% 205% 237% 239% 181% 136% 139% 170% 167% 225%
Total return **3.35% 4.01% 6.35% 10.61% 6.92% 9.61% 13.75% 9.60% (2.26%) 10.94%
Net assets, end of
period (000 omitted) $11,970 $22,656 $26,859 $32,011 $46,853 $49,952 $58,978 $61,591 $45,836 $37,280
<FN>
* Annualized.
** Not annualized.
(a) The Fund commenced operations on March 5, 1986.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the Adviser, this ratio would have
been 3.33% for the period ended June 30, 1986, and 1.44%,
1.37%, 1.21%; 1.07% for the years ended June 30, 1987 through
1990, respectively; and 1.09% for the year ended June 30, 1995.
(c) Computed giving effect to the Adviser's expense limitation
undertaking.
</TABLE>
___________________________
THE FUND
The mutual fund offered by this prospectus is STEIN ROE GOVERNMENT
INCOME FUND (the "Fund"). The Fund is a no-load, diversified
"mutual fund." No-load funds do not impose commissions or charges
when shares are purchased or redeemed. Mutual funds sell their
own shares to investors and invest the proceeds in a portfolio of
securities. A mutual fund allows you to pool your money with that
of other investors in order to obtain professional investment
management. Mutual funds generally make it possible for you to
obtain greater diversification of your investments and simplify
your recordkeeping.
The Fund is a series of the Stein Roe Income Trust (the "Trust"),
an open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") is investment
adviser to the Fund. The Adviser also manages several other no-
load mutual funds with different investment objectives, including
other bond funds, equity funds, international funds, tax-exempt
bond funds, and money market funds. To obtain prospectuses and
other information on opening a regular account in any of these
mutual funds, please call 1 800 338-2550.
___________________________
HOW THE FUND INVESTS
The Fund's investment objective is to provide a high level of
current income. It invests primarily in securities issued or
guaranteed as to principal and interest by the U.S. Government or
by its agencies or instrumentalities ("U.S. Government
Securities"). Depending on market conditions, the Fund may invest
a substantial portion of its assets in mortgage-backed debt
securities issued by GNMA, FNMA, and FHLMC. Further information
on portfolio investments and strategies may be found under
Portfolio Investments and Strategies in this prospectus and in the
Statement of Additional Information.
Because the Fund's investment policy permits it to invest in U.S.
Government Securities that are not backed by the full faith and
credit of the U.S. Treasury, investment in the Fund may involve
risks that are different in some respects from an investment in a
fund that invests only in securities that are backed by the full
faith and credit of the U.S. Treasury. Such risks may include a
greater risk of loss of principal and interest on the securities
in the Fund's portfolio that are supported only by the issuing or
guaranteeing U.S. Government agency or instrumentality since the
Fund must look principally or solely to that entity for ultimate
repayment.
Under normal market conditions, the Fund will invest at least 80%
of its assets in U.S. Government Securities. The Fund may also
invest up to 20% of its assets in other types of debt securities,
including collateralized mortgage obligations ("CMOs") and
principal portions or coupon portions of U.S. Government
Securities that have been separated (stripped) by banks, brokerage
firms, or other entities. Stripped securities are usually sold
separately in the form of receipts or certificates representing
undivided interests in the stripped portion. CMOs are securities
collateralized by mortgages and mortgage-backed securities. CMOs
are not guaranteed by either the U.S. Government or by its
agencies or instrumentalities. Stripped securities may be more
volatile than non-stripped securities. The staff of the
Securities and Exchange Commission believes that stripped
securities are illiquid. The Fund has temporarily agreed to treat
stripped securities as subject to the Fund's restriction on
investment in illiquid securities. The Fund will invest in debt
securities rated at least investment grade or, if unrated, deemed
by the Adviser to be of comparable quality. Securities rated in
the fourth grade are neither highly protected nor poorly secured.
Such securities may have some speculative characteristics, and
changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity of the issuers of such
securities to make principal and interest payments than is the
case for issuers of higher grade securities. If the rating of a
security held by the Fund is lost or reduced below investment
grade, the Fund is not required to dispose of the security, but
the Adviser will consider that fact in determining whether the
Fund should continue to hold the security.
___________________________
PORTFOLIO INVESTMENTS
AND STRATEGIES
U.S. GOVERNMENT SECURITIES.
U.S. Government Securities include: (i) bills, notes, bonds, and
other debt securities, differing as to maturity and rates of
interest, that are issued by and are direct obligations of the
U.S. Treasury; and (ii) other securities that are issued or
guaranteed as to principal and interest by the U.S. Government or
by its agencies or instrumentalities and that include, but are not
limited to, Government National Mortgage Association ("GNMA"),
Federal Farm Credit Banks, Federal Home Loan Banks, Farmers Home
Administration, Federal Home Loan Mortgage Corporation ("FHLMC"),
and Federal National Mortgage Association ("FNMA"). U.S.
Government Securities are generally viewed by the Adviser as being
among the safest of debt securities with respect to the timely
payment of principal and interest (but not with respect to any
premium paid on purchase), but generally bear a lower rate of
interest than corporate debt securities. However, they are
subject to market risk like other debt securities, and therefore
the Fund's shares can be expected to fluctuate in value.
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, and other
instruments, the value of which is "derived" from the performance
of an underlying asset or a "benchmark" such as a security index,
an interest rate, or a currency ("Derivatives"). In each case,
the value of the instrument or security is "derived" from the
performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency. The Fund does
not expect to invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, futures options,
and mortgage or other asset-backed securities.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because it is more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
MORTGAGE-BACKED AND OTHER ASSET-BACKED SECURITIES. The Fund may
invest in securities secured by mortgages or other assets such as
automobile or home improvement loans and credit card receivables.
These instruments may be issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities or by private
entities such as commercial, mortgage and investment banks and
financial companies or financial subsidiaries of industrial
companies.
Securities issued by GNMA represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the
Farmers Home Administration, or guaranteed by the Veterans
Administration. Securities issued by FNMA and FHLMC, U.S.
Government-sponsored corporations, also represent an interest in a
pool of mortgages.
The timely payment of principal and interest on GNMA securities is
guaranteed by GNMA and backed by the full faith and credit of the
U.S. Treasury. FNMA guarantees full and timely payment of
interest and principal on FNMA securities. FHLMC guarantees
timely payment of interest and ultimate collection of principal on
FHLMC securities. FNMA and FHLMC securities are not backed by the
full faith and credit of the U.S. Treasury.
Mortgage-backed debt securities, such as those issued by GNMA,
FNMA, and FHLMC, are of the "modified pass-through type," which
means the interest and principal payments on mortgages in the pool
are "passed through" to investors. During periods of declining
interest rates, there is increased likelihood that mortgages will
be prepaid, with a resulting loss of the full-term benefit of any
premium paid by the Fund on purchase of such securities; in
addition, the proceeds of prepayment would likely be invested at
lower interest rates.
Mortgage-backed securities provide either a pro rata interest in
underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") which represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities and are usually issued in multiple classes each
of which has different payment rights, pre-payment risks, and
yield characteristics. Mortgage-backed securities involve the
risk of pre-payment on the underlying mortgages at a faster or
slower rate than the established schedule. Pre-payments generally
increase with falling interest rates and decrease with rising
rates but they also are influenced by economic, social, and market
factors. If mortgages are pre-paid during periods of declining
interest rates, there would be a resulting loss of the full-term
benefit of any premium paid by the Fund on purchase of the CMO,
and the proceeds of pre-payment would likely be invested at lower
interest rates. The Fund tends to invest in CMOs of classes known
as planned amortization classes ("PACs") which have pre-payment
protection features tending to make them less susceptible to price
volatility.
Non-mortgage asset-backed securities usually have less pre-payment
risk than mortgage-backed securities, but have the risk that the
collateral will not be available to support payments on the
underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.
Asset-backed securities tend to experience greater price
volatility than straight debt securities.
FUTURES AND OPTIONS. The Fund may purchase and write both call
options and put options on securities and on indexes, and enter
into interest rate and index futures contracts and options on such
futures contracts, consistent with its investment objective, in
order to provide additional revenue, or to hedge against changes
in security prices or interest rates. The Fund may write a call
or put option only if the option is covered. As the writer of a
covered call option, the Fund foregoes, during the option's life,
the opportunity to profit from increases in market value of the
security covering the call option above the sum of the premium and
the exercise price of the call. There can be no assurance that a
liquid market will exist when the Fund seeks to close out a
position. Because of low margin deposits required, the use of
futures contracts involves a high degree of leverage, and may
result in losses in excess of the amount of the margin deposit.
LENDING OF PORTFOLIO SECURITIES.
Subject to certain restrictions, the Fund may lend its portfolio
securities to broker-dealers and banks. Any such loan must be
continuously secured by collateral in cash or cash equivalents
maintained on a current basis in an amount at least equal to the
market value of the securities loaned by the Fund. The Fund would
continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and would also
receive an additional return that may be in the form of a fixed
fee or a percentage of the collateral. The Fund would have the
right to call the loan and obtain the securities loaned at any
time on notice of not more than five business days. In the event
of bankruptcy or other default of the borrower, the Fund could
experience both delays in liquidating the loan collateral or
recovering the loaned securities and losses including (a) possible
decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to
enforce its rights thereto, (b) possible subnormal levels of
income and lack of access to income during this period, and (c)
expenses of enforcing its rights.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; STANDBY COMMITMENTS.
The Fund's assets may include securities purchased on a when-
issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time the
purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. The Fund makes such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
the Adviser deems it advisable for investment reasons. Securities
purchased in this manner involve a risk of loss if the value of
the security purchased declines before the settlement date.
When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that the Fund will
sell securities with a commitment to purchase similar, but not
identical, securities at a future date. Generally, the securities
are repurchased at a price lower than the sales price. Dollar
roll transactions involve the risk of restrictions on the Fund's
ability to repurchase the security if the counterparty becomes
insolvent; an adverse change in the price of the security during
the period of the roll or that the value of the security
repurchased will be less than the security sold; and transaction
costs exceeding the return earned by the Fund on the sales
proceeds of the dollar roll.
The Fund may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Fund binds itself to accept delivery of a security at the
option of the other party to the agreement.
PORTFOLIO TURNOVER.
In seeking to attain its objective, the Fund may sell portfolio
securities without regard to the period of time they have been
held. Further, the Adviser may purchase and sell securities for
the Fund's portfolio with a view to maximizing current return,
even if portfolio changes would cause the realization of capital
gains. Although the average stated maturity of the Fund's
portfolio generally will exceed ten years, the Adviser may adjust
the average maturity of the Fund's portfolio from time to time,
depending on its assessment of the relative yields available on
securities of different maturities and its expectations of future
changes in interest rates. As a result, the turnover rate of the
Fund may vary from year to year. A high rate of portfolio
turnover may result in increased transaction expenses and the
realization of capital gains (which may be taxable) or losses.
(See Financial Highlights and Distributions and Income Taxes.)
___________________________
RESTRICTIONS ON THE
FUND'S INVESTMENTS
The Fund may not invest in a security if, as a result of such
investment: (1) with respect to 75% of its assets, more than 5% of
its total assets would be invested in the securities of any one
issuer, except for U.S. Government Securities or repurchase
agreements for such securities, or (2) 25% or more of its total
assets would be invested in the securities of a group of issuers
in the same industry, except that this restriction does not apply
to U.S. Government Securities. Notwithstanding these limitations,
the Fund may invest all of its assets in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund.
The Fund may not make loans, except that, consistent with its
investment policies and restrictions, it may: (1) invest up to
100% of its net assets in publicly offered or privately placed
debt securities, (2) lend its portfolio securities under certain
circumstances, and (3) enter into repurchase agreements. /1/ The
Fund may not borrow money, except as a temporary measure for
extraordinary or emergency purposes, and then the Fund's aggregate
borrowings at any one time (including reverse repurchase
agreements and dollar rolls) may not exceed 33 1/3% of its total
assets (at market value). Additional securities may not be
purchased when borrowings, less proceeds receivable from sales of
portfolio securities, exceed 5% of total assets.
--------------
/1/ A repurchase agreement involves a sale of securities to the
Fund with the concurrent agreement of the seller (bank or
securities dealer) to repurchase the securities at the same price
plus an amount equal to an agreed-upon interest rate within a
specified time. In the event of a bankruptcy or other default of
a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses. The
Fund may not invest more than 10% of its net assets in repurchase
agreements maturing in more than seven days and other illiquid
securities.
--------------
The policies set forth in the first two paragraphs under
Restrictions on the Fund's Investments (but not the footnote) are
fundamental policies of the Fund. The Statement of Additional
Information contains all of the investment restrictions.
___________________________
RISKS AND INVESTMENT
CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although the Fund seeks
to reduce risk by investing in a diversified portfolio, this does
not eliminate all risk. The risks inherent in the Fund depend
primarily upon the term and quality of the obligations in the
Fund's portfolio, as well as on market conditions.
A decline in prevailing levels of interest rates generally
increases the value of securities in the Fund's portfolio, while
an increase in rates usually reduces the value of those
securities. As a result, interest rate fluctuations will affect
the Fund's net asset value, but not the income received by the
Fund from its portfolio securities. (Because yields on debt
securities available for purchase by the Fund vary over time, no
specific yield on shares of the Fund can be assured.) In
addition, if the bonds in the Fund's portfolio contain call,
prepayment or redemption provisions, during a period of declining
interest rates, these securities are likely to be redeemed, and
the Fund will probably be unable to replace them with securities
having as great a yield.
The Fund is designed for investors who seek high income with
minimum risk other than the risk of changes in net asset value
caused by fluctuations in prevailing levels of interest rates.
There can be no assurance that the Fund will achieve its
objective, nor can the Fund assure that payments of interest and
principal on portfolio securities will be made when due. If,
after purchase by the Fund, the rating of a portfolio security is
lost or reduced, the Fund would not be required to sell the
security, but the Adviser would consider such a change in deciding
whether the Fund should retain the security in its portfolio.
The Fund's investment objective is not fundamental and may be
changed by the Board of Trustees without a vote of shareholders.
If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial
position and needs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by the Adviser
for investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. It is expected that any such investment company
would be managed by the Adviser in substantially the same manner
as the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the trustees determine it to be in the best interests of
the Fund and its shareholders.
___________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; however, you
may redeem the shares. The Trust reserves the right not to accept
any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.
___________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.
___________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., Chicago time) by dividing the
difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Net asset value will not be
determined on days when the Exchange is closed unless, in the
judgment of the Board of Trustees, the net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
Securities for which market quotations are readily available at
the time of valuation are valued on that basis. Long-term
straight-debt securities for which market quotations are not
readily available are valued at a fair value based on valuations
provided by pricing services approved by the Board, which may
employ electronic data processing techniques, including a matrix
system, to determine valuations. Short-term debt securities with
remaining maturities of 60 days or less are valued at their
amortized cost, which does not take into account unrealized gains
or losses. The Board believes that the amortized cost represents
a fair value for such securities. Short-term debt securities with
remaining maturities of more than 60 days for which market
quotations are not readily available are valued by use of a matrix
prepared by the Adviser based on quotations for comparable
securities. Other assets and securities held by the Fund for
which these valuation methods do not produce a fair value are
valued by a method that the Board believes will determine a fair
value.
___________________________
DISTRIBUTIONS AND
INCOME TAXES
DISTRIBUTIONS.
Income dividends are declared each business day and are paid
monthly. The Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the twelve-month period ended
October 31 in that year. The Fund intends to distribute any
undistributed net investment income and net realized capital gains
in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital gain
distributions will be reinvested in additional shares of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
___________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
The yield of the Fund is calculated by dividing its net investment
income per share (a hypothetical figure as defined in the SEC
rules) during a 30-day period by the net asset value per share on
the last day of the period. The yield formula provides for
semiannual compounding, which assumes that net investment income
is earned and reinvested at a constant rate and annualized at the
end of a six-month period.
Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Yield figures are not based on actual dividends paid. Past
performance is not necessarily indicative of future results. To
obtain current yield or total return information, you may call 1
800 338-2550.
___________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See Management in the
Statement of Additional Information for the names of and other
information about the trustees and officers. The Adviser, Stein
Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
Illinois 60606, is responsible for managing the investment
portfolio and the business affairs of the Fund and the Trust,
subject to the direction of the Board. The Adviser is registered
as an investment adviser under the Investment Advisers Act of
1940.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had advised and managed
mutual funds since 1949. The Adviser is a wholly-owned indirect
subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual").
PORTFOLIO MANAGER.
Michael T. Kennedy has been portfolio manager of the Fund since
1988. He is a vice-president of the Trust, a senior vice
president of the Adviser, and has been associated with the Adviser
since 1987. From 1984 to 1987, he was employed by Homewood
Federal Savings and Loan. A chartered financial analyst and a
chartered investment counselor, he received his B.S. degree from
Marquette University in 1984 and his M.M. from Northwestern
University in 1988. Mr. Kennedy is secretary of the Adviser's
Fixed Income Policy Committee and managed $414 million in mutual
fund assets for the Adviser as of June 30, 1995. Steven P.
Luetger is associate portfolio manager for the Fund. Mr. Luetger
joined the Adviser in 1978 and is a senior vice president. He
received his B.A. from Knox College in 1975 and M.B.A. from the
University of Chicago in 1980.
FEES AND EXPENSES.
In return for its investment advisory and administrative services,
the Adviser receives a monthly fee from the Fund based on its
average net assets, computed and accrued daily. The annualized
fee for the Fund is .60 of 1% of the first $100 million and .55 of
1% thereafter. For the fiscal year ended June 30, 1995, the fee
for the Fund amounted to .51% of average net assets after the
expense limitation described under Fee Table.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts for the
Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly-owned indirect subsidiary of Liberty
Mutual, is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly-owned indirect subsidiary of Liberty
Mutual. The business address of the Distributor is 600 Atlantic
Avenue, Boston, Massachusetts 02210; however, all Fund
correspondence (including purchase and redemption orders) should
be mailed to the Trust at P.O. Box 804058, Chicago, Illinois
60680. All distribution and promotional expenses are paid by the
Adviser, including payments to the Distributor for sales of Fund
shares.
CUSTODIAN.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, is the custodian for the Fund. (See
Custodian in the Statement of Additional Information.)
___________________________
ORGANIZATION AND
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 3, 1986, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, six series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust is
also believed to be remote, because it would be limited to claims
to which the disclaimer did not apply and to circumstances in
which the other series was unable to meet its obligations.
___________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 1 800 322-
1130 for more information about this Fund.
_________________
<PAGE>
[STEINROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE INTERMEDIATE BOND FUND
The Fund seeks high current income by investing primarily in
marketable debt securities. The dollar-weighted average life of
the Fund's portfolio is expected to be between three and ten
years.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INCOME TRUST, an open-end management investment
company.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated November 1, 1995,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 1
800 322-1130. The Statement of Additional Information contains
information relating to other series of the Stein Roe Income Trust
that may not be available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1995
TABLE OF CONTENTS
Page
Fee Table .............................2
Financial Highlights...................2
The Fund...............................3
How the Fund Invests...................4
Portfolio Investments and Strategies...5
Restrictions on the Fund's Investments 7
Risks and Investment Considerations ...8
How to Purchase Shares ................9
How to Redeem Shares ..................9
Net Asset Value ......................10
Distributions and Income Taxes........10
Investment Return.....................11
Management of the Fund................11
Organization and Description of
Shares.............................12
For More Information..................13
___________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (after expense
reimbursement) (as a percentage of average
net assets)
Management Fees (after expense reimbursement) 0.49%
12b-1 Fees None
Other Expenses 0.21%
Total Fund Operating Expenses (after expense
reimbursement) 0.70%
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------- -------- ------- --------
$7 $22 $39 $87
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year, adjusted for the
expense limitation in effect on May 1, 1995. From time to time,
the Adviser may voluntarily absorb certain expenses of the Fund.
Effective May 1, 1995, the Adviser has agreed to voluntarily
absorb the Fund's expenses to the extent that they exceed 0.70 of
1% of average net assets through October 31, 1996, subject to
earlier termination by the Adviser on 30 days' written notice.
Any such absorption will temporarily lower the Fund's overall
expense ratio and increase its overall return to investors.
Absent such undertaking, Total Fund Operating Expenses would have
been 0.71%. (Also see Management--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same during each of the periods and that all
income dividends and capital gain distributions are reinvested in
additional Fund shares. The figures in the Example are not
necessarily indicative of past or future expenses, and actual
expenses may be greater or less than those shown. Although
information such as that shown above is useful in reviewing the
Fund's expenses and in providing a basis for comparison with other
mutual funds, it should not be used for comparison with other
investments using different assumptions or time periods. The
example does not reflect any charges or expenses related to your
employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis. The information for the years beginning after
June 30, 1987 has been audited by Ernst & Young LLP, independent
auditors. All of the auditors' reports related to information for
these periods were unqualified. The table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust upon request without charge, contains additional performance
information.
<TABLE>
<CAPTION>
Years Ended June 30,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $8.89 $9.92 $8.77 $8.51 $8.65 $8.38 $8.53 $8.99 $9.26 $8.44
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from Investment
Operations
Net investment income .84 .74 .68 .74 .73 .69 .69 .65 .56 .58
Net realized and
unrealized gains
(losses) on investments 1.03 (.41) (.12) .14 (.28) .16 .46 .27 (.59) .23
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations 1.87 .33 .56 .88 .45 .85 1.15 .92 (.03) .81
Distributions
Net investment income (.84) (.74) (.68) (.74) (.72) (.70) (.69) (.65) (.56) (.58)
Net realized capital gains -- (.74) (.14) -- -- -- -- -- (.08) --
In excess of realized
gains -- -- -- -- -- -- -- -- (.15) --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (.84) (1.48) (.82) (.74) (.72) (.70) (.69) (.65) (.79) (.58)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE,
END OF PERIOD $9.92 $8.77 $8.51 $8.65 $8.38 $8.53 $8.99 $9.26 $8.44 $8.67
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Ratio of expenses to
average net assets (b) 0.69% 0.68% 0.73% 0.73% 0.74% 0.73% 0.70% 0.67% 0.70% 0.70%
Ratio of net investment
income to average net
assets (c) 9.03% 7.94% 7.97% 8.71% 8.60% 8.17% 7.87% 7.22% 6.20% 6.94%
Portfolio turnover rate 334% 230% 273% 197% 296% 239% 202% 214% 206% 162%
Total return 21.90% 3.40% 6.92% 10.97% 5.33% 10.62% 14.02% 10.59% (0.47%) 10.11%
Net assets, end of
period (000 omitted) $183,440 $188,674 $162,225 $165,056 $161,439 $184,444 $242,948 $311,728 $302,507 $301,733
<FN>
(a)If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the Adviser, this ratio would have
been 0.71% for the year ended June 30, 1995.
(b)Computed giving effect to the Adviser's expense limitation
undertaking.
</TABLE>
___________________________
THE FUND
The mutual fund offered by this prospectus is STEIN ROE
INTERMEDIATE BOND FUND (the "Fund"). The Fund is a no-load,
diversified "mutual fund." No-load funds do not impose
commissions or charges when shares are purchased or redeemed.
Mutual funds sell their own shares to investors and invest the
proceeds in a portfolio of securities. A mutual fund allows you
to pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping.
The Fund is a series of the Stein Roe Income Trust (the "Trust"),
an open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") is investment
adviser to the Fund. The Adviser also manages several other no-
load mutual funds with different investment objectives, including
other bond funds, equity funds, international funds, tax-exempt
bond funds, and money market funds. To obtain prospectuses and
other information on opening a regular account in any of these
mutual funds, please call 1 800 338-2550.
___________________________
HOW THE FUND INVESTS
The Fund's investment objective is to provide a high level of
current income, consistent with the preservation of capital, by
investing primarily in marketable debt securities. Under normal
market conditions, the Fund will invest at least 65% of the value
of its total assets (taken at market value at the time of
investment) in convertible and non-convertible bonds and
debentures, and at least 60% of its assets will be invested in the
following:
(1)Marketable straight-debt securities of domestic issuers, and of
foreign issuers payable in U.S. dollars, rated at time of
purchase within the three highest grades assigned by Moody's
Investors Service, Inc. ("Moody's") or by Standard & Poor's
Corporation ("S&P");
(2)U.S. Government Securities;
(3)Commercial paper rated Prime-1 by Moody's or A-1 by S&P at time
of purchase, or, if unrated, issued or guaranteed by a
corporation with any outstanding debt rated Aa or better by
Moody's or AA or better by S&P; and
(4)Bank obligations, including repurchase agreements, of banks
having total assets in excess of $1 billion.
The Fund also may invest in mortgaged-backed and other debt
securities (including those convertible into or carrying warrants
to purchase common stocks or other equity interests, and privately
placed debt securities), preferred stocks, and marketable common
stocks that the Adviser considers likely to yield relatively high
income in relation to cost. Further information on portfolio
investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
Under normal market conditions, the Fund invests at least 65% of
its assets in securities with an average life of between three and
ten years, and expects that the dollar-weighted average life of
its portfolio will be between three and ten years. Average life
is the weighted average period over which the Adviser expects the
principal to be paid, and differs from stated maturity in that it
estimates the effect of expected principal prepayments and call
provisions. With respect to GNMA securities and other mortgage-
backed securities, average life is likely to be substantially less
than the stated maturity of the mortgages in the underlying pools.
With respect to obligations with call provisions, average life is
typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an average life equal to their
stated maturity. During periods of rising interest rates, the
average life of mortgage-backed securities and callable
obligations may increase substantially because they are not likely
to be prepaid, which may result in greater net asset value
fluctuation.
The Fund may invest up to 35% of its total assets in debt
securities that are rated below investment grade and that, on
balance, are considered predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal
according to the terms of the obligation and, therefore, carry
greater investment risk, including the possibility of issuer
default and bankruptcy. An economic downturn could severely
disrupt this market and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and
interest. In addition, lower-quality bonds are less sensitive to
interest rate changes than higher-quality instruments (see Risks
and Investment Considerations) and generally are more sensitive to
adverse economic changes or individual corporate developments.
During a period of adverse economic changes, including a period of
rising interest rates, issuers of such bonds may experience
difficulty in servicing their principal and interest payment
obligations.
Achievement of the Fund's investment objective will be more
dependent on the Adviser's credit analysis than would be the case
if the Fund were investing exclusively in investment grade debt
securities. Since the ratings of rating services (which evaluate
the safety of principal and interest payments, not market risks)
are used only as preliminary indicators of investment quality, the
Adviser employs its own credit research and analysis, from which
it has developed a credit rating system based upon comparative
credit analyses of issuers within the same industry. These
analyses may take into consideration such quantitative factors as
an issuer's present and potential liquidity, profitability,
internal capability to generate funds, debt/equity ratio and debt
servicing capabilities, and such qualitative factors as an
assessment of management, industry characteristics, accounting
methodology, and foreign business exposure.
Debt securities that are rated below investment grade tend to be
less marketable than higher-quality debt securities because the
market for them is less broad. The market for unrated debt
securities is even narrower. During periods of thin trading in
these markets, the spread between bid and asked prices is likely
to increase significantly, and the Fund may have greater
difficulty selling its portfolio securities. (See Net Asset
Value.) The market value of these securities and their liquidity
may be affected by adverse publicity and investor perceptions.
For the fiscal year ended June 30, 1995, the Fund's portfolio was
invested, on average, as follows: high-quality short-term
instruments, 4.1%; U.S. Government Securities, 39.3%; AAA, 6.3%;
AA, 7.2%; A, 13.3%; BBB, 21.2%; BB, 8.1%; and unrated, 0.5%. The
ratings are based on a dollar-weighted average, computed monthly,
and reflect the higher of S&P or Moody's ratings. The ratings do
not necessarily reflect the current or future composition of the
Fund.
___________________________
PORTFOLIO INVESTMENTS
AND STRATEGIES
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, and other
instruments, the value of which is "derived" from the performance
of an underlying asset or a "benchmark" such as a security index,
an interest rate, or a currency ("Derivatives"). The Fund does
not expect to invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, futures options,
and mortgage or other asset-backed securities.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because it is more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
MORTGAGE AND OTHER ASSET-BACKED SECURITIES. The Fund may invest
in securities secured by mortgages or other assets such as
automobile or home improvement loans and credit card receivables.
These instruments may be issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities or by private
entities such as commercial, mortgage and investment banks and
financial companies or financial subsidiaries of industrial
companies.
Securities issued by GNMA represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the
Farmers Home Administration, or guaranteed by the Veterans
Administration. Securities issued by FNMA and FHLMC, U.S.
Government-sponsored corporations, also represent an interest in a
pool of mortgages.
The timely payment of principal and interest on GNMA securities is
guaranteed by GNMA and backed by the full faith and credit of the
U.S. Treasury. FNMA guarantees full and timely payment of
interest and principal on FNMA securities. FHLMC guarantees
timely payment of interest and ultimate collection of principal on
FHLMC securities. FNMA and FHLMC securities are not backed by the
full faith and credit of the U.S. Treasury.
Mortgage-backed debt securities, such as those issued by GNMA,
FNMA, and FHLMC, are of the "modified pass-through type," which
means the interest and principal payments on mortgages in the pool
are "passed through" to investors. During periods of declining
interest rates, there is increased likelihood that mortgages will
be prepaid, with a resulting loss of the full-term benefit of any
premium paid by the Fund on purchase of such securities; in
addition, the proceeds of prepayment would likely be invested at
lower interest rates.
Mortgage-backed securities provide either a pro rata interest in
underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") which represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities and are usually issued in multiple classes each
of which has different payment rights, pre-payment risks, and
yield characteristics. Mortgage-backed securities involve the
risk of pre-payment on the underlying mortgages at a faster or
slower rate than the established schedule. Pre-payments generally
increase with falling interest rates and decrease with rising
rates but they also are influenced by economic, social, and market
factors. If mortgages are pre-paid during periods of declining
interest rates, there would be a resulting loss of the full-term
benefit of any premium paid by the Fund on purchase of the CMO,
and the proceeds of pre-payment would likely be invested at lower
interest rates. The Fund tends to invest in CMOs of classes known
as planned amortization classes ("PACs") which have pre-payment
protection features tending to make them less susceptible to price
volatility.
Non-mortgage asset-backed securities usually have less pre-payment
risk than mortgage-backed securities, but have the risk that the
collateral will not be available to support payments on the
underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.
Asset-backed securities tend to experience greater price
volatility than straight debt securities.
FUTURES AND OPTIONS. The Fund may purchase and write both call
options and put options on securities, indexes and foreign
currencies, and enter into interest rate, index and foreign
currency futures contracts and options on such futures contracts
and purchase other types of forward or investment contracts linked
to individual securities, indexes or other benchmarks in order to,
consistent with its investment objective, provide additional
revenue, or to hedge against changes in security prices, interest
rates, or currency fluctuations. The Fund may write a call or put
option only if the option is covered. As the writer of a covered
call option, the Fund foregoes, during the option's life, the
opportunity to profit from increases in market value of the
security covering the call option above the sum of the premium and
the exercise price of the call. There can be no assurance that a
liquid market will exist when the Fund seeks to close out a
position. Because of low margin deposits required, the use of
futures contracts involves a high degree of leverage, and may
result in losses in excess of the amount of the margin deposit.
FOREIGN SECURITIES.
Although the Fund may invest in foreign securities, it will not
invest in a foreign security if, as a result of such investment,
more than 10% of its total assets would be invested in foreign
securities. For purposes of this restriction, foreign securities
do not include securities represented by American Depositary
Receipts ("ADRs"), foreign debt securities denominated in U.S.
dollars, or securities guaranteed by a U.S. person such as a
corporation domiciled in the United States that is a parent or
affiliate of the issuer of the securities being guaranteed. The
Fund may invest in sponsored or unsponsored ADRs. In addition to,
or in lieu of, such direct investment, the Fund may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars, and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Foreign securities may involve a greater degree of risk (including
risk related to exchange rate fluctuations, tax provisions, or
expropriation of assets) than do securities of domestic issuers.
At June 30, 1995, no assets of the Fund were invested in foreign
securities as defined above, and the Fund does not currently
intend to invest more than 5% of its net assets in such
securities. (See Risks and Investment Considerations.)
LENDING OF PORTFOLIO SECURITIES.
Subject to certain restrictions, the Fund may lend its portfolio
securities to broker-dealers and banks. Any such loan must be
continuously secured by collateral in cash or cash equivalents
maintained on a current basis in an amount at least equal to the
market value of the securities loaned by the Fund. The Fund would
continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and would also
receive an additional return that may be in the form of a fixed
fee or a percentage of the collateral. The Fund would have the
right to call the loan and obtain the securities loaned at any
time on notice of not more than five business days. In the event
of bankruptcy or other default of the borrower, the Fund could
experience both delays in liquidating the loan collateral or
recovering the loaned securities and losses including (a) possible
decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to
enforce its rights thereto, (b) possible subnormal levels of
income and lack of access to income during this period, and (c)
expenses of enforcing its rights.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; STANDBY COMMITMENTS.
The Fund's assets may include securities purchased on a when-
issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time the
purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. The Fund makes such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
the Adviser deems it advisable for investment reasons. Securities
purchased in this manner involve a risk of loss if the value of
the security purchased declines before the settlement date.
When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that the Fund will
sell securities with a commitment to purchase similar, but not
identical, securities at a future date. Generally, the securities
are repurchased at a price lower than the sales price. Dollar
roll transactions involve the risk of restrictions on the Fund's
ability to repurchase the security if the counterparty becomes
insolvent; an adverse change in the price of the security during
the period of the roll or that the value the security repurchased
will be less than the security sold; and transaction costs
exceeding the return earned by the Fund on the sales proceeds of
the dollar roll.
The Fund may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Fund binds itself to accept delivery of a security at the
option of the other party to the agreement.
PORTFOLIO TURNOVER.
In seeking to attain its objective, the Fund may sell portfolio
securities without regard to the period of time they have been
held. The turnover rate of the Fund may vary from year to year.
A high rate of portfolio turnover may result in increased
transaction expenses and the realization of capital gains (which
may be taxable) or losses. (See Financial Highlights and
Distributions and Income Taxes.)
___________________________
RESTRICTIONS ON THE
FUND'S INVESTMENTS
The Fund may not invest in a security if, as a result of such
investment: (1) with respect to 75% of its assets, more than 5% of
its total assets would be invested in the securities of any one
issuer, except for U.S. Government Securities or repurchase
agreements for such securities, or (2) 25% or more of its total
assets would be invested in the securities of a group of issuers
in the same industry, except that this restriction does not apply
to U.S. Government Securities. Notwithstanding these limitations,
the Fund may invest all of its assets in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund.
The Fund may not make loans, except that, consistent with its
investment policies and restrictions, it may: (1) invest up to
100% of its net assets in publicly offered or privately placed
debt securities, (2) lend its portfolio securities under certain
circumstances, and (3) enter into repurchase agreements./1/ The
Fund may not borrow money, except as a temporary measure for
extraordinary or emergency purposes, and then the Fund's aggregate
borrowings at any one time (including reverse repurchase
agreements and dollar rolls) may not exceed 33 1/3% of its total
assets (at market value). Additional securities may not be
purchased when borrowings, less proceeds receivable from sales of
portfolio securities, exceed 5% of total assets.
The policies set forth in the first two paragraphs under
Restrictions on the Fund's Investments (but not the footnote) are
fundamental policies of the Fund. The Statement of Additional
Information contains all of the investment restrictions.
-------------------
/1/A repurchase agreement involves a sale of securities to the
Fund with the concurrent agreement of the seller (bank or
securities dealer) to repurchase the securities at the same price
plus an amount equal to an agreed-upon interest rate within a
specified time. In the event of a bankruptcy or other default of
a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses. The
Fund may not invest more than 10% of its net assets in repurchase
agreements maturing in more than seven days and other illiquid
securities.
--------------------
___________________________
RISKS AND INVESTMENT
CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although the Fund seeks
to reduce risk by investing in a diversified portfolio, this does
not eliminate all risk. The risks inherent in the Fund depend
primarily upon the term and quality of the obligations in the
Fund's portfolio, as well as on market conditions.
A decline in prevailing levels of interest rates generally
increases the value of securities in the Fund's portfolio, while
an increase in rates usually reduces the value of those
securities. As a result, interest rate fluctuations will affect
the Fund's net asset value, but not the income received by the
Fund from its portfolio securities. (Because yields on debt
securities available for purchase by the Fund vary over time, no
specific yield on shares of the Fund can be assured.) In
addition, if the bonds in the Fund's portfolio contain call,
prepayment or redemption provisions, during a period of declining
interest rates, these securities are likely to be redeemed, and
the Fund will probably be unable to replace them with securities
having as great a yield.
The Fund is appropriate for investors who seek high income with
less net asset value fluctuation from interest rate changes than
that of a longer-term fund, and who can accept greater levels of
credit and other risks associated with securities that are rated
below investment grade.
Investments in foreign securities, including ADRs, represent both
risks and opportunities not typically associated with investments
in domestic issuers. Risks of foreign investing include currency
risk, less complete financial information on issuers, less market
liquidity, more market volatility, less well-developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
The Fund may enter into foreign currency forward contracts and use
options and futures contracts as described elsewhere in this
prospectus to limit or reduce foreign currency risk.
There can be no assurance that the Fund will achieve its
objective, nor can the Fund assure that payments of interest and
principal on portfolio securities will be made when due. If,
after purchase by the Fund, the rating of a portfolio security is
lost or reduced, the Fund would not be required to sell the
security, but the Adviser would consider such a change in deciding
whether the Fund should retain the security in its portfolio.
The Fund's investment objective is not fundamental and may be
changed by the Board of Trustees without a vote of shareholders.
If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial
position and needs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by the Adviser
for investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such
arrangement is to achieve greater operational efficiencies and
reduce costs. It is expected that any such investment company
would be managed by the Adviser in substantially the same manner
as the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the trustees determine it to be in the best interests of
the Fund and its shareholders.
___________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; however, you
may redeem the shares. The Trust reserves the right not to accept
any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.
___________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.
___________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., Chicago time) by dividing the
difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Net asset value will not be
determined on days when the Exchange is closed unless, in the
judgment of the Board of Trustees, the net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
Securities for which market quotations are readily available at
the time of valuation are valued on that basis. Long-term
straight-debt securities for which market quotations are not
readily available are valued at a fair value based on valuations
provided by pricing services approved by the Board, which may
employ electronic data processing techniques, including a matrix
system, to determine valuations. Short-term debt securities with
remaining maturities of 60 days or less are valued at their
amortized cost, which does not take into account unrealized gains
or losses. The Board believes that the amortized cost represents
fair value for such securities. Short-term debt securities with
remaining maturities of more than 60 days for which market
quotations are not readily available are valued by use of a matrix
prepared by the Adviser based on quotations for comparable
securities. Other assets and securities held by the Fund for
which these valuation methods do not produce a fair value are
valued by a method that the Board believes will determine a fair
value.
___________________________
DISTRIBUTIONS AND
INCOME TAXES
DISTRIBUTIONS.
Income dividends are declared each business day and are paid
monthly. The Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the twelve-month period ended
October 31 in that year. The Fund intends to distribute any
undistributed net investment income and net realized capital gains
in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital gain
distributions will be reinvested in additional shares of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
___________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
The yield of the Fund is calculated by dividing its net investment
income per share (a hypothetical figure as defined in the SEC
rules) during a 30-day period by the net asset value per share on
the last day of the period. The yield formula provides for
semiannual compounding, which assumes that net investment income
is earned and reinvested at a constant rate and annualized at the
end of a six-month period.
Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Yield figures are not based on actual dividends paid. Past
performance is not necessarily indicative of future results. To
obtain current yield or total return information, you may call 1
800 338-2550.
___________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust and has overall management
responsibility for the Trust and the Fund. See Management in the
Statement of Additional Information for the names of and other
information about the trustees and officers. The Adviser, Stein
Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
Illinois 60606, is responsible for managing the investment
portfolio and the business affairs of the Fund and the Trust,
subject to the direction of the Board. The Adviser is registered
as an investment adviser under the Investment Advisers Act of
1940.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had advised and managed
mutual funds since 1949. The Adviser is a wholly-owned indirect
subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual").
PORTFOLIO MANAGER.
Michael T. Kennedy has been portfolio manager of the Fund since
1988. He is a vice-president of the Trust, a senior vice
president of the Adviser, and has been associated with the Adviser
since 1987. From 1984 to 1987, he was employed by Homewood
Federal Savings and Loan. A chartered financial analyst and a
chartered investment counselor, he received his B.S. degree from
Marquette University in 1984 and his M.M. from Northwestern
University in 1988. Mr. Kennedy is secretary of the Adviser's
Fixed Income Policy Committee and managed $414 million in mutual
fund assets for the Adviser as of June 30, 1995. Steven P.
Luetger is associate portfolio manager for the Fund. Mr. Luetger
joined the Adviser in 1978 and is a senior vice president. He
received his B.A. from Knox College in 1975 and M.B.A. from the
University of Chicago in 1980.
FEES AND EXPENSES.
In return for its investment advisory and administrative services,
the Adviser receives a monthly fee from the Fund based on its
average net assets, computed and accrued daily. The annualized
fee is .50 of 1% of average net assets. For the fiscal year ended
June 30, 1995, the fee amounted to .49% of average net assets,
after the expense limitation described under Fee Table.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts for the
Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly-owned indirect subsidiary of Liberty
Mutual, is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly-owned indirect subsidiary of Liberty
Mutual. The business address of the Distributor is 600 Atlantic
Avenue, Boston, Massachusetts 02210; however, all Fund
correspondence (including purchase and redemption orders) should
be mailed to the Trust at P.O. Box 804058, Chicago, Illinois
60680. All distribution and promotional expenses are paid by the
Adviser, including payments to the Distributor for sales of Fund
shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)
___________________________
ORGANIZATION AND
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 3, 1986, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, six series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust is
also believed to be remote, because it would be limited to claims
to which the disclaimer did not apply and to circumstances in
which the other series was unable to meet its obligations.
___________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 1 800 322-
1130 for more information about this Fund.
_________________
<PAGE>
[STEINROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE INCOME FUND
The Fund seeks high current income by investing principally in
medium-quality debt securities and, to a lesser extent, in lower-
quality securities which may involve greater risk. (See How the
Fund Invests.)
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INCOME TRUST, an open-end management investment
company. This prospectus contains information you should know
before investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated November 1, 1995,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 1
800 322-1130. The Statement of Additional Information contains
information relating to other series of the Stein Roe Income Trust
that may not be available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 1, 1995
TABLE OF CONTENTS
Page
Fee Table ...............................2
Financial Highlights.....................2
The Fund.................................3
How the Fund Invests.....................4
Portfolio Investments and Strategies.....5
Restrictions on the Fund's Investments ..7
Risks and Investment Considerations .....7
How to Purchase Shares ..................8
How to Redeem Shares ....................9
Net Asset Value .........................9
Distributions and Income Taxes..........10
Investment Return.......................10
Management of the Fund..................10
Organization and Description of Shares..12
For More Information....................12
___________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (after expense
reimbursement) (as a percentage of average net
assets)
Management and Administration Fees (after
expense reimbursement) 0.60%
12b-1 Fees None
Other Expenses 0.22%
Total Fund Operating Expenses (after expense
reimbursement) 0.82%
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------- -------- ------- --------
$8 $26 $46 $101
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based on
actual expenses incurred in the last fiscal year. The Adviser has
undertaken to reimburse the Fund for expenses in excess of 0.82%
of average net assets through October 31, 1998. Any such
reimbursement will temporarily lower the Fund's overall expense
ratio and increase its overall return to investors. Absent such
undertaking, the estimated Total Fund Operating Expenses would
have been 0.85%. (Also see Management of the Fund--Fees and
Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same during each of the periods, that all
income dividends and capital gain distributions are reinvested in
additional Fund shares, and that, for purposes of management fee
breakpoints, the Fund's net assets remain at the same level as in
the most recently completed fiscal year.
The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown above
is useful in reviewing the Fund's expenses and in providing a
basis for comparison with other mutual funds, it should not be
used for comparison with other investments using different
assumptions or time periods. The example does not reflect any
charges or expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction
with the Fund's financial statements and notes thereto. The
Fund's annual report, which may be obtained from the Trust upon
request without charge, contains additional performance
information.
<TABLE>
<CAPTION>
Period
Ended
June 30, Years Ended June 30,
1986(a) 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $ 9.94 $ 9.71 $ 9.60 $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income .30 .98 .95 .95 .92 .80 .76 .75 .69 .71
Net realized and
unrealized gains (losses)
on investments (.06) (.23) (.11) .05 (.70) -- .56 .59 (.74) .43
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations .24 .75 .84 1.00 .22 .80 1.32 1.34 (.05) 1.13
Distributions from net
investment income (.30) (.98) (.95) (.95) (.92) (.80) (.76) (.75) (.69) (.71)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $ 9.94 $ 9.71 $ 9.60 $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36 $ 9.79
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets (b) *1.00% 0.96% 0.91% 0.90% 0.93% 0.95% 0.90% 0.82% 0.82% 0.82%
Ratio of net investment
income to average net
assets (c) *10.07% 9.90% 10.08% 9.97% 10.02% 8.98% 8.20% 7.62% 6.94% 7.55%
Portfolio turnover rate **84% 153% 158% 94% 90% 77% 76% 39% 53% 64%
Total return **2.42% 7.70% 9.38% 11.06% 2.48% 9.30% 15.30% 14.64% (0.69%) 12.79%
Net assets, end of
period (000 omitted) $32,034 $91,916 $96,611 $110,376 $89,023 $93,952 $112,706 $151,594 $158,886 $174,327
<FN>
*Annualized.
**Not annualized.
(a)The Fund commenced operations on March 5, 1986.
(b)If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the Adviser, this ratio would have
been 2.01% for the period ended June 30, 1986 and 0.83% and
0.85% for the years ended June 30, 1994 and 1995, respectively.
(c)Computed giving effect to the Adviser's expense limitation
undertaking.
</TABLE>
___________________________
THE FUND
The mutual fund offered by this prospectus is STEIN ROE INCOME
FUND (the "Fund"). The Fund is a no-load, diversified "mutual
fund." No-load funds do not impose commissions or charges when
shares are purchased or redeemed. Mutual funds sell their own
shares to investors and invest the proceeds in a portfolio of
securities. A mutual fund allows you to pool your money with that
of other investors in order to obtain professional investment
management. Mutual funds generally make it possible for you to
obtain greater diversification of your investments and simplify
your recordkeeping.
The Fund is a series of the Stein Roe Income Trust (the "Trust"),
an open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") is investment
adviser to the Fund. The Adviser also manages several other no-
load mutual funds with different investment objectives, including
other bond funds, equity funds, international funds, tax-exempt
bond funds, and money market funds. To obtain prospectuses and
other information on opening a regular account in any of these
mutual funds, please call 1 800 338-2550.
___________________________
HOW THE FUND INVESTS
The investment objective of the Fund is to provide a high level of
current income. Consistent with this investment objective,
capital preservation and capital appreciation are regarded as
secondary objectives. The Fund attempts to achieve its objective
by investing principally in medium-quality debt securities, which
are obligations of issuers that the Adviser believes possess
adequate, but not outstanding, capacities to service their debt
securities, such as securities rated A or Baa by Moody's or A or
BBB by S&P. The Adviser generally attributes to medium-quality
securities the same characteristics as do rating services.
Further information on portfolio investments and strategies may be
found under Portfolio Investments and Strategies in this
prospectus and in the Statement of Additional Information.
Although the Fund will invest at least 60% of its assets in
medium- or higher-quality securities, it may also invest to a
lesser extent in securities of lower quality (in the case of rated
securities, having a rating by Moody's or S&P of not less than C).
Although the Fund can invest up to 40% of its assets in lower-
quality securities, it does not intend to invest more than 35% in
lower-quality securities. Lower-quality debt securities are
obligations of issuers that are predominantly speculative with
respect to the issuer's capacity to pay interest and repay
principal, and are commonly referred to as "junk bonds." The Fund
may invest in lower-quality debt securities; for example, if the
Adviser believes the financial condition of the issuers or the
protection offered to the particular obligations is stronger than
is indicated by low ratings or otherwise. The Fund may invest in
higher-quality securities; for example, under extraordinary
economic or financial market conditions, or when the spreads
between the yields on medium- and high-quality securities are
relatively narrow.
Some issuers of debt securities choose not to have their
securities rated by a rating service, and the Fund may invest in
unrated securities that the Adviser believes are suitable for
investment.
Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer
default or bankruptcy. An economic downturn could severely
disrupt this market and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and
interest. In addition, lower-quality bonds are less sensitive to
interest rate changes than higher-quality instruments (see Risks
and Investment Considerations) and generally are more sensitive to
adverse economic changes or individual corporate developments.
During a period of adverse economic changes, including a period of
rising interest rates, issuers of such bonds may experience
difficulty in servicing their principal and interest payment
obligations.
Achievement of the Fund's investment objective will be more
dependent on the Adviser's credit analysis than would be the case
if the Fund were investing in higher-quality debt securities.
Since the ratings of rating services (which evaluate the safety of
principal and interest payments, not market risks) are used only
as preliminary indicators of investment quality, the Adviser
employs its own credit research and analysis, from which it has
developed a credit rating system based upon comparative credit
analyses of issuers within the same industry. These analyses may
take into consideration such quantitative factors as an issuer's
present and potential liquidity, profitability, internal
capability to generate funds, debt/equity ratio and debt servicing
capabilities, and such qualitative factors as an assessment of
management, industry characteristics, accounting methodology, and
foreign business exposure.
Medium- and lower-quality debt securities tend to be less
marketable than higher-quality debt securities because the market
for them is less broad. The market for unrated debt securities is
even narrower. During periods of thin trading in these markets,
the spread between bid and asked prices is likely to increase
significantly, and the Fund may have greater difficulty selling
its portfolio securities. (See Net Asset Value.) The market
value of these securities and their liquidity may be affected by
adverse publicity and investor perceptions.
Under normal market conditions, the Fund will invest at least 65%
of the value of its total assets (taken at market value) in
convertible and non-convertible bonds and debentures. Such
securities may be accompanied by the right to acquire equity
securities evidenced by warrants attached to the security or
acquired as part of a unit with the security. Equity securities
acquired by conversion or exercise of such a right may be retained
by the Fund for a sufficient time to permit orderly disposition
thereof or to establish long-term holding periods for federal
income tax purposes.
The Fund may invest up to 35% of its total assets in other debt
securities, marketable preferred and common stocks, and foreign
and municipal securities that the Adviser considers likely to
yield relatively high income in relation to costs, and rights to
acquire such securities. (Municipal securities are securities
issued by or on behalf of state and local governments, the
interest on which is generally exempt from federal income tax.)
Any assets not otherwise invested may be invested in money market
instruments.
For the fiscal year ended June 30, 1995, the Fund's portfolio was
invested, on average, as follows: high-quality short-term
instruments, 3.9%; U.S. Government Securities, 12.6%; AAA, 3.5%;
AA, 2.6%; A, 11.0%; BBB, 37.5%; BB, 25.3%; B, 1.5%; and unrated,
2.1%. The ratings are based on a dollar-weighted average,
computed monthly, and reflect the higher of S&P or Moody's
ratings. The ratings do not necessarily reflect the current or
future composition of the Income Fund.
___________________________
PORTFOLIO INVESTMENTS
AND STRATEGIES
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, and other
instruments, the value of which is "derived" from the performance
of an underlying asset or a "benchmark" such as a security index,
an interest rate, or a currency ("Derivatives"). The Fund does
not expect to invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, or futures
options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because it is more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
FUTURES AND OPTIONS. The Fund may purchase and write both call
options and put options on securities, indexes and foreign
currencies, and enter into interest rate, index and foreign
currency futures contracts and options on such futures contracts
and purchase other types of forward or investment contracts linked
to individual securities, indexes or other benchmarks in order to,
consistent with its investment objective, provide additional
revenue, or to hedge against changes in security prices, interest
rates, or currency fluctuations. The Fund may write a call or put
option only if the option is covered. As the writer of a covered
call option, the Fund foregoes, during the option's life, the
opportunity to profit from increases in market value of the
security covering the call option above the sum of the premium and
the exercise price of the call. There can be no assurance that a
liquid market will exist when the Fund seeks to close out a
position. Because of low margin deposits required, the use of
futures contracts involves a high degree of leverage, and may
result in losses in excess of the amount of the margin deposit.
FOREIGN SECURITIES.
Although the Fund may invest in foreign securities, it will not
invest in a foreign security if, as a result of such investment,
more than 25% of its total assets would be invested in foreign
securities. For purposes of this restriction, foreign securities
do not include securities represented by American Depositary
Receipts ("ADRs"), foreign debt securities denominated in U.S.
dollars, or securities guaranteed by a U.S. person such as a
corporation domiciled in the United States that is a parent or
affiliate of the issuer of the securities being guaranteed. The
Fund may invest in sponsored or unsponsored ADRs. In addition to,
or in lieu of, such direct investment, the Fund may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars, and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Foreign securities may involve a greater degree of risk (including
risk related to exchange rate fluctuations, tax provisions, or
expropriation of assets) than do securities of domestic issuers.
At June 30, 1995, no assets of the Fund were invested in foreign
securities as defined above, and the Fund does not currently
intend to invest more than 5% of its net assets in such
securities. (See Risks and Investment Considerations.)
LENDING OF PORTFOLIO SECURITIES.
Subject to certain restrictions, the Fund may lend its portfolio
securities to broker-dealers and banks. Any such loan must be
continuously secured by collateral in cash or cash equivalents
maintained on a current basis in an amount at least equal to the
market value of the securities loaned by the Fund. The Fund would
continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and would also
receive an additional return that may be in the form of a fixed
fee or a percentage of the collateral. The Fund would have the
right to call the loan and obtain the securities loaned at any
time on notice of not more than five business days. In the event
of bankruptcy or other default of the borrower, the Fund could
experience both delays in liquidating the loan collateral or
recovering the loaned securities and losses including (a) possible
decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to
enforce its rights thereto, (b) possible subnormal levels of
income and lack of access to income during this period, and (c)
expenses of enforcing its rights.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; STANDBY COMMITMENTS.
The Fund's assets may include securities purchased on a when-
issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time the
purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. The Fund makes such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
the Adviser deems it advisable for investment reasons. Securities
purchased in this manner involve a risk of loss if the value of
the security purchased declines before settlement date.
When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that the Fund will
sell securities with a commitment to purchase similar, but not
identical, securities at a future date. Generally, the securities
are repurchased at a price lower than the sales price. Dollar
roll transactions involve the risk of restrictions on the Fund's
ability to repurchase the security if the counterparty becomes
insolvent; an adverse change in the price of the security during
the period of the roll or that the value the security repurchased
will be less than the security sold; and transaction costs
exceeding the return earned by the Fund on the sales proceeds of
the dollar roll.
The Fund may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Fund binds itself to accept delivery of a security at the
option of the other party to the agreement.
PORTFOLIO TURNOVER.
In seeking to attain its objective, the Fund may sell portfolio
securities without regard to the period of time they have been
held. Further, the Adviser may purchase and sell securities for
the portfolio of the Fund with a view to maximizing current
return, even if portfolio changes would cause the realization of
capital gains. Although the average stated maturity of the Fund's
portfolio generally will exceed ten years, the Adviser may adjust
the average maturity of the Fund's portfolio from time to time,
depending on its assessment of the relative yields available on
securities of different maturities and its expectations of future
changes in interest rates. As a result, the turnover rate of the
Fund may vary from year to year. A high rate of portfolio
turnover may result in increased transaction expenses and the
realization of capital gains (which may be taxable) or losses.
(See Financial Highlights and Distributions and Income Taxes.)
___________________________
RESTRICTIONS ON THE
FUND'S INVESTMENTS
The Fund may not invest in a security if, as a result of such
investment: (1) with respect to 75% of its assets, more than 5% of
its total assets would be invested in the securities of any one
issuer, except for U.S. Government Securities or repurchase
agreements for such securities, or (2) 25% or more of its total
assets would be invested in the securities of a group of issuers
in the same industry, except that this restriction does not apply
to U.S. Government Securities. Notwithstanding these limitations,
the Fund may invest all or substantially all of its assets in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund.
The Fund may not make loans, except that, consistent with its
investment policies and restrictions, it may: (1) invest up to
100% of its net assets in publicly offered or privately placed
debt securities, (2) lend its portfolio securities under certain
circumstances, and (3) enter into repurchase agreements./1/ The
Fund may not borrow money, except as a temporary measure for
extraordinary or emergency purposes, and then the Fund's aggregate
borrowings at any one time (including reverse repurchase
agreements and dollar rolls) may not exceed 33 1/3% of its total
assets (at market value). Additional securities may not be
purchased when borrowings, less proceeds receivable from sales of
portfolio securities, exceed 5% of total assets.
-----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund with the concurrent agreement of the seller (bank or
securities dealer) to repurchase the securities at the same price
plus an amount equal to an agreed-upon interest rate within a
specified time. In the event of a bankruptcy or other default of
a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses. The
Fund may not invest more than 10% of its net assets in repurchase
agreements maturing in more than seven days and other illiquid
securities.
-----------------
The policies set forth in the first two paragraphs under
Restrictions on the Fund's Investments (but not the footnote) are
fundamental policies of the Fund. The Statement of Additional
Information contains all of the investment restrictions.
___________________________
RISKS AND INVESTMENT
CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although the Fund seeks
to reduce risk by investing in a diversified portfolio, this does
not eliminate all risk. The risks inherent in the Fund depend
primarily upon the term and quality of the obligations in the
Fund's portfolio, as well as on market conditions.
A decline in prevailing levels of interest rates generally
increases the value of securities in the Fund's portfolio, while
an increase in rates usually reduces the value of those
securities. As a result, interest rate fluctuations will affect
the Fund's net asset value, but not the income received by the
Fund from its portfolio securities. (Because yields on debt
securities available for purchase by the Fund vary over time, no
specific yield on shares of the Fund can be assured.) In
addition, if the bonds in the Fund's portfolio contain call,
prepayment or redemption provisions, during a period of declining
interest rates, these securities are likely to be redeemed, and
the Fund will probably be unable to replace them with securities
having as great a yield.
The Fund is designed for investors who seek a higher level of
income and who can accept greater levels of credit and other risks
associated with securities of medium or lower quality.
Investments in foreign securities, including ADRs, represent both
risks and opportunities not typically associated with investments
in domestic issuers. Risks of foreign investing include currency
risk, less complete financial information on issuers, less market
liquidity, more market volatility, less well-developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
The Fund may enter into foreign currency forward contracts and use
options and futures contracts as described elsewhere in this
prospectus to limit or reduce foreign currency risk.
There can be no assurance that the Fund will achieve its
objective, nor can the Fund assure that payments of interest and
principal on portfolio securities will be made when due. If,
after purchase by the Fund, the rating of a portfolio security is
lost or reduced, the Fund would not be required to sell the
security, but the Adviser would consider such a change in deciding
whether the Fund should retain the security in its portfolio.
The Fund's investment objective is not fundamental and may be
changed by the Board of Trustees without a vote of shareholders.
If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial
position and needs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by the Adviser
for investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. It is expected that any such investment company
would be managed by the Adviser in substantially the same manner
as the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the trustees determine it to be in the best interests of
the Fund and its shareholders.
___________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; however, you
may redeem the shares. The Trust reserves the right not to accept
any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.
___________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.
___________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., Chicago time) by dividing the
difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Net asset value will not be
determined on days when the Exchange is closed unless, in the
judgment of the Board of Trustees, the net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
Securities for which market quotations are readily available at
the time of valuation are valued on that basis. Long-term
straight-debt securities for which market quotations are not
readily available are valued at a fair value based on valuations
provided by pricing services approved by the Board, which may
employ electronic data processing techniques, including a matrix
system, to determine valuations. Short-term debt securities with
remaining maturities of 60 days or less are valued at their
amortized cost, which does not take into account unrealized gains
or losses. The Board believes that the amortized cost represents
a fair value for such securities. Short-term debt securities with
remaining maturities of more than 60 days for which market
quotations are not readily available are valued by use of a matrix
prepared by the Adviser based on quotations for comparable
securities. Other assets and securities held by the Fund for
which these valuation methods do not produce a fair value are
valued by a method that the Board believes will determine a fair
value.
___________________________
DISTRIBUTIONS AND
INCOME TAXES
DISTRIBUTIONS.
Income dividends are declared each business day and are paid
monthly. The Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the twelve-month period ended
October 31 in that year. The Fund intends to distribute any
undistributed net investment income and net realized capital gains
in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital gain
distributions will be reinvested in additional shares of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
___________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
The yield of the Fund is calculated by dividing its net investment
income per share (a hypothetical figure as defined in the SEC
rules) during a 30-day period by the net asset value per share on
the last day of the period. The yield formula provides for
semiannual compounding, which assumes that net investment income
is earned and reinvested at a constant rate and annualized at the
end of a six-month period.
Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Yield figures are not based on actual dividends paid. Past
performance is not necessarily indicative of future results. To
obtain current yield or total return information, you may call 1
800 338-2550.
___________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See Management in the
Statement of Additional Information for the names of and other
information about the trustees and officers.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
investment portfolios and the business affairs of the Fund and the
Trust, subject to the direction of the Board. The Adviser is
registered as an investment adviser under the Investment Advisers
Act of 1940. The Adviser was organized in 1986 to succeed to the
business of Stein Roe & Farnham, a partnership that had advised
and managed mutual funds since 1949. The Adviser is a wholly-
owned indirect subsidiary of Liberty Mutual Insurance Company
("Liberty Mutual").
PORTFOLIO MANAGER.
Ann H. Benjamin, a vice-president of the Trust, became portfolio
manager of the Fund in January, 1990. She is a senior vice
president of the Adviser and has been associated with it since
1989. A chartered financial analyst, she received her B.B.A. from
Chatham College in 1980 and her M.A. from Carnegie Mellon
University in 1985. Ms. Benjamin managed $212 million in mutual
fund assets for the Adviser as of June 30, 1995, serves as High-
Yield Credit Research Manager for the Adviser, and is a member of
the Adviser's Fixed-Income Credit Review Committee. Ms. Benjamin
is assisted in managing the portfolio by Michael T. Kennedy. Mr.
Kennedy is a vice-president of the Trust, a senior vice president
of the Adviser, and has been associated with the Adviser since
1987. From 1984 to 1987, he was employed by Homewood Federal
Savings and Loan. A chartered financial analyst and a chartered
investment counselor, he received his B.S. degree from Marquette
University in 1984 and his M.M. from Northwestern University in
1988.
FEES AND EXPENSES.
In return for its investment advisory and administrative services,
the Adviser receives a monthly fee from the Fund based on its
average net assets, computed and accrued daily. The annualized
fee for the Fund is .65 of 1% of the first $100 million and .60 of
1% thereafter. For the fiscal year ended June 30, 1995, the fee
amounted to 0.60% of average net assets, after the expense
limitation described under Fee Table.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts for the
Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly-owned indirect subsidiary of Liberty
Mutual, is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly-owned indirect subsidiary of Liberty
Mutual. The business address of the Distributor is 600 Atlantic
Avenue, Boston, Massachusetts 02210; however, all Fund
correspondence (including purchase and redemption orders) should
be mailed to the Trust at P.O. Box 804058, Chicago, Illinois
60680. All distribution and promotional expenses are paid by the
Adviser, including payments to the Distributor for sales of Fund
shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)
___________________________
ORGANIZATION AND
DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 3, 1986, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, six series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other Fund was unable to meet its obligations.
___________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 1 800 322-
1130 for more information about this Fund.
_________________
<PAGE> 1
Statement of Additional Information Dated November 1, 1995
STEIN ROE INCOME TRUST
MONEY MARKET FUNDS
STEIN ROE CASH RESERVES
STEIN ROE GOVERNMENT RESERVES
P.O. Box 804058, Chicago, Illinois 60680
1 800 338-2550
The Funds listed above are series of the Stein Roe Income
Trust (the "Trust"). Each series of the Trust represents shares
of beneficial interest in a separate portfolio of securities and
other assets, with its own objectives and policies.
This Statement of Additional Information is not a
prospectus but provides additional information that should be
read in conjunction with the Funds' Prospectus dated November 1,
1995 and any supplements thereto. The Prospectus may be
obtained at no charge by telephoning 1 800 338-2550.
TABLE OF CONTENTS
Page
General Information and History...........................2
Investment Policies.......................................3
Cash Reserves........................................3
Government Reserves..................................5
Portfolio Investments and Strategies......................7
Investment Restrictions...................................8
Additional Investment Considerations.....................11
Purchases and Redemptions................................12
Management...............................................13
Financial Statements.....................................16
Principal Shareholders...................................16
Investment Advisory Services.............................17
Distributor..............................................19
Transfer Agent...........................................19
Custodian................................................20
Independent Auditors.....................................20
Portfolio Transactions...................................21
Additional Income Tax Considerations.....................22
Additional Information on the Determination
of Net Asset Value.....................................23
Investment Performance...................................24
Appendix--Ratings........................................29
<PAGE> 2
GENERAL INFORMATION AND HISTORY
Stein Roe & Farnham Incorporated (the "Adviser") is
investment adviser and provides administrative and accounting
and recordkeeping services to the Funds.
As used herein, "Cash Reserves" and "Government Reserves"
refer to the series of Stein Roe Income Trust designated Stein
Roe Cash Reserves and Stein Roe Government Reserves,
respectively. Currently, six series are authorized and
outstanding. The name of the Trust was changed on November 1,
1995 from SteinRoe Income Trust to Stein Roe Income Trust.
Prior to November 1, 1995, Cash Reserves and Government Reserves
were named SteinRoe Cash Reserves and SteinRoe Government
Reserves.
Each share of a series is entitled to participate pro rata
in any dividends and other distributions declared by the Board
on shares of that series, and all shares of a series have equal
rights in the event of liquidation of that series.
Each whole share (or fractional share) outstanding on the
record date established in accordance with the By-Laws shall be
entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or
fractional share) in United States dollars determined at the
close of business on the record date (for example, a share
having a net asset value of $10.50 would be entitled to 10.5
votes). As a business trust, the Trust is not required to hold
annual shareholder meetings. However, special meetings may be
called for purposes such as electing or removing trustees,
changing fundamental policies, or approving an investment
advisory contract. If requested to do so by the holders of at
least 10% of the Trust's outstanding shares, the Trust will call
a special meeting for the purpose of voting upon the question of
removal of a trustee or trustees and will assist in the
communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940. All shares of the
Trust are voted together in the election of trustees. On any
other matter submitted to a vote of shareholders, shares are
voted by individual series and not in the aggregate, except that
shares are voted in the aggregate when required by the
Investment Company Act of 1940 or other applicable law. When
the Board of Trustees determines that the matter affects only
the interests of one or more series, shareholders of the
unaffected series are not entitled to vote on such matters.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND
STRUCTURE
Each Fund may in the future seek to achieve its objective
by pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another mutual fund having the
same investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The Adviser is expected to manage any such mutual
fund in which a Fund would invest. Such investment would be
subject to determination by the Trustees that it was in the best
interests of the Fund and its shareholders, and shareholders
would receive advance notice of any such change.
<PAGE> 3
INVESTMENT POLICIES
The following information supplements the discussion of the
Funds' respective investment objectives and policies described
in the Prospectus. In pursuing its objective, each Fund will
invest as described below and may employ the investment
techniques described in the Prospectus and elsewhere in this
Statement of Additional Information. Common investments and
strategies are described under Portfolio Investments and
Strategies. Each Fund's investment objective is not fundamental
and may be changed by the Board of Trustees without the approval
of a "majority of the outstanding voting securities" /1/ of that
Fund.
CASH RESERVES
This Fund seeks to obtain maximum current income consistent
with the preservation of capital and the maintenance of
liquidity by investing all of its assets in U.S. dollar-
denominated money market instruments maturing in thirteen months
or less from time of investment. Each security must be rated
(or be issued by an issuer that is rated with respect to its
short-term debt) within the highest rating category for short-
term debt by at least two nationally recognized statistical
rating organizations ("NRSRO"), or, if unrated, determined by or
under the direction of the Board of Trustees to be of comparable
quality. These securities may include:
(1) Securities issued or guaranteed by the U.S. Government or by
its agencies or instrumentalities ("U.S. Government
Securities").
(2) Securities issued or guaranteed by the government of any
foreign country that are rated at time of purchase A or
better (or equivalent rating) by at least one NRSRO.
(3) Certificates of deposit, bankers' acceptances and time
deposits of any bank (U.S. or foreign) having total assets in
excess of $1 billion, or the equivalent in other currencies
(as of the date of the most recent available financial
statements) or of any branches, agencies or subsidiaries
(U.S. or foreign) of any such bank.
(4) Commercial paper of U.S. or foreign issuers.
(5) Notes, bonds, and debentures rated at time of purchase A or
better (or equivalent rating) by at least one NRSRO.
(6) Repurchase agreements /2/ involving securities listed in (1)
above.
-----------------------
/1/ A fundamental policy is one that cannot be changed without a
vote of a majority of the outstanding voting securities of
the Fund. 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 of the Fund are present or represented by
proxy or (ii) more than 50% of the outstanding shares of the
Fund.
/2/ A repurchase agreement involves the sale of securities to
the Fund, with the concurrent agreement of the seller to
repurchase the securities at the same price plus an amount
equal to an agreed-upon interest rate, within a specified
time. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Fund could experience
both delays in liquidating the underlying securities and
losses.
-----------------------
<PAGE> 4
(7) Other high-quality short-term debt obligations.
The Fund will maintain a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining a stable
net asset value per share and not in excess of 90 days. It is a
fundamental policy which may not be changed without the approval
of a majority of the outstanding voting securities, that the
maturity of any instrument that grants the holder the right to
redeem at par plus interest and without penalty will be deemed
at any time to be the next date provided for payment on exercise
of such optional redemption right.
It is the Fund's intention, as a general policy, to hold
securities to maturity. However, the Fund may attempt, from
time to time, to increase its yield by trading to take advantage
of variations in the markets for short-term money market
instruments. In addition, redemptions of the Fund's shares
could necessitate the sale of portfolio securities and these
sales may occur when such sales would not otherwise be
desirable. While the Fund seeks to invest in high-quality money
market instruments, these investments are not entirely without
risk. An increase in interest rates will generally reduce the
market value of the Fund's portfolio investments and a decline
in interest rates will generally increase the market value of
the Fund's portfolio investments. Investments in instruments
other than U.S. Government Securities are also subject to
default by the issuer.
Because the Fund's investment policy permits it to invest
in: securities of foreign branches of U.S. banks (Eurodollars),
U.S. branches of foreign banks (Yankee dollars), and foreign
banks and their foreign branches, such as negotiable
certificates of deposit; securities of foreign governments; and
securities of foreign issuers, such as commercial paper and
corporate notes, bonds and debentures, investment in that Fund
might involve risks that are different in some respects from an
investment in a fund that invests only in debt obligations of
U.S. domestic issuers. Such risks may include future political
and economic developments, the possible imposition of foreign
withholding taxes on interest income payable on securities held
in the portfolio, possible seizure or nationalization of foreign
deposits, the possible establishment of exchange controls, or
the adoption of other foreign governmental restrictions that
might adversely affect the payment of principal and interest on
securities in the portfolio. Additionally, there may be less
public information available about foreign banks and their
branches. Foreign banks and foreign branches of foreign banks
are not regulated by U.S. banking authorities, and generally are
not bound by accounting, auditing, and financial reporting
standards comparable to U.S. banks.
The Fund may invest in notes and bonds that bear floating
or variable rates of interest, and that ordinarily have stated
maturities in excess of thirteen months, but permit the holder
to demand earlier payment of principal and accrued interest,
upon not more than 30 days' advance notice, at any time or after
stated intervals not exceeding thirteen months. Such
instruments are commonly referred to as "demand" obligations.
Variable rate demand notes include master demand notes, which
are obligations that permit the Fund to invest fluctuating
amounts, which may change daily without penalty, pursuant to
direct arrangements between the Fund, as lender, and the
borrower. The interest rates on these notes fluctuate from time
to time. The issuer of such obligations normally has a right,
after a given period, to prepay the
<PAGE> 5
outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders
of such obligations. The interest rate on a floating rate
demand obligation is based on a known lending rate, such as a
bank's prime rate, and is adjusted automatically each time the
rate changes. The interest rate on a variable rate obligation
is adjusted automatically at the end of specified intervals.
Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because
these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such
instruments will generally be traded, and there generally is no
established secondary market for these obligations, although
they are redeemable at face value. Accordingly, where these
obligations are not secured by letters of credit or other credit
support arrangements, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on
demand. Such obligations frequently are not rated by credit
rating agencies and the Fund may invest in obligations that are
not so rated only if the Board of Trustees determines that the
obligations are of comparable quality to the other obligations
in which the Fund may invest.
The Fund may purchase from financial institutions
participation interests in securities. A participation interest
gives the Fund an undivided interest in the security in the
proportion that the Fund's participation interest bears to the
total principal amount of the security. The Fund may also
purchase certificates of participation, such as participations
in a pool of mortgages or credit card receivables.
Participation interests and certificates of participation both
may have fixed, floating or variable rates of interest with
remaining maturities of one year or less. If these instruments
are unrated, or have been given a rating below that which is
permissible for purchase by the Fund, they will be backed by an
irrevocable letter of credit or guarantee of a bank, or the
payment obligation otherwise will be collateralized by U.S.
Government Securities, or, in the case of unrated participation
interests, the Board of Trustees must have determined that the
instrument is of comparable quality to those instruments in
which the Fund may invest.
Under normal market conditions, the Fund will invest at
least 25% of its assets in securities of issuers in the
financial services industry. This policy may cause the Fund to
be more adversely affected by changes in market or economic
conditions and other circumstances affecting the financial
services industry. The financial services industry includes
issuers that, according to the Directory of Companies Required
to File Annual Reports with the Securities and Exchange
Commission, are in the following categories: State banks;
national banks; savings and loan holding companies; personal
credit institutions; business credit institutions; mortgage-
backed securities; finance services; security and commodity
brokers, dealers and services; life, accident and health
insurance carriers; fire, marine, casualty and surety insurance
carriers; insurance agents, brokers and services.
GOVERNMENT RESERVES
This Fund seeks to obtain maximum current income consistent
with safety of capital and maintenance of liquidity by
investment in U.S. Government Securities
<PAGE> 6
maturing in thirteen months or less from the date of purchase.
These securities include:
(1) Securities issued by the U.S. Treasury.
(2) Securities issued or guaranteed as to principal and interest
by agencies or instrumentalities of the U.S. Government that
are backed by the full faith and credit guarantee of the U.S.
Government.
(3) Securities issued or guaranteed as to principal and interest
by agencies or instrumentalities of the U.S. Government that
are not backed by the full faith and credit guarantee of the
U.S. Government.
(4) Repurchase agreements for securities listed in (1), (2), and
(3) above, regardless of the maturities of such underlying
securities.
U.S. Government Securities include: (i) bills, notes,
bonds, and other debt securities, differing as to maturity and
rates of interest, that are issued by and are direct obligations
of the U.S. Treasury; and (ii) other securities that are issued
or guaranteed as to principal and interest by agencies or
instrumentalities of the U.S. Government and that include, but
are not limited to, Federal Farm Credit Banks, Federal Home Loan
Banks, Government National Mortgage Association, Farmers Home
Administration, Federal Home Loan Mortgage Corporation, and
Federal National Mortgage Association.
Because the Fund's investment policy permits it to invest
in U.S. Government Securities that are not backed by the full
faith and credit of the U.S. Treasury, investment in the Fund
may involve risks that are different in some respects from an
investment in a fund that invests only in securities that are
backed by the full faith and credit of the U.S. Treasury. Such
risks may include a greater risk of loss of principal and
interest on the securities in the Fund's portfolio that are
supported only by the issuing or guaranteeing agency or
instrumentality and, accordingly, the Fund must look principally
or solely to that entity for ultimate repayment.
The Fund will not enter into a repurchase agreement
maturing in more than seven days if as a result thereof more
than 10% of its net assets (taken at market value at the time of
the investment) would be invested in illiquid securities,
including repurchase agreements maturing in more than seven
days; however, there is otherwise no limitation on the
percentage of the Fund's assets that may be invested in
repurchase agreements. The Fund will enter into repurchase
agreements only where (i) the underlying securities are U.S.
Government Securities and (ii) the seller agrees that the value
of the underlying U.S. Government Securities, including accrued
interest (if purchased), will at all times be equal to or exceed
the value of the repurchase agreement.
The Fund will maintain a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining a stable
net asset value per share, and, in any case, not in excess of 90
days.
<PAGE> 7
It is the Fund's intention, in general, to hold securities
to maturity. However, the Fund may attempt, from time to time,
to increase its yield by trading to take advantage of variations
in the markets for U.S. Government Securities. In addition,
redemptions of the Fund's shares could necessitate the sale of
portfolio securities, and such sales may occur at times when
sales would not otherwise be desirable. An increase in
prevailing interest rates will generally reduce the value of the
Fund's portfolio investments, and a decline in prevailing
interest rates will generally increase the market value of the
Fund's portfolio investments.
PORTFOLIO INVESTMENTS AND STRATEGIES
VARIABLE AND FLOATING RATE SECURITIES
In accordance with its investment objective and policies,
each Fund may invest in variable and floating rate money market
instruments which provide for periodic or automatic adjustments
in coupon interest rates that are reset based on changes in
amount and direction of specified short-term interest rates.
Neither Fund will invest in a variable or floating rate
instrument unless the Adviser determines that as of any reset
date the market value of the instrument can reasonably be
expected to approximate its par value.
LINE OF CREDIT
Subject to restriction (8) under Investment Restrictions,
each Fund may establish and maintain a line of credit with a
major bank in order to permit borrowing on a temporary basis to
meet share redemption requests in circumstances in which
temporary borrowing may be preferable to liquidation of
portfolio securities.
RATED SECURITIES
For a description of the ratings applied by Moody's
Investors Service and Standard & Poor's (two of the approved
NRSROs) to debt securities, please refer to the Appendix. The
rated debt securities described under Investment Policies above
for each Fund include securities given a rating conditionally by
a NRSRO. If the rating of a security held by a Fund is lost or
reduced, the Fund is not required to sell the security, but the
Adviser will consider such fact in determining whether that Fund
should continue to hold the security. To the extent that the
ratings accorded by a NRSRO for debt securities may change as a
result of changes in such organizations, or changes in their
rating systems, each Fund will attempt to use comparable ratings
as standards for its investments in debt securities in
accordance with its investment policies.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES AND STANDBY
COMMITMENTS
The Funds may purchase instruments on a when-issued or
delayed-delivery basis. Although the payment terms are
established at the time the Fund enters into the commitment, the
instruments may be delivered and paid for some time after the
date of purchase, when their value may have changed and the
yields available in the
<PAGE> 8
market may be greater. The Funds will make such commitments
only with the intention of actually acquiring the instruments,
but may sell them before settlement date if it is deemed
advisable for investment reasons. Securities purchased in this
manner involve risk of loss if the value of the security
purchased declines before settlement date.
The Funds may also invest on a standby commitment basis,
which is a delayed-delivery agreement in which the Fund binds
itself to accept delivery of and to pay for an instrument within
a specified period at the option of the other party to the
agreement.
At the time a Fund enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
standby commitment, liquid assets (cash, U.S. Government or
other "high grade" debt obligations) of the Fund having a value
at least as great as the purchase price of the securities to be
purchased will be segregated on the books of the Fund and held
by the custodian throughout the period of the obligation.
SHORT SALES
Each Fund may make short sales "against the box." In a
short sale, the Fund sells a borrowed security and is required
to return the identical security to the lender. A short sale
"against the box" involves the sale of a security with respect
to which the Fund already owns an equivalent security in kind
and amount. A short sale "against the box" enables a Fund to
obtain the current market price of a security which it desires
to sell but is unavailable for settlement.
INVESTMENT RESTRICTIONS
Each Fund operates under the following investment
restrictions. A Fund may not:
(1) invest in a security if, as a result of such
investment, more than 25% of its total assets (taken at market
value at the time of such investment) would be invested in the
securities of issuers in any particular industry, except that
this restriction does not apply to (i) U.S. Government
Securities, (ii) repurchase agreements, or (iii) [Cash Reserves
only] securities of issuers in the financial services industry,
[both Funds] and that all or substantially all of the assets of
the Fund may be invested in another registered investment
company having the same investment objective and substantially
similar investment policies as the Fund;
(2) invest in a security if, with respect to 75% of the
Fund's assets, as a result of such investment, more than 5% of
its total assets (taken at market value at the time of such
investment) would be invested in the securities of any one
issuer, except that this restriction does not apply to U.S.
Government Securities or repurchase agreements for such
securities and 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;
<PAGE> 9
(3) invest in a security if, as a result of such
investment, it would hold more than 10% (taken at the time of
such investment) of the outstanding voting securities of any one
issuer, except that all or substantially all of the assets of
the Fund may be invested in another registered investment
company having the same investment objective and substantially
similar investment policies as the Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein);
(5) purchase or sell commodities or commodity contracts or
oil, gas, or mineral programs;
(6) purchase securities on margin, except for use of
short-term credit necessary for clearance of purchases and sales
of portfolio securities;
(7) [Cash Reserves only] make loans to other persons,
provided that it may purchase money market securities or enter
into repurchase agreements; [Government Reserves only] make
loans to other persons, provided that, as described above under
Investment Policies--Government Reserves, it may purchase
instruments and may enter into repurchase agreements;
(8) borrow, except that it may borrow up to 33 1/3% of its
total assets, taken at market value at the time of such
borrowing, as a temporary measure for extraordinary or emergency
purposes but not to increase portfolio income (such borrowings
will not exceed 33 1/3% of its total assets and it will not
purchase additional securities at a time when its borrowings
exceed 5% of its total assets) [no Fund borrowed during its last
fiscal year];
(9) act as an underwriter of securities, except insofar as
it may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 on disposition of securities acquired
subject to legal or contractual restrictions on resale, except
that all or substantially all of the assets of the Fund may be
invested in another registered investment company having the
same investment objective and substantially similar investment
policies as the Fund; or
(10) issue any senior security except to the extent
permitted under the Investment Company Act of 1940.
For each Fund, the above restrictions are fundamental
policies and may not be changed without the approval of a
"majority of the outstanding voting securities" of the Fund, as
previously defined herein.
Each Fund is also subject to the following restrictions and
policies that may be changed by the Board of Trustees. Unless
otherwise indicated, a Fund may not:
(A) invest for the purpose of exercising control or
management, 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;
<PAGE> 10
(B) purchase more than 3% of the stock of another
investment company or purchase stock of other investment
companies equal to more than 5% of the Fund's total assets
(valued at time of purchase) in the case of any one other
investment company and 10% of such assets (valued at time of
purchase) in the case of all other investment companies in the
aggregate; any such purchases are to be made in the open market
where no profit to a sponsor or dealer results from the
purchase, other than the customary broker's commission, except
for securities acquired as part of a merger, consolidation or
acquisition of assets and 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/
(C) mortgage, pledge, hypothecate or in any manner
transfer, as security for indebtedness, any securities owned or
held by it, except as may be necessary in connection with
borrowings permitted in (8) above;
(D) invest more than 10% of its net assets (taken at
market value at the time of each purchase) in illiquid
securities /4/, including repurchase agreements maturing in more
than seven days;
(E) invest in a security if, as a result of such
investment, more than 5% of the value of its total assets (taken
at market value at the time of such investment) would be
invested in securities of issuers (other than issuers of federal
agency obligations or asset-backed securities) having a record,
together with predecessors or unconditional guarantors, of less
than three years of continuous operation, 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;
(F) purchase or retain securities of any issuer if 5% of
the securities of such issuer are owned by those officers and
trustees or directors of the Trust or of its investment adviser
who each own beneficially more than l/2 of 1% of its securities;
(G) purchase portfolio securities for the Fund from, or
sell portfolio securities to, any of the officers and directors
or trustees of the Trust or of its investment adviser; or
(H) sell securities short unless (i) the Fund owns or has
the right to obtain securities equivalent in kind and amount to
those sold short at no added cost or (ii) the securities sold
are "when issued" or "when distributed" securities which the
Fund expects to receive in a recapitalization, reorganization,
or other exchange for securities the Fund contemporaneously owns
or has the right to obtain.
------------------------
/3/ The Funds have been informed that the staff of the
Securities and Exchange Commission takes the position that the
issuers of certain CMOs and certain other collateralized assets
are investment companies and that subsidiaries of foreign banks
may be investment companies for purposes of Section 12(d)(1) of
the Investment Company Act of 1940, which limits the ability of
one investment company to invest in another investment company.
Accordingly, the Funds intend to operate within the applicable
limitations under Section 12(d)(1)(A) of that Act.
/4/ In the judgment of the Adviser, Private Placement Notes,
which are issued pursuant to Section 4(2) of the Securities Act
of 1933, generally are readily marketable even though they are
subject to certain legal restrictions on resale. As such, they
are not treated as being subject to the limitation on illiquid
securities.
------------------------
<PAGE> 11
Each Fund may not, so long as it publicly offers its shares
for sale in certain states: (i) purchase shares of other open-
end investment companies, except in connection with a merger,
consolidation, acquisition, or reorganization and 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 (ii) invest more than 5% of its net
assets (valued at time of investment) in warrants, nor more than
2% of its net assets in warrants which are not listed on the New
York or American stock exchange.
ADDITIONAL INVESTMENT CONSIDERATIONS
The Adviser seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. It has worked
to build wealth for generations by being guided by three primary
objectives which it believes are the foundation of a successful
investment program. These objectives are preservation of
capital, limited volatility through managed risk, and consistent
above-average returns.
Because every investor's needs are different, Stein Roe
mutual funds are designed to accommodate different investment
objectives, risk tolerance levels, and time horizons. In
selecting a mutual fund, investors should ask the following
questions:
What are my investment goals?
It is important to a choose a fund that has investment
objectives compatible with your investment goal.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share
price, such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If
you have a longer investment time frame, you may seek to
maximize your investment returns by investing in a mutual fund
that offers greater yield or appreciation potential in exchange
for greater investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks
which will vary depending on investment objective and security
type. However, mutual funds seek to reduce risk through
professional investment management and portfolio
diversification.
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values
than bond or money market mutual funds. Although there is no
guarantee that they will be able to maintain a stable net asset
value of $1.00 per share, money market funds emphasize safety
of principal and liquidity, but tend to offer lower income
potential than bond funds. Bond funds tend to offer higher
income potential than money market funds but tend to have
greater risk of principal and yield volatility.
<PAGE> 12
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information
is incorporated herein by reference. The Prospectus discloses
that you may purchase (or redeem) shares through investment
dealers, banks, or other institutions. It is the responsibility
of any such institution to establish procedures insuring the
prompt transmission to the Trust of any such purchase order.
The state of Texas has asked that the Trust disclose in its
Statement of Additional Information, as a reminder to any such
bank or institution, that it must be registered as a dealer in
Texas.
Each Fund's net asset value is determined on days on which
the New York Stock Exchange (the "NYSE") is open for trading.
The NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the
judgment of the Board of Trustees, net asset value of a Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
The Trust reserves the right to suspend or postpone
redemptions of shares of any Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the
Securities and Exchange Commission, or the NYSE is closed for
other than customary weekend and holiday closings; (b) the
Securities and Exchange Commission has by order permitted such
suspension; or (c) an emergency, as determined by the Securities
and Exchange Commission, exists, making disposal of portfolio
securities or valuation of net assets of such Fund not
reasonably practicable.
Although neither Cash Reserves nor Government Reserves
currently charges a fee to its shareholders for the use of the
special Check-Writing Redemption Privilege offered by those
Funds, as described under How to Redeem Shares in the
Prospectus, each Fund pays for the cost of printing and mailing
checks to its shareholders and pays charges of the custodian for
payment of each check. The Trust reserves the right to
establish a direct charge to shareholders for use of the
Privilege and both the Trust and the custodian reserve the right
to terminate this service.
The Trust intends to pay all redemptions in cash and is
obligated to redeem shares of a Fund solely in cash up to the
lesser of $250,000 or one percent of the net assets of that Fund
during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly
by a distribution in kind of securities. If redemptions were
made in kind, the redeeming shareholders might incur transaction
costs in selling the securities received in the redemptions.
Due to the relatively high cost of maintaining smaller
accounts, the Trust reserves the right to redeem shares in any
account for their then-current value (which
<PAGE> 13
will be promptly paid to the investor) if at any time the shares
in the account do not have a value of at least $1,000. An
investor will be notified that the value of his account is less
than the minimum and allowed at least 30 days to bring the value
of the account up to at least $1,000 before the redemption is
processed. The Agreement and Declaration of Trust also
authorizes the Trust to redeem shares under certain other
circumstances as may be specified by the Board of Trustees.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers of the Trust:
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AGE WITH THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
Gary A. Anetsberger 39 Senior Vice-President Vice-President of Stein Roe & Farnham Incorporated (the
"Adviser") since January, 1991; associate of the Adviser
prior thereto
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of the Adviser and
(1)(2) director of the Adviser since June, 1992; senior vice
president and director of marketing of Citibank Illinois
prior thereto
Jilaine Hummel Bauer 40 Executive Vice-President; Senior Vice President (since April, 1992) and Assistant
Secretary Secretary of the Adviser; vice president of the Adviser
prior thereto
Ann H. Benjamin 37 Vice-President Senior Vice President of the Adviser since July, 1994; vice
president of the Adviser from January, 1992 to July, 1994;
associate of the Adviser prior thereto
Kenneth L. Block (3) 75 Trustee Chairman Emeritus of A. T. Kearney, Inc. (international
management consultants)
William W. Boyd (3) 69 Trustee Chairman and Director of Sterling Plumbing Group, Inc.
(manufacturer of plumbing products) since 1992; chairman,
president, and chief executive officer of Sterling Plumbing
Group, Inc. prior thereto
Thomas W. Butch 38 Vice-President Senior Vice President of the Adviser since September, 1994;
first vice president, corporate communications, of Mellon
Bank Corporation prior thereto
N. Bruce Callow 49 Executive Vice-President President of the Investment Counsel division of the Adviser
since June, 1994; senior vice president of trust and
financial services for The Northern Trust prior thereto
Lindsay Cook (1) 43 Trustee Senior Vice President of Liberty Financial Companies, Inc.
(the indirect parent of the Adviser)
Philip D. Hausken 37 Vice-President Corporate Counsel for the Adviser since July, 1994; assistant
regional director, midwest regional office of the Securities
and Exchange Commission prior thereto
<PAGE> 14
Michael T. Kennedy 33 Vice-President Senior Vice President of the Adviser since October, 1994;
vice president of the Adviser from January, 1992 to October,
1994; associate of the Adviser prior thereto
Stephen P. Lautz 38 Vice-President Vice President of the Adviser since May, 1994; associate of
the Adviser prior thereto
Steven P. Luetger 41 Vice-President Senior Vice President of the Adviser
Lynn C. Maddox 54 Vice-President Senior Vice President of the Adviser
Anne E. Marcel 37 Vice-President Manager, Mutual Fund Sales & Services of the Adviser since
October, 1994; supervisor of the Counselor Department of the
Adviser from October, 1992 to October, 1994; vice president
of Selected Financial Services from May, 1990 to March, 1992
Francis W. Morley 75 Trustee Chairman of Employer Plan Administrators and Consultants Co.
(2)(3) (designer, administrator, and communicator of employee
benefit plans)
Jane M. Naeseth 45 Vice-President Senior Vice President of the Adviser since January, 1991;
vice president of the Adviser prior thereto
Charles R. Nelson (3) 53 Trustee Van Voorhis Professor of Political Economy of the University
of Washington
Nicolette D. Parrish 45 Vice-President; Senior Legal Assistant of the Adviser
Assistant Secretary
Sharon R. Robertson 33 Controller Accounting Manager for the Adviser's Mutual Funds division
Janet B. Rysz 40 Assistant Secretary Assistant Secretary of the Adviser
Thomas P. Sorbo 34 Vice-President Senior Vice President of the Adviser since January, 1994;
vice president of the Adviser from September, 1992 to
December, 1993; associate of Travelers Insurance Company
prior thereto
Gordon R. Worley (3) 76 Trustee Private investor
Hans P. Ziegler 54 Executive Vice-President Chief Executive Officer of the Adviser since May, 1994;
president of the Investment Counsel division of the Adviser
from July, 1993 to June, 1994; president and chief executive
officer, Pitcairn Financial Management Group prior thereto
Margaret O. Zwick 29 Treasurer Compliance Manager for the Adviser's Mutual Funds division
since August, 1995; held positions of Compliance Accountant,
Section Manager, Supervisor, and Fund Accountant with the
division
<FN>
___________________________
(1) Trustee who is an "interested person" of the Trust and of
the Adviser, as defined in the Investment Company Act of
1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope
and results of the audit.
</TABLE>
<PAGE> 15
Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by
the Adviser. Ms. Bauer and Mr. Cook are also vice presidents of
the Funds' distributor, Liberty Securities Corporation. The
address of Mr. Block is 11 Woodley Road, Winnetka, Illinois
60093; that of Mr. Boyd is 2900 Golf Road, Rolling Meadows,
Illinois 60008; that of Mr. Cook is 600 Atlantic Avenue, Boston,
Massachusetts 02210; that of Mr. Morley is 20 North Wacker
Drive, Suite 2275, Chicago, Illinois 60606; that of Mr. Nelson
is Department of Economics, University of Washington, Seattle,
Washington 98195; that of Mr. Worley is 1407 Clinton Place,
River Forest, Illinois 60305; and that of the officers is One
South Wacker Drive, Chicago, Illinois 60606.
Associated with the Adviser since 1977, Ms. Naeseth has
been portfolio manager of Cash Reserves since 1980 and of
Government Reserves since its inception in 1982. From 1973 to
1977, she was with the First Trust Company of Ohio. She
received her B.A. degree from the University of Illinois in
1972. As of June 30, 1995, she was responsible for managing
$658 million in mutual fund assets.
Officers and trustees affiliated with the Adviser serve
without any compensation from the Trust. In compensation for
their services to the Trust, trustees who are not "interested
persons" of the Trust or the Adviser are paid an annual retainer
of $8,000 (divided equally among the Funds of the Trust) plus an
attendance fee from each Fund for each meeting of the Board or
committee thereof attended at which business for that Fund is
conducted. The attendance fees (other than for a Nominating
Committee meeting) are based on each Fund's net assets as of the
preceding December 31. For a Fund with net assets of less than
$251 million, the fee is $200 per meeting; with $251 million to
$500 million, $350; with $501 million to $750 million, $500;
with $750 million to $1 billion, $650; and with over $1 billion
in net assets, $800. Each non-interested trustee also receives
an aggregate of $500 for attending each meeting of the
Nominating Committee. The Trust has no retirement or pension
plans. The following table sets forth compensation paid by the
Trust during the fiscal year ended June 30, 1995 to each of the
trustees:
Aggregate Total Compensation Paid to
Compensation Trustees from the Trust and
Name of Trustee from the Trust the Stein Roe Fund Complex*
--------------- -------------- ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Kenneth L. Block $23,350 $74,850
William W. Boyd 15,900 48,200
Francis W. Morley 23,350 76,400
Charles R. Nelson 23,350 77,200
Gordon R. Worley 23,350 74,850
_______________
* During this period, the Stein Roe Fund Complex consisted of
the six series of the Trust, four series of Stein Roe Municipal
Trust, eight series of Stein Roe Investment Trust, and one
series of SR&F Base Trust.
<PAGE> 16
FINANCIAL STATEMENTS
Please refer to the Funds' 6/30/95 Financial Statements
(balance sheets and schedules of investments as of 6/30/95 and
the statements of operations, changes in net assets, and notes
thereto) and the report of independent auditors contained in the
6/30/95 Annual Report of the Funds. 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 1
800 338-2550.
PRINCIPAL SHAREHOLDERS
As of August 1, 1995, the only persons known by the Trust
to own of record or "beneficially" 5% or more of outstanding
shares of any Fund within the definition of that term as
contained in Rule 13d-3 under the Securities Exchange Act of
1934 were as follows:
APPROXIMATE
PERCENTAGE OF
OUTSTANDING
NAME AND ADDRESS FUND SHARESHELD
------------------------ ------------------ ------------
First Bank National Cash Reserves 14.3%
Association* Government Reserves 13.3
410 N. Michigan Avenue
Chicago, IL 60611
Federated Department Store Government Reserves 15.4
U/CSA/W LMIC
Attn VP Risk Management
7 West 7th Street
Cincinnati OH 45202
____________________
*Shares held of record, but not beneficially, as custodian under
various retirement plans.
The following table shows shares of the Funds held by the
categories of persons indicated, and in each case the
approximate percentage of outstanding shares represented:
CLIENTS OF THE
ADVISER IN THEIR TRUSTEEES AND
CLIENT ACCOUNTS OFFICERS AS OF
AS OF 7/31/95* 7/31/95
-------------------- --------------------
Shares Held Percent Shares Held Percent
----------- ------- ----------- -------
Cash Reserves 86,496,375 17.5% 1,452,919 **
Government Reserves 13,925,340 13.6 465,785 **
_____________________________
* The Adviser may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by the Adviser under Rule 13d-3. However, the
Adviser disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated, investment adviser to the
Funds, is a wholly-owned subsidiary of SteinRoe Services Inc.
("SSI"), the Funds' transfer agent, which is a wholly-owned
subsidiary of Liberty Financial Companies, Inc., which is a
majority-owned subsidiary of Liberty Mutual Equity Corporation,
which is a wholly-owned subsidiary of Liberty Mutual Insurance
Company ("Liberty Mutual").
<PAGE> 17
Liberty Mutual is a mutual insurance company, principally in the
property/casualty insurance field, organized under the laws of
Massachusetts in 1912.
The directors of the Adviser are Gary L. Countryman,
Kenneth R. Leibler, Timothy K. Armour, N. Bruce Callow, and Hans
P. Ziegler. Mr. Countryman is Chairman and Chief Executive
Officer of Liberty Mutual Insurance Company; Mr. Leibler is
President and Chief Executive Officer of Liberty Financial
Companies; Mr. Armour is President of the Adviser's Mutual Funds
division; Mr. Callow is President of the Adviser's Investment
Counsel division; and Mr. Ziegler is Chief Executive Officer of
the Adviser. The business address of Mr. Countryman is 175
Berkeley Street, Boston, Massachusetts 02117; that of Mr.
Leibler is Federal Reserve Plaza, Boston, Massachusetts 02210;
that of Messrs. Armour, Callow, and Ziegler is One South Wacker
Drive, Chicago, Illinois 60606.
The Adviser and its predecessor have been providing
investment advisory services since 1932. The Adviser acts as
investment adviser to wealthy individuals, trustees, pension and
profit sharing plans, charitable organizations, and other
institutional investors. As of June 30, 1995, the Adviser
managed over $22.4 billion in assets: over $4.9 billion in
equities and over $17.5 billion in fixed-income securities
(including $2.3 billion in municipal securities). The $22.4
billion in managed assets included over $5.5 billion held by
open-end mutual funds managed by the Adviser (approximately 21%
of the mutual fund assets were held by clients of the Adviser).
These mutual funds were owned by over 148,000 shareholders. The
$5.5 billion in mutual fund assets included over $550 million in
over 33,000 IRA accounts. In managing those assets, the Adviser
utilizes a proprietary computer-based information system that
maintains and regularly updates information for approximately
6,500 companies. The Adviser also monitors over 1,400 issues
via a proprietary credit analysis system. At June 30, 1995, the
Adviser employed approximately 17 research analysts and 34
account managers. The average investment-related experience of
these individuals was 19 years.
Stein Roe Counselor [service mark] and Stein Roe Counselor
Preferred [service mark] are professional investment advisory
services offered by the Adviser to Fund shareholders. Each is
designed to help shareholders construct Fund investment
portfolios to suit their individual needs. Based on information
shareholders provide about their financial goals and objectives
in response to a questionnaire, the Adviser's investment
professionals create customized portfolio recommendations.
Shareholders participating in Stein Roe Counselor [service mark]
are free to self direct their investments while considering the
Adviser's recommendations; shareholders participating in Stein
Roe Counselor Preferred [service mark] enjoy the added benefit
of having the Adviser implement portfolio recommendations
automatically for a fee of 1% or less, depending on the size of
their portfolios. In addition to reviewing shareholders' goals
and objectives periodically and updating portfolio
recommendations to reflect any changes, the Adviser provides
shareholders participating in these programs with a dedicated
Counselor [service mark] representative. Other distinctive
services include specially designed account statements with
portfolio performance and transaction data, newsletters, and
regular investment, economic, and market updates. A $50,000
minimum investment is required to participate in either program.
<PAGE> 18
Please refer to the description of the Adviser, advisory
agreements, advisory fees, expense limitations, and transfer
agency services under Management of the Funds and Fee Table in
the Prospectus, which is incorporated herein by reference. The
table below shows gross advisory fees paid by the Funds and any
expense reimbursements by the Adviser to them, which are
described in the Prospectus.
YEAR YEAR YEAR
TYPE OF ENDED ENDED ENDED
FUND PAYMENT 6/30/95 6/30/94 6/30/93
-------------- ------------ ---------- ---------- ----------
Cash Reserves Advisory fee $2,648,885 $3,071,640 $3,338,199
Government
Reserves Advisory fee 513,808 537,413 593,300
Reimbursement 50,557 48,548 70,947
The Adviser provides office space and executive and other
personnel to the Funds and bears any sales or promotional
expenses. Each Fund pays all expenses other than those paid by
the Adviser, including but not limited to printing and postage
charges and securities registration and custodian fees and
expenses incidental to its organization.
Each Fund's advisory agreement provides that the Adviser
shall reimburse the Fund to the extent that total annual
expenses of the Fund (including fees paid to the Adviser, but
excluding taxes, interest, brokers' commissions and other normal
charges incident to the purchase and sale of portfolio
securities, and expenses of litigation to the extent permitted
under applicable state law) exceed the applicable limits
prescribed by any state in which shares of such Fund are being
offered for sale to the public; however, such reimbursement for
any fiscal year will not exceed the amount of the advisory fees
paid by the Fund for such year. The Trust believes that
currently the most restrictive state limit on expenses is that
of California, which limit currently is 2 1/2% of the first $30
million of average net assets, 2% of the next $70 million, and 1
1/2% thereafter. In addition, in the interest of further
limiting the expenses of Government Reserves, the Adviser may
voluntarily waive its management fee and/or absorb certain
expenses for the Fund, as described in the Prospectus. Any such
reimbursement will enhance the yield of Government Reserves.
The advisory agreement of each Fund also provides that
neither the Adviser nor any of its directors, officers,
stockholders (or partners of stockholders), agents, or employees
shall have any liability to the Trust or any shareholder of the
Fund for any error of judgment, mistake of law or any loss
arising out of any investment, or for any other act or omission
in the performance by the Adviser of its duties under the
advisory agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on the Adviser's part
in the performance of its duties or from reckless disregard by
the Adviser of the Adviser's obligations and duties under the
advisory agreement.
Any expenses that are attributable solely to the
organization, operation, or business of a Fund shall be paid
solely out of that Fund's assets. Any expenses incurred by the
Trust that are not solely attributable to a particular Fund are
apportioned in such manner as the Adviser determines is fair and
appropriate, unless otherwise specified by the Board of
Trustees.
<PAGE> 19
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with the Trust, the
Adviser receives a fee for performing certain bookkeeping and
accounting services for the Funds. For these services, the
Adviser receives an annual fee of $25,000 per Fund plus .0025 of
1% of average net assets over $50 million. During the fiscal
year ended June 30, 1995, the Adviser received aggregate fees of
$114,541 from the Trust for services performed under this
agreement.
DISTRIBUTOR
Shares of the Funds are distributed by Liberty Securities
Corporation ("LSC"), under a Distribution Agreement as described
under Management of the Funds in the Prospectus, which is
incorporated herein by reference. The Distribution Agreement
continues in effect from year to year, provided such continuance
is approved annually (i) by a majority of the trustees or by a
majority of the outstanding voting securities of the Trust, and
(ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. The Trust
has agreed to pay all expenses in connection with registration
of its shares with the Securities and Exchange Commission and
auditing and filing fees in connection with registration of its
shares under the various state blue sky laws and assumes the
cost of preparation of prospectuses and other expenses. The
Adviser bears all sales and promotional expenses.
As agent, LSC offers shares of each Fund to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. No sales commission or "12b-1" payment is paid by any
Fund. LSC offers the Funds' shares only on a best-efforts
basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the
Trust, as described under Management of the Funds in the
Prospectus. For performing these services, SSI receives from
each Fund a fee based on an annual rate of 0.15 of 1% of the
Fund's average daily net assets. Prior to May 1, 1995, SSI
received the following payments from each of the Funds: (1) a
fee of $4.00 for each new account opened; (2) monthly payments
of $1.466 per open shareholder account; (3) payments of $0.611
per closed shareholder account for each month through June of
the calendar year following the year in which the account is
closed; (4) $0.3025 per shareholder account for each dividend
paid; and (5) $1.415 for each shareholder-initiated transaction.
The Board of Trustees believes the charges by SSI to the Funds
are comparable to those of other companies performing similar
services. (See Investment Advisory Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian
for the Trust. It is responsible for holding all
<PAGE> 20
securities and cash of the Funds, receiving and paying for
securities purchased, delivering against payment securities
sold, receiving and collecting income from investments, making
all payments covering expenses of the Funds, and performing
other administrative duties, all as directed by authorized
persons. The custodian does not exercise any supervisory
function in such matters as purchase and sale of portfolio
securities, payment of dividends, or payment of expenses of the
Funds.
Portfolio securities purchased in the U.S. are maintained
in the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the
U.S. are maintained in the custody of foreign banks and trust
companies that are members of the Bank's Global Custody Network,
and foreign depositories ("foreign sub-custodians"). Each of
the domestic and foreign custodial institutions holding
portfolio securities has been approved by the Board of Trustees
in accordance with regulations under the Investment Company Act
of 1940.
The Board of Trustee reviews, at least annually, whether it
is in the best interest of each Fund and its shareholders to
maintain Fund assets in each custodial institution. However,
with respect to foreign sub-custodians, there can be no
assurance that a Fund, and the value of its shares, will not be
adversely affected by acts of foreign governments, financial or
operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians, or
application of foreign law to a Fund's foreign sub-custodial
arrangements. Accordingly, an investor should recognize that
the non-investment risks involved in holding assets abroad are
greater than those associated with investing in the United
States.
The Funds may invest in obligations of the custodian and
may purchase or sell securities from or to the custodian.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Ernst & Young
LLP, 233 South Wacker Drive, Chicago, Illinois 60606. The
independent auditors audit and report on the Funds' annual
financial statements, review certain regulatory reports and the
Funds' federal income tax returns, and perform other
professional accounting, auditing, tax and advisory services
when engaged to do so by the Trust.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
each Fund's portfolio securities. Purchases and sales of
portfolio securities are ordinarily transacted with the issuer
or with a primary market maker acting as principal or agent for
the securities on a net basis, with no brokerage commission
being paid by a Fund. Transactions placed through dealers
reflect the spread between the bid and asked prices.
Occasionally, a Fund may make purchases of underwritten issues
at prices that include underwriting discounts or selling
concessions.
<PAGE> 21
The Adviser's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price
and execution. The best net price, giving effect to transaction
charges, if any, and other costs, normally is an important
factor in this decision, but a number of other judgmental
factors may also enter into the decision. These include: the
Adviser's knowledge of current transaction costs; the nature of
the security being traded; the size of the transaction; the
desired timing of the trade; the activity existing and expected
in the market for the particular security; confidentiality; the
execution, clearance and settlement capabilities of the broker
or dealer selected and others that are considered; the Adviser's
knowledge of the financial stability of the broker or dealer
selected and such other brokers or dealers; and the Adviser's
knowledge of actual or apparent operational problems of any
broker or dealer. Recognizing the value of these factors, a
Fund may incur a transaction charge in excess of that which
another broker or dealer may have charged for effecting the same
transaction. Evaluations of the reasonableness of the costs of
portfolio transactions, based on the foregoing factors, are made
on an ongoing basis by the Adviser's staff and reports are made
annually to the Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to
be capable of providing the best combination of price and
execution with respect to a particular portfolio transaction for
a Fund, the Adviser often selects a broker or dealer that has
furnished it with research products or services such as research
reports, subscriptions to financial publications and research
compilations, compilations of securities prices, earnings,
dividends and similar data, and computer databases, quotation
equipment and services, research-oriented computer software and
services, and services of economic and other consultants.
Selection of brokers or dealers is not made pursuant to an
agreement or understanding with any of the brokers or dealers;
however, the Adviser uses an internal allocation procedure to
identify those brokers or dealers who provide it with research
products or services and the amount of research products or
services they provide, and endeavors to direct sufficient
commissions generated by its clients' accounts in the aggregate,
including the Funds, to such brokers or dealers to ensure the
continued receipt of research products or services the Adviser
feels are useful. In certain instances, the Adviser receives
from brokers and dealers products or services which are used
both as investment research and for administrative, marketing,
or other non-research purposes. In such instances, the Adviser
makes a good faith effort to determine the relative proportions
of such products or services which may be considered as
investment research. The portion of the costs of such products
or services attributable to research usage may be defrayed by
the Adviser (without prior agreement or understanding, as noted
above) through brokerage commissions generated by transactions
of clients (including the Funds), while the portions of the
costs attributable to non-research usage of such products or
services is paid by the Adviser in cash. No person acting on
behalf of a Fund is authorized, in recognition of the value of
research products or services, to pay a price in excess of that
which another broker or dealer might have charged for effecting
the same transaction. Research products or services furnished
by brokers and dealers through whom a Fund effects transactions
may be used in servicing any or all of the clients of the
Adviser and not all such research products or services are used
in connection with the management of such Fund.
<PAGE> 22
The Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian
as a soliciting dealer in connection with any tender offer for
Fund portfolio securities. The custodian will credit any such
fees received against its custodial fees.
The Board has reviewed the legal developments pertaining to
and the practicability of attempting to recapture underwriting
discounts or selling concessions when portfolio securities are
purchased in underwritten offerings. The Board has been advised
by counsel that recapture by a mutual fund currently is not
permitted under the Rules of Fair Practice of the National
Association of Securities Dealers ("NASD"). Therefore, the
Funds will not attempt to recapture underwriting discounts or
selling concessions.
During the last fiscal year, Cash Reserves held securities
of Salomon Inc., one of its regular broker-dealers or the parent
of such broker or dealer that derive more than 15% of gross
revenue from securities-related activities. At June 30, 1995,
Cash Reserves held $23,921,705 in such securities.
ADDITIONAL INCOME TAX CONSIDERATIONS
Each Fund intends to comply with the special provisions of
the Internal Revenue Code that relieve it of federal income tax
to the extent of its net investment income and capital gains
currently distributed to shareholders.
Because capital gain distributions reduce net asset value,
if a shareholder purchases shares shortly before a record date,
he will, in effect, receive a return of a portion of his
investment in such distribution. The distribution would
nonetheless be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income
tax purposes the shareholder's original cost would continue as
his tax basis.
Each Fund expects that none of its dividends will qualify
for the deduction for dividends received by corporate
shareholders.
ADDITIONAL INFORMATION ON THE DETERMINATION OF NET ASSET VALUE
Please refer to Net Asset Value in the Prospectus, which is
incorporated herein by reference. Each Fund values its
portfolio by the "amortized cost method" by which it attempts to
maintain its net asset value at $1.00 per share. This involves
valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the
market value of the instrument. Although this method provides
certainty in valuation, it may result in periods during which
value as determined by amortized cost is higher or lower than
the price a Fund would receive if it sold the instrument. Other
assets are valued at a fair value determined in good faith by
the Board of Trustees.
<PAGE> 23
In connection with the Funds' use of amortized cost and the
maintenance of each Fund's per share net asset value of $1.00,
the Trust has agreed, with respect to each Fund: (i) to seek to
maintain a dollar-weighted average portfolio maturity
appropriate to its objective of maintaining relative stability
of principal and not in excess of 90 days; (ii) not to purchase
a portfolio instrument with a remaining maturity of greater than
thirteen months; and (iii) to limit its purchase of portfolio
instruments to those instruments that are denominated in U.S.
dollars which the Board of Trustees determines present minimal
credit risks and that are of eligible quality as determined by
any major rating service as defined under SEC Rule 2a-7 or, in
the case of any instrument that is not rated, of comparable
quality as determined by the Board.
Each Fund has also agreed to establish procedures
reasonably designed to stabilize the Fund's price per share as
computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of the Funds' portfolio holdings
by the Board of Trustees, at such intervals as it deems
appropriate, to determine whether the Funds' net asset values
calculated by using available market quotations or market
equivalents deviate from $1.00 per share based on amortized
cost. Calculations are made to compare the value of its
investments valued at amortized cost with market value. Market
values are obtained by using actual quotations provided by
market makers, estimates of market value, values from yield data
obtained from reputable sources for the instruments, values
obtained from the Adviser's matrix, or values obtained from an
independent pricing service. Any such service might value a
Fund's investments based on methods which include consideration
of: yields or prices of securities of comparable quality,
coupon, maturity and type; indications as to values from
dealers; and general market conditions. The service may also
employ electronic data processing techniques, a matrix system or
both to determine valuations.
In connection with each Fund's use of the amortized cost
method of portfolio valuation to maintain its net asset value at
$1.00 per share, a Fund might incur or anticipate an unusual
expense, loss, depreciation, gain or appreciation that would
affect its net asset value per share or income for a particular
period. The extent of any deviation between a Fund's net asset
value based upon available market quotations or market
equivalents and $1.00 per share based on amortized cost will be
examined by the Board of Trustees as it deems appropriate. If
such deviation exceeds 1/2 of 1%, the Board of Trustees will
promptly consider what action, if any, should be initiated. In
the event the Board of Trustees determines that a deviation
exists that may result in material dilution or other unfair
results to investors or existing shareholders, it will take such
action as it considers appropriate to eliminate or reduce to the
extent reasonably practicable such dilution or unfair results.
Actions which the Board might take include: selling portfolio
instruments prior to maturity to realize capital gains or losses
or to shorten average portfolio maturity; increasing, reducing,
or suspending dividends or distributions from capital or capital
gains; or redeeming shares in kind. The Board might also
establish a net asset value per share by using market values, as
a result of which the net asset value might deviate from $1.00
per share.
<PAGE> 24
INVESTMENT PERFORMANCE
A Fund may quote a "Current Yield" or "Effective Yield" or
both from time to time. The Current Yield is an annualized
yield based on the actual total return for a seven-day period.
The Effective Yield is an annualized yield based on a daily
compounding of the Current Yield. These yields are each
computed by first determining the "Net Change in Account Value"
for a hypothetical account having a share balance of one share
at the beginning of a seven-day period ("Beginning Account
Value"), excluding capital changes. The Net Change in Account
Value will always equal the total dividends declared with
respect to the account, assuming a constant net asset value of
$1.00.
The yields are then computed as follows:
Net Change in Account Value 365
--------------------------- ----
Current Yield = Beginning Account Value x 7
[1 + Net Change in Account Value]365/7
--------------------------------------
Effective Yield = Beginning Account Value - 1
For example, the yields of the Funds for the seven-day period
ended June 30, 1995 were:
Cash Reserves
0.001045205 365
----------- ---
Current Yield = $1.00 x 7 = 5.45%
[1+$0.001045205]365/7
---------------------
Effective Yield = $1.00 - 1 = 5.60%
Government Reserves
0.001018356 365
----------- ---
Current Yield = $1.00 x 7 = 5.31%
[1+$0.001018356]365/7
---------------------
Effective Yield = $1.00 - 1 = 5.45%
The average dollar-weighted portfolio maturities of Cash
Reserves and of Government Reserves for the seven days ended
June 30, 1995 were 61 and 46 days, respectively.
In addition to fluctuations reflecting changes in net
income of a Fund resulting from changes in income earned on its
portfolio securities and in its expenses, a Fund's yield also
would be affected if the Fund were to restrict or supplement its
dividends in order to maintain its net asset value at $1.00.
(See Net Asset Value in the Prospectus and Additional
Information on the Determination of Net Asset Value herein.)
Portfolio changes resulting from net purchases or net
redemptions of Fund shares may affect yield. Accordingly, a
Fund's yield may vary from day to day and the yield stated for a
particular past period is not a representation as to its future
yield. A Fund's yield is not assured, and its principal is not
insured; however, each Fund will attempt to maintain its net
asset value per share at $1.00.
<PAGE> 25
Comparison of a Fund's yield with those of alternative
investments (such as savings accounts, various types of bank
deposits, and other money market funds) should be made with
consideration of differences between the Fund and the
alternative investments, differences in the periods and methods
used in the calculation of the yields being compared, and the
impact of income taxes on alternative investments.
Each Fund may quote total return figures from time to time.
A "Total Return" on a per share basis is the amount of dividends
distributed 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.
Average Annual Total Return is computed as follows: ERV =
P(1+T)n
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion thereof).
For example, for a $1,000 investment in a Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual Total
Return" at June 30, 1995 were:
TOTAL RETURN TOTAL RETURN AVERAGE ANNUAL
PERCENTAGE TOTAL RETURN
------------ ------------ ------------
Cash Reserves
1 year 1,050 4.96% 4.96%
5 years 1,241 24.05 4.40
10 years 1,757 75.68 5.80
Government
Reserves
1 year 1,048 4.78 4.78
5 years 1,234 23.36 4.29
10 years 1,712 71.18 5.52
Investment performance figures assume reinvestment of all
dividends and distributions, and do not take into account any
federal, state, or local income taxes which shareholders must
pay on a current basis. They are not necessarily indicative of
future results. The performance of a Fund is a result of
conditions in the securities markets, portfolio management, and
operating expenses. Although investment performance information
is useful in reviewing a Fund's performance and in providing
some basis for comparison with other investment alternatives, it
should not be used for comparison with other investments using
different reinvestment assumptions or time periods.
In advertising and sales literature, a Fund may compare its
yield and performance with that of other mutual funds, indexes
or averages of other mutual funds, indexes of related financial
assets or data, and other competing investment and
<PAGE> 26
deposit products available from or through other financial
institutions. The composition of these indexes or averages
differs from that of the Funds. Comparison of a Fund to an
alternative investment should be made with consideration of
differences in features and expected performance.
All of the indexes and averages noted below will be
obtained from the indicated sources or reporting services, which
the Funds believe to be generally accurate. A Fund may also
note its mention in newspapers, magazines, or other media from
time to time. However, the Funds assume no responsibility for
the accuracy of such data. Newspapers and magazines that might
mention the Funds include, but are not limited to, the
following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Barron's
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
Crain's Chicago Business
Consumer Reports
Consumer Digest
Financial World
Forbes
Fortune
Fund Action
Gourmet
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Los Angeles Times
Money
Mutual Fund Letter
Mutual Fund News Service
Mutual Fund Values (Morningstar)
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Smart Money
Smithsonian
Stanger's Investment Adviser
Time
Travel & Leisure
United Mutual Fund Selector
USA Today
U.S. News and World Report
The Wall Street Journal
Working Women
Worth
Your Money
The Funds may compare their performance to the Consumer
Price Index (All Urban), a widely-recognized measure of
inflation.
The yields of Government Reserves and Cash Reserves may be
compared to the average yield of the following services as
indicated below:
<TABLE>
<CAPTION>
BENCHMARK FUND
<S> <C>
Donoghue's Money Fund Averages [trademark]--U.S. Treasury Government Reserves
Donoghue's Money Fund Averages [trademark]
--U.S. Government & Agencies Government Reserves
Donoghue's Money Fund Averages [trademark]--Government Government Reserves
Donoghue's Money Fund Averages [trademark]--Prime Cash Reserves
Donoghue's Money Fund Averages [trademark]--Prime
and Eurodollar Cash Reserves
<PAGE> 27
Donoghue's Money Fund Averages [trademark]--Prime,
Eurodollar, and Yankeedollar Cash Reserves
Donoghue's Money Fund Averages [trademark]--Aggressive Cash Reserves
Donoghue's Money Fund Averages [trademark]--Taxable Cash Reserves
(Includes the previous four categories)
Donoghue's Money Fund Averages [trademark]--All Taxable Both Funds
Lipper Money Market Instrument Funds Average Cash Reserves
Lipper Short-Term U.S. Government Funds Average Government Reserves
Lipper Short-Term Income Fund Average Both Funds
ICD Money Market Taxable Funds Average Cash Reserves
ICD Money Market Government Securities Average Government Reserves
ICD All Taxable Short-Term Fund Average Both Funds
</TABLE>
Should these services reclassify a Fund to a different
category or develop (and place a Fund into) a new category, that
Fund may compare its performance, rank, or yield with those of
other funds in the newly-assigned category published by the
service.
Each Fund may compare its after-tax yield (computed by
multiplying the yield by one minus the highest marginal federal
individual tax rate) to the average yield for the tax-free
categories of the aforementioned services.
Investors may desire to compare the performance and
features of Cash Reserves and Government Reserves to those of
various bank products. Each Fund may compare its yield to the
average rates of bank and thrift institution money market
deposit accounts, Super N.O.W. accounts, and certificates of
deposit. The rates published weekly by the BANK RATE MONITOR
[copyright}, a North Palm Beach (Florida) financial reporting
service, in its BANK RATE MONITOR [copyright} National Index are
averages of the personal account rates offered on the Wednesday
prior to the date of publication by one hundred leading banks
and thrift institutions in the top ten Consolidated Standard
Metropolitan Statistical Areas. Account minimums range upward
from $2,500 in each institution and compounding methods vary.
Super N.O.W. accounts generally offer unlimited checking, while
money market deposit accounts generally restrict the number of
checks that may be written. If more than one rate is offered,
the lowest rate is used. Rates are subject to change at any
time specified by the institution. Bank account deposits may be
insured. Shareholder accounts in a Fund are not insured. Bank
passbook savings accounts compete with money market mutual fund
products with respect to certain liquidity features but may not
offer all of the features available from a money market mutual
fund, such as check writing. Bank passbook savings accounts
normally offer a fixed rate of interest while the yield of each
Fund fluctuates. Bank checking accounts normally do not pay
interest but compete with money market mutual funds with respect
to certain liquidity features (e.g., the ability to write checks
against the account). Bank certificates of deposit may offer
fixed or variable rates for a set term. (Normally, a variety of
terms are available.) Withdrawal of these deposits prior to
maturity will normally be subject to a penalty. In contrast,
shares of a Fund are redeemable at the next determined net asset
value (normally, $1.00 per share) after a request is received,
without charge.
<PAGE> 28
In advertising and sales literature, a Fund may also cite
its rating, recognition, or other mention by Morningstar or any
other entity. Morningstar's rating system is based on risk-
adjusted total return performance and is expressed in a star-
rating format. The risk-adjusted number is computed by
subtracting a Fund's risk score (which is a function of the
Fund's monthly returns less the 3-month T-bill return) from the
Fund's load-adjusted total return score. This numerical score
is then translated into rating categories, with the top 10%
labeled five star, the next 22.5% labeled four star, the next
35% labeled three star, the next 22.5% labeled two star, and the
bottom 10% one star. A high rating reflects either above-
average returns or below-average risk, or both.
Of course, past performance is not indicative of future
results.
______________________
To illustrate the historical returns on various types of
financial assets, the Funds may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based
investment firm. Ibbotson constructs (or obtains) very long-
term (since 1926) total return data (including, for example,
total return indexes, total return percentages, average annual
total returns and standard deviations of such returns) for the
following asset types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
_________________________
A Fund may also use hypothetical returns to be used as an example
in a mix of asset allocation strategies. One such example is
reflected in the chart below, which shows the effect of tax deferral
on a hypothetical investment. This chart assumes that an investor
invested $2,000 a year on January 1, for any specified period, in both
a Tax-Deferred Investment and a Taxable Investment, that both
investments earn either 3%, 5% or 7% compounded annually, and that the
investor withdrew the entire amount at the end of the period. (A tax
rate of 39.6% is applied annually to the Taxable Investment and on the
withdrawal of earnings on the Tax-Deferred Investment.)
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 3% 5% 7% 3% 5% 7%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $82,955 $108,031 $145,856 $80,217 $98,343 $121,466
25 65,164 80,337 101,553 63,678 75,318 89,528
20 49,273 57,781 68,829 48,560 55,476 63,563
15 35,022 39,250 44,361 34,739 38,377 42,455
10 22,184 23,874 25,779 22,106 23,642 25,294
5 10,565 10,969 11,393 10,557 10,943 11,342
1 2,036 2,060 2,085 2,036 2,060 2,085
<PAGE> 29
From time to time, a Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[service mark] and the Stein Roe Counselor Preferred [service
mark] programs and asset allocation and other investment
strategies.
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's
opinion as to the credit quality of the security being rated.
However, the ratings are general and are not absolute standards
of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Adviser believes that the quality of
debt securities in which a Fund invests should be continuously
reviewed and that individual analysts give different weightings
to the various factors involved in credit analysis. A rating is
not a recommendation to purchase, sell or hold a security
because it does not take into account market value or
suitability for a particular investor. When a security has
received a rating from more than one service, each rating should
be evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating
services from other sources that they consider reliable.
Ratings may be changed, suspended or withdrawn as a result of
changes in or unavailability of such information, or for other
reasons.
The following is a description of the characteristics of
ratings used by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P").
CORPORATE BOND RATINGS
RATINGS BY MOODY'S
AAA. Bonds rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or an exceptionally stable margin and
principal is secure. Although the various protective elements
are likely to change, such changes as can be visualized are more
unlikely to impair the fundamentally strong position of such
bonds.
AA. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
bonds.
A. Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
<PAGE> 30
BAA. Bonds rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
BA. Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
CA. Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to
pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the highest rated
issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a
<PAGE> 31weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher rated
categories.
BB, B, CCC, CC, AND C. Debt rated BB, B, CCC, CC or C is
regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance
with the terms of the obligation. BB indicates the lowest
degree of speculation and C the highest degree of speculation.
While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no
interest is being paid.
D. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears. The D rating also
is used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
NOTE: The ratings from AA to CCC may be modified by the
addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories. Foreign debt is
rated on the same basis as domestic debt measuring the
creditworthiness of the issuer; ratings of foreign debt do not
take into account currency exchange and related uncertainties.
COMMERCIAL PAPER RATINGS
RATINGS BY MOODY'S
Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its commercial
paper obligations are supported by the credit of another entity
or entities, Moody's, in assigning ratings to such issuers,
evaluates the financial strength of the indicated affiliated
corporations, commercial banks, insurance companies, foreign
governments or other entities, but only as one factor in the
total rating assessment.
RATINGS BY S&P
A brief description of the applicable rating symbols and
their meaning follows:
A. Issues assigned this highest rating are regarded as
having the greatest capacity for timely payment. Issues in this
category are further refined with the designations 1, 2, and 3
to indicate the relative degree of safety.
A-1. This designation indicates that the degree of safety
regarding timely payment is very strong. Those issues
determined to possess overwhelming safety characteristics will
be denoted with a plus (+) sign designation.
<PAGE> 1
Statement of Additional Information Dated November 1, 1995
STEIN ROE INCOME TRUST
BOND FUNDS
STEIN ROE LIMITED MATURITY INCOME FUND
STEIN ROE GOVERNMENT INCOME FUND
STEIN ROE INTERMEDIATE BOND FUND
STEIN ROE INCOME FUND
P.O. Box 804058, Chicago, Illinois 60680
1 800 338-2550
The Funds listed above are series of the Stein Roe Income
Trust (the "Trust"). Each series of the Trust represents shares
of beneficial interest in a separate portfolio of securities and
other assets, with its own objectives and policies.
This Statement of Additional Information is not a prospectus
but provides additional information that should be read in
conjunction with Funds' Prospectus dated November 1, 1995 and any
supplements thereto. The Prospectus may be obtained at no charge
by telephoning 1 800 338-2550.
TABLE OF CONTENTS
Page
General Information and History...........................2
Investment Policies.......................................3
Limited Maturity Income Fund.........................3
Government Income Fund...............................5
Intermediate Bond Fund...............................6
Income Fund..........................................7
Portfolio Investments and Strategies......................9
Investment Restrictions..................................24
Additional Investment Considerations.....................27
Purchases and Redemptions................................28
Management...............................................29
Financial Statements.....................................32
Principal Shareholders...................................32
Investment Advisory Services.............................33
Distributor..............................................36
Transfer Agent...........................................36
Custodian................................................36
Independent Auditors.....................................37
Portfolio Transactions...................................37
Additional Income Tax Considerations.....................39
Investment Performance...................................40
Appendix--Ratings........................................46
<PAGE> 2
GENERAL INFORMATION AND HISTORY
Stein Roe & Farnham Incorporated (the "Adviser") is
investment adviser and provides administrative and accounting and
recordkeeping services to the Funds.
As used herein, "Limited Maturity Income Fund" refers to the
series of the Trust designated Stein Roe Limited Maturity Income
Fund, "Government Income Fund" refers to the series of the Trust
designated Stein Roe Government Income Fund, "Intermediate Bond
Fund" refers to the series of the Trust designated Stein Roe
Intermediate Bond Fund, and "Income Fund" refers to the series of
the Trust designated Stein Roe Income Fund.
Currently six series are authorized and outstanding. On
November 1, 1995, the name of the Trust was changed from SteinRoe
Income Trust to Stein Roe Income Trust. Prior to November 1,
1995, Limited Maturity Income Fund, Government Income Fund,
Intermediate Bond Fund and Income Fund were named SteinRoe Limited
Maturity Income Fund, SteinRoe Government Income Fund, SteinRoe
Intermediate Bond Fund and SteinRoe Income Fund, respectively.
Prior to April 2, 1990, SteinRoe Government Income Fund was named
SteinRoe Governments Plus and SteinRoe Intermediate Bond Fund was
named SteinRoe Managed Bonds. SteinRoe Income Fund was named
SteinRoe High-Yield Bonds prior to November 1, 1989.
Each share of a series is entitled to participate pro rata in
any dividends and other distributions declared by the Board on
shares of that series, and all shares of a series have equal
rights in the event of liquidation of that series.
Each whole share (or fractional share) outstanding on the
record date established in accordance with the By-Laws shall be
entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or
fractional share) in United States dollars determined at the close
of business on the record date (for example, a share having a net
asset value of $10.50 would be entitled to 10.5 votes). As a
business trust, the Trust is not required to hold annual
shareholder meetings. However, special meetings may be called for
purposes such as electing or removing trustees, changing
fundamental policies, or approving an investment advisory
contract. If requested to do so by the holders of at least 10% of
the Trust's outstanding shares, the Trust will call a special
meeting for the purpose of voting upon the question of removal of
a trustee or trustees and will assist in the communications with
other shareholders as required by Section 16(c) of the Investment
Company Act of 1940. All shares of the Trust are voted together
in the election of trustees. On any other matter submitted to a
vote of shareholders, shares are voted by individual series and
not in the aggregate, except that shares are voted in the
aggregate when required by the Investment Company Act of 1940 or
other applicable law. When the Board of Trustees determines that
the matter affects only the interests of one or more series,
shareholders of the unaffected series are not entitled to vote on
such matters.
<PAGE> 3
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND STRUCTURE
Each Fund may in the future seek to achieve its investment
objective by pooling its assets with assets of other mutual funds
managed by the Adviser in another mutual fund having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The Adviser is expected to
manage any such mutual fund in which a Fund would invest. Such
investment would be subject to determination by the trustees that
it was in the best interests of the Fund and its shareholders, and
shareholders would receive advance notice of any such change.
There are presently no plans to convert any Fund to this type of
structure .
INVESTMENT POLICIES
The following information supplements the discussion of the
Funds' respective investment objectives and policies described in
the Prospectus. In pursuing its objective, each Fund will invest
as described below and may employ the investment techniques
described in the Prospectus and elsewhere in this Statement of
Additional Information. Investments and strategies that are
common to two or more Funds are described under Portfolio
Investments and Strategies. Each Fund's investment objective is a
non-fundamental policy and may be changed by the Board of Trustees
without the approval of a "majority of the outstanding voting
securities" /1/ of that Fund.
LIMITED MATURITY INCOME FUND
The Fund's investment objective is to provide a high level of
current income, consistent with the preservation of capital.
The Fund attempts to achieve its objective by investing
primarily in securities issued or guaranteed as to principal and
interest by the U.S. Government or by its agencies or
instrumentalities ("U.S. Government Securities") and other high-
quality fixed-income securities. It is expected that under normal
circumstances, the Fund will invest at least 65% of its assets in
securities with an effective maturity of three years or less, and
that the dollar-weighted average effective maturity of the
portfolio will not exceed three years. The effective maturity of
a debt instrument is the weighted average period over which the
Adviser expects the principal to be paid, and differs from stated
maturity in that it estimates the effect of expected principal
prepayments and call provisions. With respect to GNMA securities
and other mortgage-backed securities, the effective maturity is
likely to be substantially less than the stated maturity of the
mortgages in the underlying pools. With respect to obligations
with call provisions, the effective maturity is typically the next
call date on which the obligation reasonably may be expected to be
called. Securities without prepayment or call provisions
generally have an effective maturity equal to their stated
maturity. During periods of rising interest rates, the effective
maturity of mortgage-backed securities and callable obligations
may increase substantially because they are not likely to be
prepaid, which may result in greater net asset value fluctuation.
-----------------
/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
of the Fund are present or represented by proxy or (ii) more than
50% of the outstanding shares of the Fund.
---------------
<PAGE> 4
U.S. Government Securities include: (i) bills, notes, bonds,
and other debt securities, differing as to maturity and rates of
interest, that are issued by and are direct obligations of the
U.S. Treasury; and (ii) other securities that are issued or
guaranteed as to principal and interest by the U.S. Government or
by its agencies or instrumentalities and that include, but are not
limited to, Government National Mortgage Association ("GNMA"),
Federal Farm Credit Banks, Federal Home Loan Banks, Farmers Home
Administration, Federal Home Loan Mortgage Corporation ("FHLMC"),
and Federal National Mortgage Association ("FNMA").
In addition, the Fund may invest in principal portions or
coupon portions of U.S. Government Securities that have been
separated (stripped) by banks, brokerage firms, or other entities.
/2/ Stripped securities are usually sold separately in the form
of receipts or certificates representing undivided interests in
the stripped portion and are not considered to be issued or
guaranteed by the U.S. Government. Stripped securities may be
more volatile than non-stripped securities. U.S. Government
Securities are generally viewed by the Adviser as being among the
safest of debt securities with respect to the timely payment of
principal and interest (but not with respect to any premium paid
on purchase), but generally bear a lower rate of interest than
corporate debt securities. However, they are subject to market
risk like other debt securities, and therefore the Fund's shares
can be expected to fluctuate in value.
Depending on market conditions, the Fund may invest a
substantial portion of its assets in mortgage-backed debt
securities issued by GNMA, FNMA, and FHLMC. Securities issued by
GNMA represent an interest in a pool of mortgages insured by the
Federal Housing Administration or the Farmers Home Administration,
or guaranteed by the Veterans Administration. Securities issued
by FNMA and FHLMC, U.S. Government-sponsored corporations, also
represent an interest in a pool of mortgages.
The timely payment of principal and interest on GNMA
securities is guaranteed by GNMA and backed by the full faith and
credit of the U.S. Treasury. FNMA guarantees full and timely
payment of interest and principal on FNMA securities. FHLMC
guarantees timely payment of interest and ultimate collection of
principal on FHLMC securities. FNMA and FHLMC securities are not
backed by the full faith and credit of the U.S. Treasury.
Mortgage-backed debt securities, such as those issued by
GNMA, FNMA, and FHLMC, are of the "modified pass-through type,"
which means the interest and principal payments on mortgages in
the pool are "passed through" to investors. During periods of
declining interest rates, there is increased likelihood that
mortgages will be prepaid, with a resulting loss of the full-term
benefit of any premium paid by the Fund on purchase of such
securities; in addition, the proceeds of prepayment would likely
be invested at lower interest rates.
---------------------
/2/he Trust has been informed that, in the view of the staff of
the Securities and Exchange Commission, any U.S. Government
Security that is stripped into its constituent elements by a
holder of the security is per se illiquid and therefore subject to
the Fund's restriction on investments in illiquid securities.
--------------------
<PAGE> 5
The Fund may also invest in other types of debt securities;
however, under normal circumstances, at least 65% of the Fund's
assets will be invested in U.S. Government Securities, non-U.S.
Government Securities that are rated at least AA by Standard &
Poor's Corporation ("S&P") or Aa by Moody's Investors Service,
Inc. ("Moody's"), and high-quality money market instruments. The
Fund may invest up to 35% of its assets in other debt securities
that are rated at least investment grade (BBB by S&P or Baa by
Moody's). Securities rated BBB by S&P or Baa by Moody's are
neither highly protected nor poorly secured. Such securities have
some speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a
weakened capacity of the issuers of such securities to make
principal and interest payments than is the case for issuers of
higher grade securities. If the rating of a security held by the
Fund is lost or reduced below investment grade, the Fund is not
required to dispose of the security, but the Adviser will consider
that fact in determining whether the Fund should continue to hold
the security.
GOVERNMENT INCOME FUND
This Fund's investment objective is to provide a high level
of current income. It invests primarily in U.S. Government
Securities.
Because the Fund's investment policy permits it to invest in
U.S. Government Securities that are not backed by the full faith
and credit of the U.S. Treasury, investment in the Fund may
involve risks that are different in some respects from an
investment in a fund that invests only in securities that are
backed by the full faith and credit of the U.S. Treasury. Such
risks may include a greater risk of loss of principal and interest
on the securities in the Fund's portfolio that are supported only
by the issuing or guaranteeing U.S. Government agency or
instrumentality since the Fund must look principally or solely to
that entity for ultimate repayment.
Depending on market conditions, the Fund may invest a
substantial portion of its assets in mortgage-backed debt
securities issued by GNMA, FNMA, and FHLMC.
Under normal market conditions, the Fund will invest at least
80% of its assets in U.S. Government Securities. The Fund may
also invest up to 20% of its assets in other types of debt
securities, including collateralized mortgage obligations ("CMOs")
and in principal portions or coupon portions of U.S. Government
Securities that have been separated (stripped) by banks, brokerage
firms, or other entities. CMOs are securities collateralized by
mortgages and mortgage-backed securities. CMOs are not guaranteed
by either the U.S. Government or by its agencies or
instrumentalities. Stripped securities are usually sold
separately in the form of receipts or certificates representing
undivided interests in the stripped portion. Stripped securities
may be more volatile than non-stripped securities. The staff of
the Securities and Exchange Commission believes that stripped
securities are illiquid. The Fund has temporarily agreed to treat
stripped securities as subject to the Fund's restriction on
investment in illiquid securities. The Fund will invest in debt
securities rated at least investment grade or, if unrated, deemed
by the Adviser to be of comparable quality. Securities rated in
the fourth grade are neither highly protected nor poorly
<PAGE> 6
secured. Such securities have some speculative characteristics,
and changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity of the issuers of such
securities to make principal and interest payments than is the
case for issuers of higher grade securities. If the rating of a
security held by the Fund is lost or reduced below investment
grade, the Fund is not required to dispose of the security, but
the Adviser will consider that fact in determining whether the
Fund should continue to hold the security.
INTERMEDIATE BOND FUND
This Fund's investment objective is to provide a high level
of current income, consistent with the preservation of capital, by
investing primarily in marketable debt securities. Under normal
market conditions, the Fund will invest at least 65% of the value
of its total assets (taken at market value at the time of
investment) in convertible and non-convertible bonds and
debentures, and at least 60% of its assets will be invested in the
following:
(1) Marketable straight-debt securities of domestic issuers, and
of foreign issuers payable in U.S. dollars, rated at time of
purchase within the three highest grades assigned by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, or A) or by
Standard & Poor's Corporation ("S&P") (AAA, AA, or A);
(2) U.S. Government Securities.
(3) Commercial paper rated Prime-1 by Moody's or A-1 by S&P at
time of purchase, or, if unrated, issued or guaranteed by a
corporation with any outstanding debt rated Aa or better by
Moody's or AA or better by S&P; and
(4) Bank obligations, including repurchase agreements/3/, of banks
having total assets in excess of $1 billion.
Under normal market conditions, the Fund invests at least 65%
of its assets in securities with an average life of between three
and ten years, and expects that the dollar-weighted average life
of its portfolio will be between three and ten years. Average
life is the weighted average period over which the Adviser expects
the principal to be paid, and differs from stated maturity in that
it estimates the effect of expected principal prepayments and call
provisions. With respect to GNMA securities and other mortgage-
backed securities, average life is likely to be substantially less
than the stated maturity of the mortgages in the underlying pools.
With respect to obligations with call provisions, average life is
typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an average life equal to their
stated maturity. During periods of rising interest rates, the
average life of mortgage-backed securities and callable
obligations may increase substantially because they are not likely
to be prepaid, which may result in greater net asset value
fluctuation.
-----------------
/3/ A repurchase agreement involves the sale of securities to the
Fund, with the concurrent agreement of the seller to repurchase
the securities at the same price plus an amount equal to an
agreed-upon interest rate, within a specified time. In the event
of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating
the underlying securities and losses.
----------------
<PAGE> 7
The Fund also may invest in other debt securities (including
those convertible into, or carrying warrants to purchase, common
stocks or other equity interests, and privately placed debt
securities); preferred stocks (including those convertible into,
or carrying warrants to purchase, common stocks or other equity
interests); and marketable common stocks that the Adviser
considers likely to yield relatively high income in relation to
cost.
Lower-quality debt securities (often referred to as "below
investment grade" or "junk bonds") are obligations of issuers that
are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal. The Fund may invest
in lower-quality debt securities; for example, if the Adviser
believes the financial condition of the issuers or the protection
offered to the particular obligations is stronger than is
indicated by low ratings or otherwise.
Some issuers of debt securities choose not to have their
securities rated by a rating service, and the Fund may invest in
unrated securities that the Adviser believes are suitable for
investment.
Investment in lower-quality debt securities involves greater
investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the
market for these securities and adversely affect the value of
outstanding bonds and the ability of the issuers to repay
principal and interest. In addition, lower-quality bonds are less
sensitive to interest rate changes than higher-quality instruments
(see Risks and Investment Considerations in the Prospectus) and
generally are more sensitive to adverse economic changes or
individual corporate developments. During a period of adverse
economic changes, including a period of rising interest rates,
issuers of such bonds may experience difficulty in servicing their
principal and interest payment obligations.
Lower-quality debt securities tend to be less marketable than
higher-quality debt securities because the market for them is less
broad. The market for unrated debt securities is even narrower.
During periods of thin trading in these markets, the spread
between bid and asked prices is likely to increase significantly,
and the Fund may have greater difficulty selling its portfolio
securities. (See Net Asset Value.) The market value of these
securities and their liquidity may be affected by adverse
publicity and investor perceptions.
INCOME FUND
The Income Fund attempts to achieve its objective by
investing principally in medium-quality debt securities, which are
obligations of issuers that the Adviser believes possess adequate,
but not outstanding, capacities to service their debt securities,
such as securities rated A or Baa by Moody's or A or BBB by S&P.
The Adviser generally attributes to medium-quality securities the
same characteristics as do rating services.
<PAGE> 8
Although the Income Fund will invest at least 60% of its
assets in medium- or higher-quality securities, the Income Fund
may also invest to a lesser extent in securities of lower quality
(in the case of rated securities, having a rating by Moody's or
S&P of not less than C). Although the Fund can invest up to 40%
of its assets in lower-quality securities, it does not intend to
invest more than 35% in lower-quality securities. Lower-quality
debt securities are obligations of issuers that are predominantly
speculative with respect to the issuer's capacity to pay interest
and repay principal. The Income Fund may invest in lower-quality
debt securities; for example, if the Adviser believes the
financial condition of the issuers or the protection offered to
the particular obligations is stronger than is indicated by low
ratings or otherwise. The Income Fund may invest in higher-
quality securities; for example, under extraordinary economic or
financial market conditions, or when the spreads between the
yields on medium- and high-quality securities are relatively
narrow.
Some issuers of debt securities choose not to have their
securities rated by a rating service, and the Income Fund may
invest in unrated securities that the Adviser believes are
suitable for investment.
Investment in medium- or lower-quality debt securities
involves greater investment risk, including the possibility of
issuer default or bankruptcy. An economic downturn could severely
disrupt the market for these securities and adversely affect the
value of outstanding bonds and the ability of the issuers to repay
principal and interest. In addition, lower-quality bonds are less
sensitive to interest rate changes than higher-quality instruments
(see Risks and Investment Considerations in the Prospectus) and
generally are more sensitive to adverse economic changes or
individual corporate developments. During a period of adverse
economic changes, including a period of rising interest rates,
issuers of such bonds may experience difficulty in servicing their
principal and interest payment obligations.
Achievement of the Income Fund's investment objective will be
more dependent on the Adviser's credit analysis than would be the
case if the Income Fund were investing in higher-quality debt
securities. Since the ratings of rating services (which evaluate
the safety of principal and interest payments, not market risks)
are used only as preliminary indicators of investment quality, the
Adviser employs its own credit research and analysis, from which
it has developed a credit rating system based upon comparative
credit analyses of issuers within the same industry. These
analyses may take into consideration such quantitative factors as
an issuer's present and potential liquidity, profitability,
internal capability to generate funds, debt/equity ratio and debt
servicing capabilities, and such qualitative factors as an
assessment of management, industry characteristics, accounting
methodology, and foreign business exposure.
Medium- and lower-quality debt securities tend to be less
marketable than higher-quality debt securities because the market
for them is less broad. The market for unrated debt securities is
even narrower. During periods of thin trading in these markets,
the spread between bid and asked prices is likely to increase
significantly, and the Income Fund may have greater difficulty
selling its portfolio securities. (See
<PAGE> 9
Net Asset Value.) The market value of these securities and their
liquidity may be affected by adverse publicity and investor
perceptions.
Under normal market conditions, the Income Fund will invest
at least 65% of the value of its total assets (taken at market
value) in convertible and non-convertible bonds and debentures.
Such securities may be accompanied by the right to acquire equity
securities evidenced by warrants attached to the security or
acquired as part of a unit with the security. Equity securities
acquired by conversion or exercise of such a right may be retained
by the Income Fund for a sufficient time to permit orderly
disposition thereof or to establish long-term holding periods for
federal income tax purposes.
The Income Fund may invest up to 35% of its total assets in
other debt securities, marketable preferred and common stocks, and
foreign and municipal securities that the Adviser considers likely
to yield relatively high income in relation to costs, and rights
to acquire such securities. (Municipal securities are securities
issued by or on behalf of state and local governments, the
interest on which is generally exempt from federal income tax.)
Any assets not otherwise invested may be invested in money market
instruments.
PORTFOLIO INVESTMENTS AND STRATEGIES
DERIVATIVES
Consistent with its objective, each Fund may invest in a
broad array of financial instruments and securities, including
conventional exchange-traded and non-exchange traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, and other
instruments the value of which is "derived" from the performance
of an underlying asset or a "benchmark" such as a security index,
an interest rate, or a currency ("Derivatives").
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because it is more
efficient or less costly than direct investment that cannot be
readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and directions
of movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives.
Income Fund does not currently intend to invest, nor has the
Fund during its past fiscal year invested, more than 5% of its net
assets in any type of Derivative, except options, futures
contracts, and futures options. Each of Government Income Fund
and Intermediate Bond Fund does not currently intend to invest,
nor has such
<PAGE> 10
Fund during its past fiscal year invested, more than 5% of its net
assets in any type of Derivative except options, futures
contracts, futures options and obligations collateralized by
either mortgages or other assets. Limited Maturity Income Fund
does not currently intend to invest, nor has the Fund during the
past fiscal year invested, more than 5% of its net assets in any
type of Derivatives except options, futures contracts, futures
options, obligations collateralized by either mortgages or other
assets, and floating rate instruments. (See Mortgage and Other
Asset-Backed Securities, Floating Rate Instruments, and Options
and Futures below.)
MORTGAGE AND OTHER ASSET-BACKED SECURITIES
Each of Limited Maturity Income Fund, Government Income Fund,
and Intermediate Bond Fund may invest in securities secured by
mortgages or other assets such as automobile or home improvement
loans and credit card receivables. These instruments may be
issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities or by private entities such as commercial,
mortgage and investment banks and financial companies or financial
subsidiaries of industrial companies.
Mortgage-backed securities provide either a pro rata interest
in underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") which represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities, and are usually issued in multiple classes each
of which has different payment rights, pre-payment risks and yield
characteristics. Mortgage-backed securities involve the risk of
pre-payment on the underlying mortgages at a faster or slower rate
than the established schedule. Pre-payments generally increase
with falling interest rates and decrease with rising rates but
they also are influenced by economic, social and market factors.
If mortgages are pre-paid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of
any premium paid by the Fund on purchase of the CMO, and the
proceeds of pre-payment would likely be invested at lower interest
rates. The Funds tend to invest in CMOs of classes known as
planned amortization classes ("PACs") which have pre-payment
protection features tending to make them less susceptible to price
volatility.
Non-mortgage asset-backed securities usually have less pre-
payment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to support payments on
the underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.
FLOATING RATE INSTRUMENTS
Limited Maturity Income Fund may also invest in floating rate
instruments which provide for periodic adjustments in coupon
interest rates that are automatically reset based on changes in
amount and direction of specified market interest rates. In
addition, the adjusted duration of some of these instruments may
be materially shorter than their stated maturities. To the extent
such instruments are subject to lifetime or periodic interest rate
caps or floors, such instruments may experience greater price
volatility than debt instruments without such features. Adjusted
<PAGE> 11
duration is an inverse relationship between market price and
interest rates and refers to the approximate percentage change in
price for a 100 basis point change in yield. For example, if
interest rates decrease by 100 basis points, a market price of a
security with an adjusted duration of 2 would increase by
approximately 2%.
LENDING OF PORTFOLIO SECURITIES
Subject to restriction (7) under Investment Restrictions,
each Fund may lend its portfolio securities to broker-dealers and
banks. Any such loan must be continuously secured by collateral
in cash or cash equivalents maintained on a current basis in an
amount at least equal to the market value of the securities loaned
by a Fund. The Fund would continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities
loaned, and would also receive an additional return that may be in
the form of a fixed fee or a percentage of the collateral. The
Fund would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five
business days. In the event of bankruptcy or other default of the
borrower, the Fund could experience both delays in liquidating the
loan collateral or recovering the loaned securities and losses
including (a) possible decline in the value of the collateral or
in the value of the securities loaned during the period while the
Fund seeks to enforce its rights thereto, (b) possible subnormal
levels of income and lack of access to income during this period,
and (c) expenses of enforcing its rights.
None of the Funds has loaned portfolio securities during its
last fiscal year, nor does it intend to loan more than 5% of its
net assets.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE
AGREEMENTS
Each of the Funds may purchase securities on a when-issued or
delayed-delivery basis, as described in the Prospectus. A Fund
makes such commitments only with the intention of actually
acquiring the securities, but may sell the securities before
settlement date if the Adviser deems it advisable for investment
reasons. Securities purchased on a when-issued or delayed-
delivery basis are sometimes done on a "dollar roll" basis.
Dollar roll transactions consist of the sale by a Fund of
securities with a commitment to purchase similar but not identical
securities, generally at a lower price at a future date. A dollar
roll may be renewed after cash settlement and initially may
involve only a firm commitment agreement by a Fund to buy a
security. A dollar roll transaction involves the following risks:
if the broker-dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security
may be restricted; the value of the security may change adversely
over the term of the dollar roll; the security which a Fund is
required to repurchase may be worth less than a security which the
Fund originally held; and the return earned by a Fund with the
proceeds of a dollar roll may not exceed transaction costs.
Each of the Funds may enter into reverse repurchase
agreements with banks and securities dealers. A reverse
repurchase agreement is a repurchase agreement in which the Fund
is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use
of a reverse repurchase
<PAGE> 12
agreement may be preferable to a regular sale and later repurchase
of securities because it avoids certain market risks and
transaction costs.
At the time a Fund enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S. Government
or other "high grade" debt obligations) of the Fund having a value
at least as great as the purchase price of the securities to be
purchased will be segregated on the books of the Fund and held by
the custodian throughout the period of the obligation. The use of
these investment strategies, as well as borrowing under a line of
credit as described below, may increase net asset value
fluctuation.
Standby commitment agreements create an additional risk for
each Fund because the other party to the standby agreement
generally will not be obligated to deliver the security, but the
Fund will be obligated to accept it if delivered. Depending on
market conditions, the Fund may receive a commitment fee for
assuming this obligation. If prevailing market interest rates
increase during the period between the date of the agreement and
the settlement date, the other party can be expected to deliver
the security and, in effect, pass any decline in value to the
Fund. If the value of the security increases after the agreement
is made, however, the other party is unlikely to deliver the
security. In other words, a decrease in the value of the
securities to be purchased under the terms of a standby commitment
agreement will likely result in the delivery of the security, and,
therefore, such decrease will be reflected in the Fund's net asset
value. However, any increase in the value of the securities to be
purchased will likely result in the non-delivery of the security
and, therefore, such increase will not affect the net asset value
unless and until the Fund actually obtains the security.
SHORT SALES
Each Fund may make short sales "against the box." In a short
sale, the Fund sells a borrowed security and is required to return
the identical security to the lender. A short sale "against the
box" involves the sale of a security with respect to which the
Fund already owns an equivalent security in kind and amount. A
short sale "against the box" enables a Fund to obtain the current
market price of a security which it desires to sell but is
unavailable for settlement.
LINE OF CREDIT
Subject to restriction (8) under Investment Restrictions,
each Fund may establish and maintain a line of credit with a major
bank in order to permit borrowing on a temporary basis to meet
share redemption requests in circumstances in which temporary
borrowing may be preferable to liquidation of portfolio
securities.
PIK AND ZERO COUPON BONDS
Each Fund may invest in both zero coupon bonds and bonds the
interest on which is payable in kind ("PIK bonds"). A zero coupon
bond is a bond that does not pay interest for its entire life. A
PIK bond pays interest in the form of additional
<PAGE> 13
securities. The market prices of both zero coupon and PIK bonds
are affected to a greater extent by changes in prevailing levels
of interest rates and thereby tend to be more volatile in price
than securities that pay interest periodically and in cash. In
addition, because a Fund accrues income with respect to these
securities prior to the receipt of such interest in cash, it may
have to dispose of portfolio securities under disadvantageous
circumstances in order to obtain cash needed to pay income
dividends in amounts necessary to avoid unfavorable tax
consequences.
RATED SECURITIES
For a description of the ratings applied by rating services
to debt securities, please refer to the Appendix. The rated debt
securities described under Investment Policies above for each Fund
include securities given a rating conditionally by Moody's or
provisionally by S&P. If the rating of a security held by a Fund
is withdrawn or reduced, the Fund is not required to sell the
security, but the Adviser will consider such fact in determining
whether that Fund should continue to hold the security. To the
extent that the ratings accorded by Moody's or S&P for debt
securities may change as a result of changes in such
organizations, or changes in their rating systems, each Fund will
attempt to use comparable ratings as standards for its investments
in debt securities in accordance with its investment policies.
FOREIGN SECURITIES
Each of Limited Maturity Income Fund, Intermediate Bond Fund,
and Income Fund may invest up to 25% of total assets (taken at
market value at the time of investment) in securities of foreign
issuers that are not publicly traded in the United States
("foreign securities"). For purposes of these limits, foreign
securities do not include securities represented by American
Depositary Receipts ("ADRs"), securities denominated in U.S.
dollars, or securities guaranteed by U.S. persons. Investment in
foreign securities may involve a greater degree of risk (including
risks relating to exchange fluctuations, tax provisions, or
expropriation of assets) than does investment in securities of
domestic issuers.
Such Funds may invest in both "sponsored" and "unsponsored"
ADRs. In a sponsored ADR, the issuer typically pays some or all
of the expenses of the depositary and agrees to provide its
regular shareholder communications to ADR holders. An unsponsored
ADR is created independently of the issuer of the underlying
security. The ADR holders generally pay the expenses of the
depositary and do not have an undertaking from the issuer of the
underlying security to furnish shareholder communications. No
Fund expects to invest as much as 5% of its total assets in
unsponsored ADRs.
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, the Funds'
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely,
if the dollar rises in value relative to the yen, the dollar
<PAGE> 14
value of the yen-denominated stock will fall. (See discussion of
transaction hedging and portfolio hedging under Currency Exchange
Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions in which are generally denominated in foreign
currencies, and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements.
Although the Funds will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at
a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
Forward currency transactions may involve currencies of the
different countries in which the Funds may invest, and serve as
hedges against possible variations in the exchange rate between
these currencies. The Funds' currency transactions are limited to
transaction and portfolio hedging involving either specific
transactions or portfolio positions, except to the extent
described below under Synthetic Foreign Positions. Transaction
hedging is the purchase or sale of forward contracts with respect
to specific receivables or payables of a Fund accruing in
connection with the purchase and sale of its portfolio securities.
Portfolio hedging is the use of forward contracts with respect to
portfolio security positions denominated or quoted in a particular
currency. Portfolio hedging allows the Adviser to limit or reduce
exposure in a foreign currency by entering into a forward contract
to sell or buy such foreign currency (or another foreign currency
that acts as a proxy for that currency) so that the U.S.
<PAGE> 15
dollar value of certain underlying foreign portfolio securities
can be approximately matched by an equivalent U.S. dollar
liability. A Fund may not engage in portfolio hedging with
respect to the currency of a particular country to an extent
greater than the aggregate market value (at the time of making
such sale) of the securities held in its portfolio denominated or
quoted in that particular currency, except that a Fund may hedge
all or part of its foreign currency exposure through the use of a
basket of currencies or a proxy currency where such currencies or
currency act as an effective proxy for other currencies. In such
a case, a Fund may enter into a forward contract where the amount
of the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket
hedging technique may be more efficient and economical than
entering into separate forward contracts for each currency held in
a Fund. No Fund may engage in "speculative" currency exchange
transactions.
At the maturity of a forward contract to deliver a particular
currency, a Fund may either sell the portfolio security related to
such contract and make delivery of the currency, or it may retain
the security and either acquire the currency on the spot market or
terminate its contractual obligation to deliver the currency by
purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same
amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for a Fund to
purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery
of the currency. Conversely, it may be necessary to sell on the
spot market some of the currency received upon the sale of the
portfolio security if its market value exceeds the amount of
currency the Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If a Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between
a Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward
prices increase, a Fund will suffer a loss to the extent the price
of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell. A default on the contract would
deprive a Fund of unrealized profits or force the Fund to cover
its commitments for purchase or sale of currency, if any, at the
current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for a Fund to
<PAGE> 16
hedge against a devaluation that is so generally anticipated that
the Fund is not able to contract to sell the currency at a price
above the devaluation level it anticipates. The cost to a Fund of
engaging in currency exchange transactions varies with such
factors as the currency involved, the length of the contract
period, and prevailing market conditions. Since currency exchange
transactions are usually conducted on a principal basis, no fees
or commissions are involved.
Synthetic Foreign Positions. The Funds may invest in debt
instruments denominated in foreign currencies. In addition to, or
in lieu of, such direct investment, a Fund may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars, and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. The
results of a direct investment in a foreign currency and a
concurrent construction of a synthetic position in such foreign
currency, in terms of both income yield and gain or loss from
changes in currency exchange rates, in general should be similar,
but would not be identical because the components of the
alternative investments would not be identical.
The Funds may also construct a synthetic foreign position by
entering into a swap arrangement. A swap is a contractual
agreement between two parties to exchange cash flows--at the time
of the swap agreement and again at maturity, and, with some swaps,
at various intervals through the period of the agreement. The use
of swaps to construct a synthetic foreign position would generally
entail the swap of interest rates and currencies. A currency swap
is a contractual arrangement between two parties to exchange
principal amounts in different currencies at a predetermined
foreign exchange rate. An interest rate swap is a contractual
agreement between two parties to exchange interest payments on
identical principal amounts. An interest rate swap may be between
a floating and a fixed rate instrument, a domestic and a foreign
instrument, or any other type of cash flow exchange. A currency
swap generally has the same risk characteristics as a forward
currency contract, and all types of swaps have counter-party risk.
Depending on the facts and circumstances, swaps may be considered
illiquid. Illiquid securities usually have greater investment
risk and are subject to greater price volatility. The net amount
of the excess, if any, of a Fund's obligations over which it is
entitled to receive with respect to an interest rate or currency
swap will be accrued daily and liquid assets (cash, U.S.
Government securities, or other "high grade" debt obligations) of
the Fund having a value at least equal to such accrued excess will
be segregated on the books of the Fund and held by the Custodian
for the duration of the swap.
The Funds may also construct a synthetic foreign position by
purchasing an instrument whose return is tied to the return of the
desired foreign position. An investment in these "principal
exchange rate linked securities" (often called PERLS) can produce
a similar return to a direct investment in a foreign security.
<PAGE> 17
RULE 144A SECURITIES
Each Fund may purchase securities that have been privately
placed but that are eligible for purchase and sale under Rule 144A
under the 1933 Act. That Rule permits certain qualified
institutional buyers, such as the Fund, to trade in privately
placed securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Fund's restriction of
investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is
liquid or not is a question of fact. In making this
determination, the Adviser will consider the trading markets for
the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Adviser could consider
the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market,
and (4) nature of the security and of marketplace trades (e.g.,
the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity
of Rule 144A securities would be monitored and, if as a result of
changed conditions, it is determined that a Rule 144A security is
no longer liquid, the Fund's holdings of illiquid securities would
be reviewed to determine what, if any, steps are required to
assure that the Fund does not invest more than 15% of its assets
in illiquid securities. Investing in Rule 144A securities could
have the effect of increasing the amount of the Fund's assets
invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities. The Fund does not
expect to invest as much as 5% of its total assets in Rule 144A
securities that have not been deemed to be liquid by the Adviser.
PORTFOLIO TURNOVER
For information on the portfolio turnover rate of the Funds,
see Financial Highlights in the Prospectus. General portfolio
turnover information is also contained in the Prospectus under
Risks and Investment Considerations.
The portfolio turnover rates of Limited Maturity Income Fund,
Government Income Fund, and Intermediate Bond Fund have been
greater than 100% in recent fiscal years because of increased
volatility in the financial markets and the Adviser's techniques
for reacting to changes in the markets to shift exposures to
certain sectors and to capture gains. The turnover rate for each
of the Funds in the future may vary greatly from year to year, and
when portfolio changes are deemed appropriate due to market or
other conditions, such turnover rate may be greater than might
otherwise be anticipated. A high rate of portfolio turnover may
result in increased transaction expenses and the realization of
capital gains or losses. Distributions of any net realized gains
are subject to federal income tax. (See Financial Highlights,
Risks and Investment Considerations, and Distributions and Income
Taxes in the Prospectus, and Additional Income Tax Considerations
in this Statement of Additional Information.)
<PAGE> 18
OPTIONS ON SECURITIES AND INDEXES
Each Fund may purchase and may sell both put options and call
options on debt or other securities or indexes in standardized
contracts traded on national securities exchanges, boards of
trade, or similar entities, or quoted on NASDAQ, and agreements,
sometimes called cash puts, that may accompany the purchase of a
new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives
the purchaser (holder) of the option, in return for a premium, the
right to buy from (call) or sell to (put) the seller (writer) of
the option the security underlying the option (or the cash value
of the index) at a specified exercise price at any time during the
term of the option. The writer of an option on an individual
security has the obligation upon exercise of the option to deliver
the underlying security upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security.
Upon exercise, the writer of an option on an index is obligated to
pay the difference between the cash value of the index and the
exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect specified facets
of a particular financial or securities market, a specific group
of financial instruments or securities, or certain economic
indicators.)
A Fund will write call options and put options only if they
are "covered." In the case of a call option on a security, the
option is "covered" if the Fund owns the security underlying the
call or has an absolute and immediate right to acquire that
security without additional cash consideration (or, if additional
cash consideration is required, cash or cash equivalents in such
amount are held in a segregated account by its custodian) upon
conversion or exchange of other securities held in its portfolio.
If an option written by a Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by a Fund expires, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when the Fund desires.
A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase
the option, the Fund will realize a capital gain or, if it is
less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price of the
underlying security or index in relation to the exercise price of
the option, the volatility of the underlying security or index,
and the time remaining until the expiration date.
<PAGE> 19
A put or call option purchased by a Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid
and asked prices.
Risks Associated with Options on Securities and Indexes.
There are several risks associated with transactions in options on
securities and on indexes. For example, there are significant
differences between the securities markets and options markets
that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because
of market behavior or unexpected events.
There can be no assurance that a liquid market will exist
when a Fund seeks to close out an option position. If a Fund were
unable to close out an option that it had purchased on a security,
it would have to exercise the option in order to realize any
profit or the option would expire and become worthless. If a Fund
were unable to close out a covered call option that it had written
on a security, it would not be able to sell the underlying
security until the option expired. As the writer of a covered
call option, a Fund foregoes, during the option's life, the
opportunity to profit from increases in the market value of the
security covering the call option above the sum of the premium and
the exercise price of the call.
If trading were suspended in an option purchased by a Fund,
the Fund would not be able to close out the option. If
restrictions on exercise were imposed, the Fund might be unable to
exercise an option it has purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Fund may use interest rate futures contracts and index
futures contracts. An interest rate or index futures contract
provides for the future sale by one party and purchase by another
party of a specified quantity of a financial instrument or the
cash value of an index /4/ at a specified price and time. A
public market exists in futures contracts covering a number of
indexes as well as the following financial instruments: U.S.
Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-
month U.S. Treasury bills; 90-day commercial paper; bank
certificates of deposit; Eurodollar certificates of deposit; and
foreign currencies. It is expected that other futures contracts
will be developed and traded.
--------------------
/4/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made.
--------------------
<PAGE> 20
The Funds may purchase and write call and put futures
options. Futures options possess many of the same characteristics
as options on securities and indexes (discussed above). A futures
option gives the holder the right, in return for the premium paid,
to assume a long position (call) or short position (put) in a
futures contract at a specified exercise price at any time during
the period of the option. Upon exercise of a call option, the
holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a
put option, the opposite is true. A Fund might, for example, use
futures contracts to hedge against or gain exposure to
fluctuations in the general level of security prices, anticipated
changes in interest rates or currency fluctuations that might
adversely affect either the value of the Fund's securities or the
price of the securities that the Fund intends to purchase.
Although other techniques could be used to reduce that Fund's
exposure to security price, interest rate and currency
fluctuations, the Fund may be able to achieve its exposure more
effectively and perhaps at a lower cost by using futures contracts
and futures options.
Each Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade, or similar entity, or quoted on an automated quotation
system.
The success of any futures transaction depends on the Adviser
correctly predicting changes in the level and direction of
security prices, interest rates, currency exchange rates and other
factors. Should those predictions be incorrect, a Fund's return
might have been better had the transaction not been attempted;
however, in the absence of the ability to use futures contracts,
the Adviser might have taken portfolio actions in anticipation of
the same market movements with similar investment results but,
presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by a
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is
set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is
in the nature of a performance bond or good faith deposit on the
futures contract that is returned to the Fund upon termination of
the contract, assuming all contractual obligations have been
satisfied. Each Fund expects to earn interest income on its
initial margin deposits. A futures contract held by a Fund is
valued daily at the official settlement price of the exchange on
which it is traded. Each day the Fund pays or receives cash,
called "variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking-to-
market." Variation margin paid or received by a Fund does not
represent a borrowing or loan by a Fund but is instead settlement
between the Fund and the broker of the amount one would owe the
other if the futures contract had expired at the close of the
previous trading day. In computing daily net asset value, each
Fund will mark-to-market its open futures positions.
A Fund is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by
it. Such margin deposits will vary
<PAGE> 21
depending on the nature of the underlying futures contract (and
the related initial margin requirements), the current market value
of the option, and other futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying security
or index, and delivery month). If an offsetting purchase price is
less than the original sale price, the Fund realizes a capital
gain, or if it is more, the Fund realizes a capital loss.
Conversely, if an offsetting sale price is more than the original
purchase price, the Fund realizes a capital gain, or if it is
less, the Fund realizes a capital loss. The transaction costs
must also be included in these calculations.
RISKS ASSOCIATED WITH FUTURES
There are several risks associated with the use of futures
contracts and futures options as hedging techniques. A purchase
or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract. In trying to
increase or reduce market exposure, there can be no guarantee that
there will be a correlation between price movements in the futures
contract and in the portfolio exposure sought. In addition, there
are significant differences between the securities and futures
markets that could result in an imperfect correlation between the
markets, causing a given transaction not to achieve its
objectives. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand for
futures, futures options and debt securities, including technical
influences in futures trading and futures options and differences
between the financial instruments and the instruments underlying
the standard contracts available for trading in such respects as
interest rate levels, maturities, and creditworthiness of issuers.
A decision as to whether, when and how to hedge involves the
exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at
a time when a Fund seeks to close out a futures or a futures
option position. The Fund would be exposed to possible loss on
the position during the interval of inability to close and
<PAGE> 22
would continue to be required to meet margin requirements until
the position is closed. In addition, many of the contracts
discussed above are relatively new instruments without a
significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue
to exist.
LIMITATIONS ON OPTIONS AND FUTURES
If other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
each Fund may also use those investment vehicles, provided the
Board of Trustees determines that their use is consistent with the
Fund's investment objective.
A Fund will not enter into a futures contract or purchase an
option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by that Fund plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," /5/ would exceed 5%
of the Fund's total assets.
When purchasing a futures contract or writing a put on a
futures contract, a Fund must maintain with its custodian (or
broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contract. When
writing a call option on a futures contract, the Fund similarly
will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is
in-the-money until the option expires or is closed out by the
Fund.
A Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent the Fund has written
call options on specific securities in its portfolio, the value of
those securities will be deducted from the current market value of
the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," each Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within the
meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of a Fund, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into [in
the case of an option that is in-the-money at
---------------
/5/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
--------------
<PAGE> 23
the time of purchase, the in-the-money amount (as defined in
Section 190.01(x) of the Commission Regulations) may be excluded
in computing such 5%].
As long as a Fund continues to sell its shares in certain
states, the Fund's options transactions will also be subject to
certain non-fundamental investment restrictions set forth under
Investment Restrictions in this Statement of Additional
Information.
TAXATION OF OPTIONS AND FUTURES
If a Fund exercises a call or put option that it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by a Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by a Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by a Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by a Fund was in-the-
money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If a Fund
delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, a Fund generally is required
to recognize as income for each taxable year its net unrealized
gains and losses as of the end of the year on options, futures and
futures options positions ("year-end mark-to-market"). Generally,
any gain or loss recognized with respect to such positions (either
by year-end mark-to-market or by actual closing of the positions)
is considered to be 60% long-term and 40% short-term, without
regard to the holding periods of the contracts. However, in the
case of positions classified as part of a "mixed straddle," the
recognition of losses on certain positions (including options,
futures and futures options positions, the related securities and
certain successor positions thereto) may be deferred to a later
taxable year. Sale of futures contracts or writing of call
options (or futures call options) or buying put options (or
futures put options) that are intended to hedge against a change
in the value of securities held by a Fund: (1) will affect the
<PAGE> 24
holding period of the hedged securities; and (2) may cause
unrealized gain or loss on such securities to be recognized upon
entry into the hedge.
In order for a Fund to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of
its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies or other income (including but not limited to
gains from options, futures, and forward contracts). In addition,
gains realized on the sale or other disposition of securities held
for less than three months must be limited to less than 30% of the
Fund's annual gross income. Any net gain realized from futures
(or futures options) contracts will be considered gain from the
sale of securities and therefore be qualifying income for purposes
of the 90% requirement. In order to avoid realizing excessive
gains on securities held less than three months, the Fund may be
required to defer the closing out of certain positions beyond the
time when it would otherwise be advantageous to do so.
Each Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options and
futures transactions. Such distributions are combined with
distributions of capital gains realized on the Fund's other
investments and shareholders are advised of the nature of the
payments.
INVESTMENT RESTRICTIONS
Each Fund operates under the following investment
restrictions. A Fund may not:
(1) invest in a security if, as a result of such investment,
more than 25% of its total assets (taken at market value at the
time of such investment) would be invested in the securities of
issuers in any particular industry, except that this restriction
does not apply to U.S. Government Securities and except that all
or substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(2) invest in a security if, with respect to 75% of the
Fund's assets, as a result of such investment, more than 5% of its
total assets (taken at market value at the time of such
investment) would be invested in the securities of any one issuer,
except that this restriction does not apply to U.S. Government
Securities or repurchase agreements for such securities and except
that all or substantially all of the assets of the Fund may be
invested in another registered investment company having the same
investment objective and substantially similar investment policies
as the Fund;
(3) invest in a security if, as a result of such investment,
it would hold more than 10% (taken at the time of such investment)
of the outstanding voting securities of any one issuer, 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;
<PAGE> 25
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate, or
interests therein);
(5) [Government Income Fund only] purchase or sell
commodities or commodities contracts or oil, gas or mineral
programs, except that it may enter into futures and options on
futures; [Limited Maturity Income Fund, Intermediate Bond Fund and
Income Fund only] purchase or sell commodities or commodities
contracts or oil, gas or mineral programs, except that it may
enter into (i) futures and options on futures and (ii) forward
contracts;
(6) purchase securities on margin, except for use of short-
term credit necessary for clearance of purchases and sales of
portfolio securities, but it may make margin deposits in
connection with transactions in options, futures, and options on
futures;
(7) make loans to other persons, except that it reserves
freedom of action, consistent with its other investment policies
and restrictions, to (i) invest up to 100% of its net assets in
debt obligations, including those which are either publicly
offered or of a type customarily purchased by institutional
investors, even though the purchase of such debt obligations may
be deemed to be the making of loans, (ii) enter into repurchase
agreements and (iii) lend portfolio securities, provided that it
may not lend securities if, as a result, the aggregate value of
all securities loaned would exceed 33% of its total assets (taken
at market value at the time of such loan);
(8) borrow, except that it may (i) borrow up to 33 1/3% of
its total assets, taken at market value at the time of such
borrowing, as a temporary measure for extraordinary or emergency
purposes but not to increase portfolio income (the total of
reverse repurchase agreements and such borrowings will not exceed
33 1/3% of its total assets and it will not purchase additional
securities at a time when its borrowings exceed 5% of its total
assets) and (ii) enter into transactions in options, futures, and
options on futures;
(9) act as an underwriter of securities, except insofar as
it may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 on disposition of securities acquired
subject to legal or contractual restrictions on resale, except
that all or substantially all of the assets of the Fund may be
invested in another registered investment company having the same
investment objective and substantially similar investment policies
as the Fund; or
(10) issue any senior security except to the extent
permitted under the Investment Company Act of 1940.
For each Fund, the above restrictions are fundamental
policies and may not be changed without the approval of a
"majority of the outstanding voting securities" of the Fund, as
previously defined herein. The policy on the scope of
transactions involving lending of portfolio securities to broker-
dealers and banks (as set forth herein under Investment
Techniques) is also a fundamental policy.
Each Fund is also subject to the following restrictions and
policies that may be changed by the Board of Trustees. Unless
otherwise indicated, a Fund may not:
<PAGE> 26
(A) invest for the purpose of exercising control or
management, 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;
(B) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of the Fund's total assets (valued at time of
purchase) in the case of any one other investment company and 10%
of such assets (valued at time of purchase) in the case of all
other investment companies in the aggregate; any such purchases
are to be made in the open market where no profit to a sponsor or
dealer results from the purchase, other than the customary
broker's commission, except for securities acquired as part of a
merger, consolidation or acquisition of assets and 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;/6/
(C) mortgage, pledge, hypothecate or in any manner transfer,
as security for indebtedness, any securities owned or held by it,
except as may be necessary in connection with (i) borrowings
permitted in (8) above and (ii) options, futures, and options on
futures;
(D) invest more than 10% of its net assets (taken at market
value at the time of each purchase) in illiquid securities,
including repurchase agreements maturing in more than seven days;
(E) invest in a security if, as a result of such investment,
more than 5% of the value of its total assets (taken at market
value at the time of such investment) would be invested in
securities of issuers (other than issuers of federal agency
obligations or asset-backed securities) having a record, together
with predecessors or unconditional guarantors, of less than three
years of continuous operation, 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;
(F) purchase or retain securities of any issuer if 5% of the
securities of such issuer are owned by those officers and trustees
or directors of the Trust or of its investment adviser who each
own beneficially more than l/2 of 1% of its securities;
(G) purchase portfolio securities for the Fund from, or sell
portfolio securities to, any of the officers and directors or
trustees of the Trust or of its investment adviser;
------------------------
/6/ The Funds have been informed that the staff of the Securities
and Exchange Commission takes the position that the issuers of
certain CMOs and certain other collateralized assets are
investment companies and that subsidiaries of foreign banks may be
investment companies for purposes of Section 12(d)(1) of the
Investment Company Act of 1940, which limits the ability of one
investment company to invest in another investment company.
Accordingly, the Funds intend to operate within the applicable
limitations under Section 12(d)(1)(A) of that Act.
----------------------
<PAGE> 27
(H) purchase shares of other open-end investment companies,
except in connection with a merger, consolidation, acquisition, or
reorganization, 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;
(I) invest more than 5% of its net assets (valued at time of
investment) in warrants, nor more than 2% of its net assets in
warrants which are not listed on the New York or American stock
exchange;
(J) purchase a put or call option if the aggregate premiums
paid for all put and call options exceed 20% of its net assets
(less the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
(K) write an option on a security unless the option is
issued by the Options Clearing Corporation, an exchange, or
similar entity;
(L) buy or sell an option on a security, a futures contract,
or an option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered through
the facilities of a national securities association or listed on a
national exchange or similar entity;
(M) invest in limited partnerships in real estate unless
they are readily marketable;
(N) [Government Income Fund, Intermediate Bond Fund and
Income Fund only] invest more than 15% of its assets in illiquid
and restricted securities that cannot be resold under Rule 144A;
[Limited Maturity Income Fund only] invest more than 10% of its
assets in illiquid and restricted securities that cannot be resold
under Rule 144A; or
(O) sell securities short unless (i) the Fund owns or has
the right to obtain securities equivalent in kind and amount to
those sold short at no added cost or (ii) the securities sold are
"when issued" or "when distributed" securities which the Fund
expects to receive in a recapitalization, reorganization, or other
exchange for securities the Fund 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.
ADDITIONAL INVESTMENT CONSIDERATIONS
The Adviser seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. It has worked
to build wealth for generations by being guided by three primary
objectives which it believes are the foundation of a successful
investment program. These objectives are preservation of capital,
limited volatility through managed risk, and consistent above-
average returns.
Because every investor's needs are different, Stein Roe
mutual funds are designed to accommodate different investment
objectives, risk tolerance levels, and
<PAGE> 28
time horizons. In selecting a mutual fund, investors should ask
the following questions:
What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goal.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize your
investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks which
will vary depending on investment objective and security type.
However, mutual funds seek to reduce risk through professional
investment management and portfolio diversification.
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no guarantee
that they will be able to maintain a stable net asset value of
$1.00 per share, money market funds emphasize safety of principal
and liquidity, but tend to offer lower income potential than bond
funds. Bond funds tend to offer higher income potential than
money market funds but tend to have greater risk of principal and
yield volatility.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information is
incorporated herein by reference. The Prospectus discloses that
you may purchase (or redeem) shares through investment dealers,
banks, or other institutions. It is the responsibility of any
such institution to establish procedures insuring the prompt
transmission to the Trust of any such purchase order. The state
of Texas has asked that the Trust disclose in its Statement of
Additional Information, as a reminder to any such bank or
institution, that it must be registered as a dealer in Texas.
Each Fund's net asset value is determined on days on which
the New York Stock Exchange (the "NYSE") is open for trading. The
NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the
<PAGE> 29
judgment of the Board of Trustees, net asset value of a Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
The Trust reserves the right to suspend or postpone
redemptions of shares of any Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the Securities
and Exchange Commission, or the NYSE is closed for other than
customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c)
an emergency, as determined by the Securities and Exchange
Commission, exists, making disposal of portfolio securities or
valuation of net assets of such Fund not reasonably practicable.
The Trust intends to pay all redemptions in cash and is
obligated to redeem shares of a Fund solely in cash up to the
lesser of $250,000 or one percent of the net assets of that Fund
during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly
by a distribution in kind of securities. If redemptions were made
in kind, the redeeming shareholders might incur transaction costs
in selling the securities received in the redemptions.
Due to the relatively high cost of maintaining smaller
accounts, the Trust reserves the right to redeem shares in any
account for their then-current value (which will be promptly paid
to the investor) if at any time the shares in the account do not
have a value of at least $1,000. An investor will be notified
that the value of his account is less than the minimum and allowed
at least 30 days to bring the value of the account up to at least
$1,000 before the redemption is processed. The Agreement and
Declaration of Trust also authorizes the Trust to redeem shares
under certain other circumstances as may be specified by the Board
of Trustees.
MANAGEMENT
The following table sets forth certain information with
respect to trustees and officers.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AGE WITH THE TRUST DURING PAST FIVE YEARS
-------------------- --- ---------------------- --------------------------------------------------------
<S> <C> <C> <C>
Gary A. Anetsberger 39 Senior Vice-President Vice-President of Stein Roe & Farnham Incorporated (the
"Adviser") since January, 1991; associate of the Adviser
prior thereto
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of the Adviser and
(1)(2) director of the Adviser since June, 1992; senior vice
president and director of marketing of Citibank Illinois
prior thereto
Jilaine Hummel Bauer 40 Executive Vice-President; Senior Vice President (since April, 1992) and Assistant
Secretary Secretary of the Adviser; vice president of the Adviser
prior thereto
Ann H. Benjamin 37 Vice-President Senior Vice President of the Adviser since July, 1994; vice
president of the Adviser from January, 1992 to July, 1994;
associate of the Adviser prior thereto
<PAGE> 30
Kenneth L. Block (3) 75 Trustee Chairman Emeritus of A. T. Kearney, Inc. (international
management consultants)
William W. Boyd (3) 69 Trustee Chairman and Director of Sterling Plumbing Group, Inc.
(manufacturer of plumbing products) since 1992; chairman,
president, and chief executive officer of Sterling Plumbing
Group, Inc. prior thereto
Thomas W. Butch 38 Vice-President Senior Vice President of the Adviser since September, 1994;
first vice president, corporate communications, of Mellon
Bank Corporation prior thereto
N. Bruce Callow 49 Executive Vice-President President of the Investment Counsel division of the Adviser
since June, 1994; senior vice president of trust and
financial services for The Northern Trust prior thereto
Lindsay Cook (1) 43 Trustee Senior Vice President of Liberty Financial Companies, Inc.
(the indirect parent of the Adviser)
Philip D. Hausken 37 Vice-President Corporate Counsel for the Adviser since July, 1994; assistant
regional director, midwest regional office of the Securities
and Exchange Commission prior thereto
Michael T. Kennedy 33 Vice-President Senior Vice President of the Adviser since October, 1994;
vice president of the Adviser from January, 1992 to October,
1994; associate of the Adviser prior thereto
Stephen P. Lautz 38 Vice-President Vice President of the Adviser since May, 1994; associate of
the Adviser prior thereto
Steven P. Luetger 41 Vice-President Senior Vice President of the Adviser
Lynn C. Maddox 54 Vice-President Senior Vice President of the Adviser
Anne E. Marcel 37 Vice-President Manager, Mutual Fund Sales & Services of the Adviser since
October, 1994; supervisor of the Counselor Department of the
Adviser from October, 1992 to October, 1994; vice president
of Selected Financial Services from May, 1990 to March, 1992
Francis W. Morley 75 Trustee Chairman of Employer Plan Administrators and Consultants Co.
(2)(3) (designer, administrator, and communicator of employee
benefit plans)
Jane M. Naeseth 45 Vice-President Senior Vice President of the Adviser since January, 1991;
vice president of the Adviser prior thereto
Charles R. Nelson (3) 53 Trustee Van Voorhis Professor of Political Economy of the University
of Washington
Nicolette D. Parrish 45 Vice-President; Senior Legal Assistant of the Adviser
Assistant Secretary
Sharon R. Robertson 33 Controller Accounting Manager for the Adviser's Mutual Funds division
<PAGE> 31
Janet B. Rysz 40 Assistant Secretary Assistant Secretary of the Adviser
Thomas P. Sorbo 34 Vice-President Senior Vice President of the Adviser since January, 1994;
vice president of the Adviser from September, 1992 to
December, 1993; associate of Travelers Insurance Company
prior thereto
Gordon R. Worley (3) 76 Trustee Private investor
Hans P. Ziegler 54 Executive Vice-President Chief Executive Officer of the Adviser since May, 1994;
president of the Investment Counsel division of the Adviser
from July, 1993 to June, 1994; president and chief executive
officer, Pitcairn Financial Management Group prior thereto
Margaret O. Zwick 29 Treasurer Compliance Manager for the Adviser's Mutual Funds division
since August, 1995; held positions of Compliance Accountant,
Section Manager, Supervisor, and Fund Accountant with the
division
<FN>
______________________
(1) Trustee who is an "interested person" of the Trust and of the
Adviser, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope and
results of the audit.
</TABLE>
Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by the
Adviser. Ms. Bauer and Mr. Cook are also vice presidents of the
Funds' distributor, Liberty Securities Corporation. The address
of Mr. Block is 11 Woodley Road, Winnetka, Illinois 60093; that of
Mr. Boyd is 2900 Golf Road, Rolling Meadows, Illinois 60008; that
of Mr. Cook is 600 Atlantic Avenue, Boston, Massachusetts 02210;
that of Mr. Morley is 20 North Wacker Drive, Suite 2275, Chicago,
Illinois 60606; that of Mr. Nelson is Department of Economics,
University of Washington, Seattle, Washington 98195; that of Mr.
Worley is 1407 Clinton Place, River Forest, Illinois 60305; and
that of the officers is One South Wacker Drive, Chicago, Illinois
60606.
Officers and trustees affiliated with the Adviser serve
without any compensation from the Trust. In compensation for
their services to the Trust, trustees who are not "interested
persons" of the Trust or the Adviser are paid an annual retainer
of $8,000 (divided equally among the Funds of the Trust) plus an
attendance fee from each Fund for each meeting of the Board or
committee thereof attended at which business for that Fund is
conducted. The attendance fees (other than for a Nominating
Committee meeting) are based on each Fund's net assets as of the
preceding December 31. For a Fund with net assets of less than
$251 million, the fee is $200 per meeting; with $251 million to
$500 million, $350; with $501 million to $750 million, $500; with
$750 million to $1 billion, $650; and with over $1 billion in net
assets, $800. Each non-interested trustee also receives an
aggregate of $500 for attending each meeting of the Nominating
Committee. The Trust has no retirement or pension plans. The
following table sets forth compensation paid by the Trust during
the fiscal year ended June 30, 1995 to each of the trustees:
<PAGE> 32
Aggregate Total Compensation Paid to
Compensation Trustees from the Trust and
Name of Trustee from the Trust the Stein Roe Fund Complex*
--------------- -------------- ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Kenneth L. Block $23,350 $74,850
William W. Boyd 15,900 48,200
Francis W. Morley 23,350 76,400
Charles R. Nelson 23,350 77,200
Gordon R. Worley 23,350 74,850
_______________
* During this period, the Stein Roe Fund Complex consisted of
the six series of the Trust, four series of Stein Roe Municipal
Trust, eight series of Stein Roe Investment Trust, and one
series of SR&F Base Trust.
FINANCIAL STATEMENTS
Please refer to the Funds' 6/30/95 Financial Statements
(balance sheets and schedules of investments as of 6/30/95 and the
statements of operations, changes in net assets, and notes
thereto) and the report of independent auditors contained in the
6/30/95 Annual Report of the Funds. 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 1 800 338-2550.
PRINCIPAL SHAREHOLDERS
As of August 1, 1995, the only persons known by the Trust to
own of record or "beneficially" 5% or more of outstanding shares
of any Fund within the definition of that term as contained in
Rule 13d-3 under the Securities Exchange Act of 1934 was as
follows:
APPROXIMATE %
OF OUTSTANDING
NAME AND ADDRESS FUND SHARES HELD
---------------------- ----------------------- --------------
First Bank National Limted Maturity Income
Association* Fund 18.7%
410 N. Michigan Avenue Government Income Fund 29.4
Chicago, IL 60611 Intermediate Bond Fund 21.0
Income Fund 23.4
Charles Schwab & Co., Government Incme Fund 7.9
Inc.* Intermediate Bond Fund 26.9
Attn: Mutual Fund Dept. Income Fund 14.4
101 Montgomery Street
San Francisco, CA 94104
Dunspaugh-Dalton Government Income Fund 5.8
Foundation Inc.
9040 Sunset Drive
Miami FL 33173
<PAGE> 33
Priests of the Sacred Limited Maturity Income
Heart Fund 5.3
P.O. Box 289
Hales Corners, WI 53130
Trustees, Liberty Limited Maturity Income
Financial Companies Fund 5.3
Pension Plan & Trust
U/A/D 12/7/92
600 Atlantic Avenue
Boston, MA 02210
___________________
*Shares held of record, but not beneficially.
The following table shows shares of the Funds held by the
categories of persons indicated, and in each case the approximate
percentage of outstanding shares represented:
CLIENTS OF THE
ADVISER IN THEIR TRUSTEEES AND
CLIENT ACCOUNTS OFFICERS AS OF
AS OF 7/31/95* 7/31/95
-------------------- --------------------
Shares Held Percent Shares Held Percent
----------- ------- ----------- -------
Limited Maturity
Income Fund 1,383,235 46.6% 33,046 1.1%
Government Income Fund 820,214 21.4 29,261 **
Intermediate Bond Fund 9,337,255 26.3 67,838 **
Income Fund 6,932,040 39.9 60,807 **
______________
*The Adviser may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned "beneficially"
by the Adviser under Rule 13d-3. However, the Adviser disclaims
actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated, investment adviser to the
Funds, is a wholly-owned subsidiary of SteinRoe Services Inc.
("SSI"), the Funds' transfer agent, which is a wholly-owned
subsidiary of Liberty Financial Companies, Inc., which is a
majority-owned subsidiary of Liberty Mutual Equity Corporation,
which is a wholly-owned subsidiary of Liberty Mutual Insurance
Company ("Liberty Mutual"). Liberty Mutual is a mutual insurance
company, principally in the property/casualty insurance field,
organized under the laws of Massachusetts in 1912.
The directors of the Adviser are Gary L. Countryman, Kenneth
R. Leibler, Timothy K. Armour, N. Bruce Callow, and Hans P.
Ziegler. Mr. Countryman is Chairman and Chief Executive Officer
of Liberty Mutual Insurance Company; Mr. Leibler is President and
Chief Executive Officer of Liberty Financial Companies; Mr. Armour
is President of the Adviser's Mutual Funds division; Mr. Callow is
President of the Adviser's Investment Counsel division; and Mr.
Ziegler is Chief Executive Officer of the Adviser. The business
address of Mr. Countryman is 175 Berkeley Street, Boston,
Massachusetts 02117; that of Mr. Leibler is Federal Reserve Plaza,
Boston, Massachusetts 02210; that of Messrs. Armour, Callow, and
Ziegler is One South Wacker Drive, Chicago, Illinois 60606.
<PAGE> 34
The Adviser and its predecessor have been providing
investment advisory services since 1932. The Adviser acts as
investment adviser to wealthy individuals, trustees, pension and
profit sharing plans, charitable organizations, and other
institutional investors. As of June 30, 1995, the Adviser managed
over $22.4 billion in assets: over $4.9 billion in equities and
over $17.5 billion in fixed-income securities (including $2.3
billion in municipal securities). The $22.4 billion in managed
assets included over $5.5 billion held by open-end mutual funds
managed by the Adviser (approximately 21% of the mutual fund
assets were held by clients of the Adviser). These mutual funds
were owned by over 148,000 shareholders. The $5.5 billion in
mutual fund assets included over $550 million in over 33,000 IRA
accounts. In managing those assets, the Adviser utilizes a
proprietary computer-based information system that maintains and
regularly updates information for approximately 6,500 companies.
The Adviser also monitors over 1,400 issues via a proprietary
credit analysis system. At June 30, 1995, the Adviser employed
approximately 17 research analysts and 34 account managers. The
average investment-related experience of these individuals was 19
years.
Stein Roe Counselor [service mark] and Stein Roe Counselor
Preferred [service mark] are professional investment advisory
services offered by the Adviser to Fund shareholders. Each is
designed to help shareholders construct Fund investment portfolios
to suit their individual needs. Based on information shareholders
provide about their financial goals and objectives in response to
a questionnaire, the Adviser's investment professionals create
customized portfolio recommendations. Shareholders participating
in Stein Roe Counselor [service mark] are free to self direct
their investments while considering the Adviser's recommendations;
shareholders participating in Stein Roe Counselor Preferred
[service mark] enjoy the added benefit of having the Adviser
implement portfolio recommendations automatically for a fee of 1%
or less, depending on the size of their portfolios. In addition
to reviewing shareholders' goals and objectives periodically and
updating portfolio recommendations to reflect any changes, the
Adviser provides shareholders participating in these programs with
a dedicated Counselor [service mark] representative. Other
distinctive services include specially designed account statements
with portfolio performance and transaction data, newsletters, and
regular investment, economic, and market updates. A $50,000
minimum investment is required to participate in either program.
Please refer to the description of the Adviser, advisory
agreements, advisory fees, expense limitations, and transfer
agency services under Fee Table and Management of the Funds in the
Prospectus, which is incorporated herein by reference. The table
below shows gross advisory fees paid by the Funds and any expense
reimbursements by the Adviser to them, which are described in the
Prospectus:
YEAR YEAR YEAR
TYPE OF ENDED ENDED ENDED
FUND PAYMENT 6/30/95 6/30/94 6/30/93
-------------- ------------ ---------- ---------- ----------
Limited Maturity Advisory fee $ 172,301 $ 154,386 $ 8,543
Income Fund Reimbursement 234,580 178,477 45,317
Government Income Fund Advisory fee 253,463 338,576 365,973
Reimbursement 38,282 -- --
Intermediate Bond Fund Advisory fee 1,491,075 1,579,884 1,399,017
Reimbursement 25,687 -- --
<PAGE> 35
Income Fund Advisory fee 1,011,101 1,004,273 810,495
Reimbursement 48,232 14,043 --
The Adviser provides office space and executive and other
personnel to the Funds and bears any sales or promotional
expenses. Each Fund pays all expenses other than those paid by
the Adviser, including but not limited to printing and postage
charges and securities registration and custodian fees and
expenses incidental to its organization.
Each Fund's advisory agreement provides that the Adviser
shall reimburse the Fund to the extent that total annual expenses
of the Fund (including fees paid to the Adviser, but excluding
taxes, interest, brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities, and
expenses of litigation to the extent permitted under applicable
state law) exceed the applicable limits prescribed by any state in
which shares of such Fund are being offered for sale to the
public; however, such reimbursement for any fiscal year will not
exceed the amount of the advisory fees paid by such Fund for such
year. The Trust believes that currently the most restrictive
state limit on expenses is that of California, which limit
currently is 2 1/2% of the first $30 million of average net
assets, 2% of the next $70 million, and 1 1/2% thereafter. In
addition, in the interest of further limiting the Funds' expenses,
the Adviser may voluntarily waive its management fee and/or absorb
certain expenses for a Fund, as described in the Prospectus. Any
such reimbursements will enhance the yields of such Fund.
The advisory agreement of each Fund also provides that
neither the Adviser nor any of its directors, officers,
stockholders (or partners of stockholders), agents, or employees
shall have any liability to the Trust or any shareholder of the
Fund for any error of judgment, mistake of law or any loss arising
out of any investment, or for any other act or omission in the
performance by the Adviser of its duties under the advisory
agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on the Adviser's part
in the performance of its duties or from reckless disregard by the
Adviser of the Adviser's obligations and duties under the advisory
agreement.
Any expenses that are attributable solely to the
organization, operation, or business of a Fund shall be paid
solely out of that Fund's assets. Any expenses incurred by the
Trust that are not solely attributable to a particular Fund are
apportioned in such manner as the Adviser determines is fair and
appropriate, unless otherwise specified by the Board of Trustees.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with the Trust, the Adviser
receives a fee for performing certain bookkeeping and accounting
services for each Fund. For these services, the Adviser receives
an annual fee of $25,000 per Fund plus .0025 of 1% of average net
assets over $50 million. During the fiscal year ended June 30,
1995, the Adviser received aggregate fees of $114,541 from the
Trust for services performed under this agreement.
<PAGE> 36
DISTRIBUTOR
Shares of the Funds are distributed by Liberty Securities
Corporation ("LSC"), under a Distribution Agreement as described
under Management of the Funds in the Prospectus, which is
incorporated herein by reference. The Distribution Agreement
continues in effect from year to year, provided such continuance
is approved annually (i) by a majority of the trustees or by a
majority of the outstanding voting securities of the Trust, and
(ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. The Trust has
agreed to pay all expenses in connection with registration of its
shares with the Securities and Exchange Commission and auditing
and filing fees in connection with registration of its shares
under the various state blue sky laws and assumes the cost of
preparation of prospectuses and other expenses. The Adviser bears
all sales and promotional expenses, including payments to LSC for
the sales of Fund shares. The Adviser also makes payments to
other broker-dealers, banks, and other institutions for the sales
of Fund shares in amounts up to 0.25% of the annual average value
of accounts of such shares.
As agent, LSC offers shares of each Fund to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. No sales commission or "12b-1" payment is paid by any
Fund. LSC offers the Funds' shares only on a best-efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Trust,
as described under Management of the Funds in the Prospectus. For
performing these services, SSI receives from each Fund a fee based
on an annual rate of 0.15 of 1% of the Fund's average daily net
assets. Prior to May 1, 1995, SSI received the following payments
from each of the Funds: (1) a fee of $4.00 for each new account
opened; (2) monthly payments of $1.466 per open shareholder
account; (3) payments of $0.611 per closed shareholder account for
each month through June of the calendar year following the year in
which the account is closed; (4) $0.3025 per shareholder account
for each dividend paid; and (5) $1.415 for each shareholder-
initiated transaction. The Board of Trustees believes the charges
by SSI to the Funds are comparable to those of other companies
performing similar services. (See Investment Advisory Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Trust. It is responsible for holding all securities and cash
of the Funds, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Funds, and performing other administrative duties,
all as directed by authorized persons. The custodian does not
exercise any supervisory function in such matters as purchase and
<PAGE> 37
sale of portfolio securities, payment of dividends, or payment of
expenses of the Funds.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network, and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.
The Board of Trustees of the Trust reviews, at least
annually, whether it is in the best interest of each Fund and its
shareholders to maintain assets in each custodial institution.
However, with respect to foreign sub-custodians, there can be no
assurance that a Fund, and the value of its shares, will not be
adversely affected by acts of foreign governments, financial or
operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians, or
application of foreign law to a Fund's foreign sub-custodial
arrangements. Accordingly, an investor should recognize that the
non-investment risks involved in holding assets abroad are greater
than those associated with investing in the United States.
The Funds may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Ernst & Young LLP,
233 South Wacker Drive, Chicago, Illinois 60606. The independent
auditors audit and report on the Funds' annual financial
statements, review certain regulatory reports and the Funds'
federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to do
so by the Trust.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts for the
Funds. Purchases and sales of portfolio securities are ordinarily
transacted with the issuer or with a primary market maker acting
as principal or agent for the securities on a net basis, with no
brokerage commission being paid by a Fund. Transactions placed
through dealers reflect the spread between the bid and asked
prices. Occasionally, a Fund may make purchases of underwritten
issues at prices that include underwriting discounts or selling
concessions.
The Adviser's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price
and execution. The best net price, giving effect to transaction
charges, if any, and other costs, normally is an important factor
in this decision, but a number of other judgmental factors may
also enter into the decision. These include: the Adviser's
knowledge of current transaction costs; the nature
<PAGE> 38
of the security being traded; the size of the transaction; the
desired timing of the trade; the activity existing and expected in
the market for the particular security; confidentiality; the
execution, clearance and settlement capabilities of the broker or
dealer selected and others that are considered; the Adviser's
knowledge of the financial stability of the broker or dealer
selected and such other brokers or dealers; and the Adviser's
knowledge of actual or apparent operational problems of any broker
or dealer. Recognizing the value of these factors, a Fund may
incur a transaction charge in excess of that which another broker
or dealer may have charged for effecting the same transaction.
Evaluations of the reasonableness of the costs of portfolio
transactions, based on the foregoing factors, are made on an
ongoing basis by the Adviser's staff and reports are made annually
to the Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to be
capable of providing the best combination of price and execution
with respect to a particular portfolio transaction for a Fund, the
Adviser often selects a broker or dealer that has furnished it
with research products or services such as research reports,
subscriptions to financial publications and research compilations,
compilations of securities prices, earnings, dividends and similar
data, and computer databases, quotation equipment and services,
research-oriented computer software and services, and services of
economic and other consultants. Selection of brokers or dealers
is not made pursuant to an agreement or understanding with any of
the brokers or dealers; however, the Adviser uses an internal
allocation procedure to identify those brokers or dealers who
provide it with research products or services and the amount of
research products or services they provide, and endeavors to
direct sufficient commissions generated by its clients' accounts
in the aggregate, including the Funds, to such brokers or dealers
to ensure the continued receipt of research products or services
the Adviser feels are useful. In certain instances, the Adviser
receives from brokers and dealers products or services which are
used both as investment research and for administrative,
marketing, or other non-research purposes. In such instances, the
Adviser makes a good faith effort to determine the relative
proportions of such products or services which may be considered
as investment research. The portion of the costs of such products
or services attributable to research usage may be defrayed by the
Adviser (without prior agreement or understanding, as noted above)
through brokerage commissions generated by transactions of clients
(including the Funds), while the portions of the costs
attributable to non-research usage of such products or services is
paid by the Adviser in cash. No person acting on behalf of a Fund
is authorized, in recognition of the value of research products or
services, to pay a price in excess of that which another broker or
dealer might have charged for effecting the same transaction.
Research products or services furnished by brokers and dealers
through whom transactions are effected may be used in servicing
any or all of the clients of the Adviser and not all such research
products or services are used in connection with the management of
such Fund.
The Board has reviewed the legal developments pertaining to
and the practicability of attempting to recapture underwriting
discounts or selling concessions when portfolio securities are
purchased in underwritten offerings. The Board has been advised
by counsel that recapture by a mutual fund currently is not
permitted
<PAGE> 39
under the Rules of Fair Practice of the National Association of
Securities Dealers ("NASD"). Therefore, except with respect to
purchases by the Income Fund of municipal securities which are not
subject to NASD Rules, the Funds will not attempt to recapture
underwriting discounts or selling concessions. If the Income Fund
were to purchase municipal securities, it would attempt to
recapture selling concessions included in prices paid by the
Income Fund in underwritten offerings; however, the Adviser would
not be able to negotiate discounts from the fixed offering price
for those issuers for which there is a strong demand, and will not
allow the failure to obtain a discount to prejudice its ability to
purchase an issue for the Income Fund.
The following table shows any commissions paid by the Funds
on futures transactions during the past three fiscal years. The
Funds did not pay commissions on any other transactions.
Limited Inter- Govern-
Maturity mediate ment
Income Bond Income Income
Fund Fund Fund Fund
-------- ------- ------- --------
Total brokerage commissions paid
during year ended 6/30/95 -0- $25,000 -0- $7,625
Number of futures contracts -0- 1,000 -0- 305
Total brokerage commissions paid
during year ended 6/30/94 -0- $32,900 -0- $5,002
Total brokerage commissions paid
during year ended 6/30/93 -0- $6,020 -0- $1,905
The Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian as
a soliciting dealer in connection with any tender offer for
portfolio securities. The custodian will credit any such fees
received against its custodial fees.
During the last fiscal year, certain Funds held securities of
one or more of their regular broker-dealers or the parent of such
broker or dealer that derive more than 15% of gross revenue from
securities-related activities. Such holdings were as follows at
June 30, 1995:
Amount of
Fund Broker-Dealer Securities Held
------------------------ --------------------------- ---------------
Limited Maturity Income
Fund Lehman Brothers Holdings Inc. $ 978,640
Limited Maturity Income
Fund Salomon Inc. 985,420
Intermediate Bond Fund Lehman Brothers Holdings Inc. 3,044,310
Intermediate Bond Fund Merrill Lynch 1,338,233
Intermediate Bond Fund Kidder Peabody 3,797,535
Intermediate Bond Fund Prudential Home Mortgage
Financial Company 6,383,860
Income Fund Goldman Sachs 1,942,400
ADDITIONAL INCOME TAX CONSIDERATIONS
Each Fund intends to comply with the special provisions of
the Internal Revenue Code that relieve it of federal income tax to
the extent of its net investment income and capital gains
currently distributed to shareholders.
<PAGE> 40
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.
Each Fund expects that none of its dividends will qualify for
the deduction for dividends received by corporate shareholders.
INVESTMENT PERFORMANCE
A Fund may quote yield figures from time to time. The
"Yield" of a 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. 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.
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 net asset value of the Fund.
For example, the Yields of the Funds for the 30-day period ended
June 30, 1995 were:
Limited Maturity Income Fund Yield = 4.95%
Government Income Fund Yield = 6.10%
Intermediate Bond Fund Yield = 6.06%
Income Fund Yield = 6.66%
Each 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.
Average Annual Total Return is computed as follows: ERV = P(1+T)n
<PAGE> 41
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion thereof).
For example, for a $1,000 investment in a Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at June 30, 1995 were:
AVERAGE
TOTAL ANNUAL
RETURN TOTAL
TOTAL RETURN PERCENTAGE RETURN
------------ ---------- ------
Limited Maturity Income Fund
1 year 1,070 6.96% 6.96%
Life of Fund* 1,092 9.22 3.90
Government Income Fund
1 year 1,109 10.94 10.94
5 years 1,482 48.18 8.18
*Life of Fund 2,003 100.33 7.74
Intermediate Bond Fund
1 year 1,101 10.11 10.11
5 years 1,529 52.87 8.86
10 years 2,408 140.80 9.19
Income Fund
1 year 1,128 12.79 12.79
5 years 1,618 61.84 10.11
*Life of Fund 2,224 122.24 8.95
_________________________
*Life of Fund is from its commencement of operations: 3/11/93
for Limited Maturity Income Fund and 3/5/86 for Government Income
Fund and Income Fund.
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of future
results. The performance of a Fund is a result of conditions in
the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful
in reviewing a Fund's performance and in providing some basis for
comparison with other investment alternatives, it should not be
used for comparison with other investments using different
reinvestment assumptions or time periods.
In advertising and sales literature, a Fund may compare its
yield and performance with that of other mutual funds, indexes or
averages of other mutual funds, indexes of related financial
assets or data, and other competing investment and deposit
products available from or through other financial institutions.
The composition of these indexes or averages differs from that of
the Funds. Comparison of a Fund to an alternative investment
should be made with consideration of differences in features and
expected performance.
<PAGE> 42
All of the indexes and averages noted below will be obtained
from the indicated sources or reporting services, which the Funds
believe to be generally accurate. A Fund may also note its
mention in newspapers, magazines, or other media from time to
time. However, the Funds assume no responsibility for the
accuracy of such data. Newspapers and magazines that might
mention the Funds include, but are not limited to, the following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Barron's
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
Crain's Chicago Business
Consumer Reports
Consumer Digest
Financial World
Forbes
Fortune
Fund Action
Gourmet
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Los Angeles Times
Money
Mutual Fund Letter
Mutual Fund News Service
Mutual Fund Values (Morningstar)
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Smart Money
Smithsonian
Stanger's Investment Adviser
Time
Travel & Leisure
United Mutual Fund Selector
USA Today
U.S. News and World Report
The Wall Street Journal
Working Women
Worth
Your Money
All of the Funds may compare their performance to the
Consumer Price Index (All Urban), a widely-recognized measure of
inflation.
A Fund's performance may be compared to the following as
indicated below:
<TABLE>
<CAPTION>
BENCHMARK FUND(S)
<S> <C>
Donoghue's Money Fund Averages/Aggressive Limited Maturity Income Fund
Donoghue's Money Fund Averages/All Taxable Limited Maturity Income Fund
Donoghue's Money Fund Averages/Government Limited Maturity Income Fund
Donoghue's Money Fund Averages--Prime Limited Maturity Income Fund
Donoghue's Money Fund Averages--Prime and Eurodollar Limited Maturity Income Fund
Donoghue's Money Fund Averages--Prime,
Eurodollar, and Yankeedollar Limited Maturity Income Fund
Donoghue's Money Fund Averages--Taxable
(includes the previous four categories) Limited Maturity Income Fund
Donoghue's Money Fund Averages--U.S. Government
& Agencies Limited Maturity Income Fund
<PAGE> 43
Donoghue's Money Fund Averages--U.S. Treasury Limited Maturity Income Fund
ICD All Long-Term Fixed Income Funds Average All Funds
ICD All Taxable Short-Term Fund Average Limited Maturity Income Fund
ICD Government Securities Average Limited Maturity Income Fund, Government Income Fund
ICD Government Securities Index Limited Maturity Income Fund, Government Income Fund
ICD High Quality Bond Funds Average Limited Maturity Income Fund, Intermediate Bond Fund,
Income Fund
ICD High-Yield Bond Funds Average Income Fund
ICD Income Funds Index All Funds
ICD Money Market Government Securities Average Limited Maturity Income Fund
ICD Money Market Taxable Funds Average Limited Maturity Income Fund
ICD Taxable Bond Fund Average All Funds
Lehman Brothers One-to-Three-Year Government Index Limited Maturity Income Fund
Lipper All Long-Term Fixed Income Funds Average All Funds
Lipper Corporate Bond Funds (A Rated) Average Limited Maturity Income Fund, Intermediate Bond Fund
Lipper Corporate Bond Funds (BBB Rated) Average Limited Maturity Income Fund, Income Fund
Lipper High Current Yield Funds Average Income Fund
Lipper Intermediate-Term (5-10 Year) Investment
Grade Debt Funds Average Limited Maturity Income Fund, Intermediate Bond Fund
Lipper Long-Term Taxable Bond Funds Average All Funds
Lipper Money Market Instrument Funds Average Limited Maturity Income Fund
Lipper Short-Term (1-3 Year) Investment Grade Debt
Funds Average Limited Maturity Income Fund
Lipper Short-Term (1-3 Year) U.S. Government Debt
Funds Average Limited Maturity Income Fund
Lipper Short-Term Income Fund Average Limited Maturity Income Fund
Lipper Short-Term U.S. Government Funds Average Limited Maturity Income Fund
Lipper U.S. Government Funds Average Limited Maturity Income Fund, Government Income Fund
Merrill Lynch Corporate and Government Master Index All Funds
Merrill Lynch High-Yield Master Index Income Fund
Merrill Lynch Mortgage Master Index Limited Maturity Income Fund, Government Income Fund
Merrill Lynch One-to-Three-Year Government Index Limited Maturity Income Fund
Morningstar All Long-Term Fixed Income Funds Average All Funds
<PAGE> 44
Morningstar Corporate Bond (General) Average Limited Maturity Income Fund, Income Fund
Morningstar Corporate Bond (High Quality) Average Limited Maturity Income Fund, Intermediate Bond Fund
Morningstar Corporate Bond (High Yield) Average Income Fund
Morningstar Government Bond (General) Average Limited Maturity Income Fund, Government Income Fund
Morningstar Long-Term Taxable Bond Funds Average All Funds
Salomon Brothers Broad Investment Grade Bond Index All Funds
Salomon Brothers Mortgage Index Limited Maturity Income Fund, Government Income Fund
</TABLE>
The Lipper, ICD, and Morningstar averages are unweighted
averages of total return performance of mutual funds as
classified, calculated, and published by these independent
services that monitor the performance of mutual funds. The Funds
may also use comparative performance as computed in a ranking by
these services or category averages and rankings provided by
another independent service. Should these services reclassify a
Fund to a different category or develop (and place a Fund into) a
new category, that Fund may compare its performance or rank
against other funds in the newly-assigned category (or the average
of such category) as published by the service.
In advertising and sales literature, a Fund may also cite its
rating, recognition, or other mention by Morningstar or any other
entity. Morningstar's rating system is based on risk-adjusted
total return performance and is expressed in a star-rating format.
The risk-adjusted number is computed by subtracting a Fund's risk
score (which is a function of the Fund's monthly returns less the
3-month T-bill return) from the Fund's load-adjusted total return
score. This numerical score is then translated into rating
categories, with the top 10% labeled five star, the next 22.5%
labeled four star, the next 35% labeled three star, the next 22.5%
labeled two star, and the bottom 10% one star. A high rating
reflects either above-average returns or below-average risk, or
both.
The Merrill Lynch Mortgage Master Index measures total return
performance of federal agency mortgage-backed pass-through
securities. The Merrill Lynch High-Yield Master Index measures
the total return performance of corporate debt issues rated less
than investment grade but not in default. The Merrill Lynch
Corporate and Government Master Index measures total return
performance of a broad range of U.S. Treasury, federal agency, and
corporate debt securities, but excluding mortgage-backed
securities.
The Salomon Brothers Broad Investment Grade Bond Index
measures the market-weighted total return of a wide range of debt
securities, including U.S. Treasury/agency securities, investment-
grade corporate bonds, and mortgage pass-through securities. The
Salomon Brothers Mortgage Index measures total return of the
mortgage pass-through securities market.
<PAGE> 45
Of course, past performance is not indicative of future
results.
____________________
To illustrate the historical returns on various types of
financial assets, the Funds may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment
firm. Ibbotson constructs (or obtains) very long-term (since
1926) total return data (including, for example, total return
indexes, total return percentages, average annual total returns
and standard deviations of such returns) for the following asset
types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
____________________
<PAGE>
A Fund may also use hypothetical returns to be used as an example
in a mix of asset allocation strategies. One such example is reflected
in the chart below, which shows the effect of tax deferral on a
hypothetical investment. This chart assumes that an investor invested
$2,000 a year on January 1, for any specified period, in both a Tax-
Deferred Investment and a Taxable Investment, that both investments earn
either 6%, 8% or 10% compounded annually, and that the investor withdrew
the entire amount at the end of the period. (A tax rate of 39.6% is
applied annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
Average Life Calculations. From time to time, a Fund may
quote an average life figure for its portfolio. Average life is
the weighted average period over which the Adviser expects the
principal to be paid, and differs from stated maturity in that it
estimates the effect of expected principal prepayments and call
provisions. With respect to GNMA securities and other mortgage-
backed securities, average life is likely to be substantially less
than the stated maturity of the mortgages in the underlying pools.
With respect to obligations with call provisions, average life is
typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an average life equal to their
stated maturity.
<PAGE> 46
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average cost
per share.
Like any investment strategy, dollar cost averaging can't
guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
From time to time, a Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[service mark] and the Stein Roe Counselor Preferred [service
mark] programs and asset allocation and other investment
strategies.
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion
as to the credit quality of the security being rated. However,
the ratings are general and are not absolute standards of quality
or guarantees as to the creditworthiness of an issuer.
Consequently, the Adviser believes that the quality of debt
securities in which a Fund invests should be continuously reviewed
and that individual analysts give different weightings to the
various factors involved in credit analysis. A rating is not a
recommendation to purchase, sell or hold a security because it
does not take into account market value or suitability for a
particular investor. When a security has received a rating from
more than one service, each rating should be evaluated
independently. Ratings are based on current information furnished
by the issuer or obtained by the rating services from other
sources that they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability
of such information, or for other reasons.
The following is a description of the characteristics of
ratings used by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P").
CORPORATE BOND RATINGS
RATINGS BY MOODY'S
AAA. Bonds rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or an exceptionally stable margin and
principal is secure. Although the various protective elements are
likely to change, such changes as can be visualized are more
unlikely to impair the fundamentally strong position of such
bonds.
<PAGE> 47
AA. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
BAA. Bonds rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
BA. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
CA. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.
<PAGE> 48
AA. Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only
in small degree.
A. Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than for debt in higher rated categories.
BB, B, CCC, CC, AND C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no
interest is being paid.
D. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears. The D rating is also
used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories. Foreign debt is rated on the same basis
as domestic debt measuring the creditworthiness of the issuer;
ratings of foreign debt do not take into account currency exchange
and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility
or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or
interest return is indexed to equities, commodities, or
currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
COMMERCIAL PAPER RATINGS
RATINGS BY MOODY'S
Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment
capacity of rated issuers:
<PAGE> 49
Prime-1 Highest
Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or
entities, Moody's, in assigning ratings to such issuers, evaluates
the financial strength of the indicated affiliated corporations,
commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating
assessment.
RATINGS BY S&P
A brief description of the applicable rating symbols and
their meaning follows:
A. Issues assigned this highest rating are regarded as
having the greatest capacity for timely payment. Issues in this
category are further refined with the designations 1, 2, and 3 to
indicate the relative degree of safety.
A-1. This designation indicates that the degree of safety
regarding timely payment is very strong. Those issues determined
to possess overwhelming safety characteristics will be denoted
with a plus (+) sign designation.
<PAGE> 1
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) 1. Financial Statements included in Part A of this Amendment
to the Registration Statement: Financial Highlights.
2. Financial statements included in Part B of this Amendment:
Financial statements (investments as of 6/30/95, balance
sheets as of 6/30/95, statements of operations for the
year ended 6/30/95, statements of changes in net assets,
for the two years and period ended June 30, 1995,
and notes thereto) are incorporated by reference to
Registrant's 6/30/95 annual reports.
(b) Exhibits: [Note: As used herein, the term "Registration
Statement" refers to the Registration Statement of the
Registrant on Form N-1A under the Securities Act of 1933, No.
33-02633. The terms "Pre-Effective Amendment" and "PEA"
refer, respectively, to a pre-effective amendment and a post-
effective amendment to the Registration Statement.]
1. Agreement and Declaration of Trust as amended through
10/25/94.
2. (a) By-Laws of Registrant as amended through 10/24/90.
(Exhibit 2 to PEA #14.)*
(b) Amendment to By-Laws dated 2/3/93. (Exhibit 2(b) to
PEA #21.)*
3. None.
4. None. The Registrant no longer issues share certificates.
5. (a) Investment advisory agreement dated 11/1/94 between
Registrant and Stein Roe & Farnham Incorporated (the
"Adviser") relating to the series SteinRoe Cash
Reserves.
(b) Investment advisory agreement dated 11/1/94 between
Registrant and the Adviser relating to SteinRoe
Government Reserves.
(c) Investment advisory agreement dated 11/1/94 between
Registrant and the Adviser relating to SteinRoe
Income Fund.
(d) Investment advisory agreement dated 11/1/94 between
Registrant and the Adviser relating to SteinRoe
Government Income Fund.
(e) Investment advisory agreement dated 11/1/94 between
Registrant and the Adviser relating to SteinRoe
Intermediate Bond Fund.
(f) Investment advisory agreement dated 11/1/94 between
Registrant and the Adviser relating to SteinRoe
Limited Maturity Income Fund.
(g) Expense undertakings of the Adviser with respect to
SteinRoe Income Fund dated 10/29/93; with respect to
SteinRoe Government Income Fund, SteinRoe Government
Reserves and SteinRoe Limited Maturity Income Fund
dated 10/31/94; and with respect to SteinRoe
Intermediate Bond Fund dated 5/1/95.
<PAGE> 2
6. (a) Underwriting agreement between the SteinRoe Funds and
Liberty Securities Corporation dated 6/22/87.
(Exhibit 6 to PEA #2.)*
(b) Form of first amendment to underwriting agreement
dated 10/28/92. (Exhibit 6(b) to PEA #17.)*
7. None.
8. Custodian contract between Registrant and State Street
Bank and Trust Company dated 2/24/86 as amended through
5/8/95.
9. (a) Transfer agency agreement dated 8/1/95 between
Registrant and SteinRoe Services Inc.
(b) Form of Accounting and Bookkeeping Agreement
(11/1/94). Exhibit 9(h) to PEA #26.)*
10. (a) SteinRoe Income Fund:
(1) Opinion of Bell, Boyd & Lloyd. (Exhibit 10(a) to
Pre-Effective Amendment.)*
(2) Opinion of Ropes & Gray dated 2/12/86. (Exhibit
10(b) to Pre-Effective Amendment.)*
(b) SteinRoe Cash Reserves, SteinRoe Government Reserves,
SteinRoe Government Income Fund, and SteinRoe
Intermediate Bond Fund:
(1) Opinion and consent of Bell, Boyd & Lloyd.
(Exhibit 10(b)(1) to PEA #4.)*
(2) Opinion and consent of Ropes & Gray. (Exhibit
10(b)(2) to PEA #4.)*
(c) Opinion of Bell, Boyd & Lloyd with respect to the
series SteinRoe Limited Maturity Income Fund.
(Exhibit 10(c) to PEA #20.)*
11. (a) Consent of Ernst & Young LLP.
(b) Consent of Morningstar, Inc. (Exhibit 11(b) to PEA
#14.)*
12. None.
13. Inapplicable.
14. (a) SteinRoe Funds Individual Retirement Account Plan as
amended through 7/17/95.
(b) Stein Roe & Farnham Prototype Paired Defined
Contribution Plan. (Exhibit 14(b) to PEA #14.)*
15. None.
16. (a) Schedules for computation of yield of SteinRoe Cash
Reserves and SteinRoe Government Reserves and
schedules for computation of total return of SteinRoe
Governments Plus (now named SteinRoe Government Income
Fund), SteinRoe Managed Bonds (now named SteinRoe
Intermediate Bond Fund), and SteinRoe Income Fund.
(Exhibit 16 to PEA #7).*
(b) Schedules for computation of total return of SteinRoe
Cash Reserves and SteinRoe Government Reserves and
schedules for computation of yield for SteinRoe
<PAGE> 3
Government Income Fund, SteinRoe Intermediate Bond
Fund, and SteinRoe Income Fund. (Exhibit 16(b) to PEA
#8.)*
(c) Schedules for computation of total return and yield of
SteinRoe Limited Maturity Income Fund.
17. (a) Financial Data Schedule for the series SteinRoe Cash
Reserves.
(b) Financial Data Schedule for the series SteinRoe
Government Reserves.
(c) Financial Data Schedule for the series SteinRoe Income
Fund.
(d) Financial Data Schedule for the series SteinRoe
Government Income Fund.
(e) Financial Data Schedule for the series SteinRoe
Intermediate Bond Fund.
(f) Financial Data Schedule for the series SteinRoe
Limited Maturity Income Fund
18. (Miscellaneous.)
(a) Fund Application.
(b) Funds-on-Call Application. (Exhibit 17(b) to PEA
#16).*
(c) Automatic Redemption Services Application. (Exhibit
17(c) to PEA #16).*
________
*Incorporated by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
The Registrant does not consider that it is directly or indirectly
controlling, controlled by, or under common control with other
persons within the meaning of this Item. See "Investment Advisory
Services," "Management," and "Transfer Agent" in the Statement of
Additional Information, each of which is incorporated herein by
reference.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record Holders
Title of Series as of July 28, 1995
--------------- -----------------------
SteinRoe Cash Reserves........................ 22,660
SteinRoe Government Reserves.................. 2,335
SteinRoe Income Fund.......................... 3,054
SteinRoe Government Income Fund............... 1,544
SteinRoe Intermediate Bond Fund............... 5,621
SteinRoe Limited Maturity Income Fund......... 1,350
ITEM 27. INDEMNIFICATION.
Article Tenth 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
<PAGE> 4
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 Tenth 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 Tenth 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 Tenth 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 neither "interested persons" of
Registrant, as defined in Section 2(a)(19) of the 1940 Act, nor
parties to the proceeding ("disinterested, non-party 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 Tenth does not
prevent the recovery from any Covered Person of any amount paid to
such Covered Person in accordance with Article Tenth 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
<PAGE> 5
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 Tenth also provides that its indemnification provisions
are not exclusive.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers, and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by Registrant of expenses incurred or paid by a trustee, officer,
or controlling person of Registrant in the successful defense of
any action, suit, or proceeding) is asserted by such trustee,
officer, or controlling person in connection with the securities
being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Registrant, its trustees and officers, its investment adviser, the
other investment companies advised by the adviser, and persons
affiliated with them are insured against certain expenses in
connection with the defense of actions, suits, or proceedings, and
certain liabilities that might be imposed as a result of such
actions, suits, or proceedings. Registrant will not pay any
portion of the premiums for coverage under such insurance that
would (1) protect any trustee or officer against any liability to
Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office or (2) protect its investment adviser or
principal underwriter, if any, against any liability to Registrant
or its shareholders to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of its duties, or by reason of its
reckless disregard of its duties and obligations under its
contract or agreement with the Registrant; for this purpose the
Registrant will rely on an allocation of premiums determined by
the insurance company.
Pursuant to the indemnification agreement among the Registrant,
its transfer agent and its investment adviser dated July 1, 1995,
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
<PAGE> 6
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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The Adviser is a wholly-owned subsidiary of SteinRoe Services Inc.
("SSI"), which in turn is a wholly-owned subsidiary of Liberty
Financial Companies, Inc., which in turn is a subsidiary of
Liberty Mutual Equity Corporation, which in turn is a subsidiary
of Liberty Mutual Insurance Company. The Adviser acts as
investment adviser to individuals, trustees, pension and profit-
sharing plans, charitable organizations, and other investors. In
addition to Registrant, it also acts as investment adviser to
other no-load investment companies having different investment
policies.
During the past two years, neither the Adviser nor any of its
directors or officers, except for Gary L. Countryman, Kenneth R.
Leibler, and N. Bruce Callow has been engaged in any business,
profession, vocation, or employment of a substantial nature either
on their own account or in the capacity of director, officer,
partner, or trustee, other than as an officer or associate of the
Adviser. Mr. Countryman is President of Liberty Mutual Insurance
Company and Liberty Mutual Fire Insurance Company; Mr. Leibler is
President and Chief Operating Officer of Liberty Financial
Companies, Inc.; Mr. Callow was senior vice president of trust and
financial services of The Northern Trust Company prior to June,
1994.
Certain directors and officers of the Adviser also serve and have
during the past two years served in various capacities as
officers, directors, or trustees of SSI and of the Registrant,
<PAGE> 7
SteinRoe Investment Trust, SteinRoe Municipal Trust, SR&F Base
Trust, SteinRoe Variable Investment Trust and Liberty Financial
Trust, investment companies managed by the Adviser. A list of
such capacities is given below. (The listed entities, except for
SteinRoe Variable Investment Trust and Liberty Financial Trust are
located at One South Wacker Drive, Chicago, Illinois 60606; the
address of SteinRoe Variable Investment Trust and Liberty
Financial Trust is Federal Reserve Plaza, 600 Atlantic Avenue,
Boston, Massachusetts 02210.)
POSITION FORMERLY
HELD WITHIN
CURRENT POSITION PAST TWO YEARS
------------------- --------------
STEINROE SERVICES INC.
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President; Secretary
Gary L. Countryman Director; Chairman
Kenneth J. Kozanda Vice President; Treasurer
Alfred F. Kugel Vice President
Kenneth R. Leibler Director
Keith J. Rudolf Vice President
Hans P. Ziegler Director, President,
Vice Chairman
SR&F BASE TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Ann H. Benjamin Vice-President
N. Bruce Callow Executive Vice-President
Michael T. Kennedy Vice-President
Stephen P. Lautz Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Lisa N. Wilhelm Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEINROE INCOME TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Ann H. Benjamin Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Michael T. Kennedy Vice-President
Stephen P. Lautz Vice-President
Steven P. Luetger Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Lisa N. Wilhelm Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
<PAGE> 8
STEINROE INVESTMENT TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Daniel K. Cantor Vice-President
Robert A. Christensen Vice-President
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
Harvey B. Hirschhorn Vice-President
Alfred F. Kugel Trustee
Stephen P. Lautz Vice-President
Lynn C. Maddox Vice-President
Richard B. Peterson Vice-President
Gloria J. Santella Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEINROE MUNICIPAL TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Joanne T. Costopoulos Vice-President
Stephen P. Lautz Vice-President
Lynn C. Maddox Vice-President
M. Jane McCart Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEINROE VARIABLE INVESTMENT TRUST
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin Vice President
Robert A. Christensen Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President
ITEM 29. PRINCIPAL UNDERWRITERS.
Registrant's principal underwriter, Liberty Securities
Corporation, is a wholly-owned subsidiary of Liberty Investment
Services, Inc., which in turn is a wholly-owned subsidiary of
Liberty Financial Companies, Inc., which in turn is a subsidiary
of Liberty Mutual Equity Corporation, which in turn is a
subsidiary of Liberty Mutual Insurance Company. Liberty
Securities Corporation is principal underwriter for the following
investment companies:
<PAGE> 9
SteinRoe Income Trust
SteinRoe Municipal Trust
SteinRoe Investment Trust
Liberty Financial Trust
Liberty Growth Properties Limited Partnership
Liberty Income Properties Limited Partnership
Liberty/Heritage Limited Partnership II
Liberty/Kuester Limited Partnership III
Liberty/Manhattan Beach Limited Partnership
Liberty/High Income Plus Limited Partnership
Liberty/Overland Park Limited Partnership
Set forth below is information concerning the directors and
officers of Liberty Securities Corporation:
Positions
Positions and Offices and Offices
Name with Underwriter with Registrant
------------------ -------------------- ---------------
Porter P. Morgan Chairman of the Board; Director None
Frank L. Tarantino President; Chief Operating
Officer; Director None
Robert L. Spadafora Executive Vice President -
Sales and Marketing None
John T. Treece, Jr. Senior Vice President - Operations None
John W. Reading Senior Vice President, General
Counsel, and Assistant Secretary None
Robert M. Young Senior Vice President - Sales
Development None
Valerie Arendell Senior Vice President - Sales None
Philip J. Iudice Treasurer None
Joanne K. Novak Vice President - Human Resources None
Helene L. Young Vice President - Sales Support None
Gerald H. Stanney, Vice President and Compliance
Jr. Officer (Boston) None
Jilaine Hummel Bauer Vice President and Compliance Exec. V-P &
Officer (Chicago) Secretary
Lindsay Cook Vice President Trustee
Ralph E. Nixon Vice President None
Diane L. Basler Vice President None
Glenn E. Williams Assistant Vice President None
John A. Benning Secretary None
C. Allen Merritt, Jr. Assistant Treasurer; Assistant
Secretary; Director None
The principal business address of Ms. Bauer is One South Wacker
Drive, Chicago, IL 60606; that of Mr. Williams is Two Righter
Parkway, Wilmington, DE 19803; and that of the other officers is
600 Atlantic Avenue, Boston, MA 02210.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Jilaine Hummel Bauer
Executive Vice-President and Secretary
One South Wacker Drive
Chicago, Illinois 60606
ITEM 31. MANAGEMENT SERVICES.
None.
<PAGE> 10
ITEM 32. UNDERTAKINGS.
Since the information called for by Item 5A for the Funds (other
than the Money Market Funds, to which this item does not relate)
is contained in the latest annual report to shareholders,
Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the latest annual report to
shareholders of the Bond Funds upon request and without charge.
<PAGE> 11
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 the City
of Chicago and State of Illinois on the 31st day of August, 1995.
STEINROE INCOME TRUST
By TIMOTHY K. ARMOUR
Timothy K. Armour
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
------------------------ --------------------- --------------
TIMOTHY K. ARMOU
Timothy K. Armour President and Trustee August 31, 1995
Principal Executive Officer
GARY A. ANETSBERGER
Gary A. Anetsberger Senior Vice-President August 31, 1995
Principal Financial Officer
SHARON R. ROBERTSON
Sharon R. Robertson Controller August 31, 1995
Principal Accounting Officer
KENNETH L. BLOCK
Kenneth L. Block Trustee August 31, 1995
WILLIAM W. BOYD
William W. Boyd Trustee August 31, 1995
Lindsay Cook Trustee
FRANCIS W. MORLEY
Francis W. Morley Trustee August 31, 1995
CHARLES R. NELSON
Charles R. Nelson Trustee August 31, 1995
GORDON R. WORLEY
Gordon R. Worley Trustee August 31, 1995
<PAGE> 12
STEINROE INCOME TRUST
INDEX TO EXHIBITS FILED WITH THIS AMENDMENT
Exhibit
Number Description
------- -------------
1 Agreement and Declaration of Trust as amended.
5(a) Investment advisory agreement relating to SteinRoe Cash
Reserves.
5(b) Investment advisory agreement relating to SteinRoe
Government Reserves.
5(c) Investment advisory agreement relating to SteinRoe
Income Fund.
5(d) Investment advisory agreement relating to SteinRoe
Government Income Fund.
5(e) Investment advisory agreement relating to SteinRoe
Intermediate Bond Fund.
5(f) Investment advisory agreement relating to SteinRoe
Limited Maturity Income Fund.
5(g) Expense undertakings.
8 Custodian contract as amended.
9(a) Transfer agency agreement.
11(a) Consent of Ernst & Young LLP.
14(a) SteinRoe Funds Individual Retirement Account Plan.
17(a) Financial Data Schedule for the series SteinRoe Cash
Reserves.
17(b) Financial Data Schedule for the series SteinRoe
Government Reserves.
17(c) Financial Data Schedule for the series SteinRoe Income
Fund.
17(d) Financial Data Schedule for the series SteinRoe
Government Income Fund.
17(e) Financial Data Schedule for the series SteinRoe
Intermediate Bond Fund.
17(f) Financial Data Schedule for the series SteinRoe Limited
Maturity Income Fund.
18(a) Fund Application.
<PAGE>
Exhibit 1
STEINROE HIGH-YIELD BONDS
AGREEMENT AND DECLARATION OF TRUST
<PAGE>
TABLE OF CONTENTS
First: Name........................................................1
Second: Purposes...................................................1
Third: Address and Resident Agent..................................2
Fourth: Shares
A. Definition.................................................3
B. Division of Beneficial Interest............................3
C. Ownership of Shares........................................3
D. Status of Shares and Limitations of Personal Liability.....3
Fifth: No Preemptive Rights........................................4
Sixth: Issue, Redemption, and Repurchase of Shares.................4
Section I. Issue of the Trust's Shares
1.01 General..............................................4
1.02 Price................................................4
1.03 Fractional Shares....................................4
1.04 Assets of a Series...................................5
Section II. Redemption and Repurchase of the Trust's Shares
2.01 Redemption of Shares.................................5
2.02 Price................................................5
2.03 Payment..............................................5
2.04 Effect of Suspension of Determination of Net Asset
Value................................................6
2.05 Repurchase by Agreement..............................6
2.06 Redemption of Shareholder's Interest.................6
2.07 Additional Provisions Relating to Redemptions and
Repurchases....................................7
Section III. Net Asset Value of Shares
3.01 By Whom Determined...................................7
3.02 When Determined......................................7
3.03 Suspension of Determination of Net Asset Value.......7
3.04 Computation of Per Share Net Asset Value.............7
3.05 Miscellaneous........................................8
Section IV. Compliance with Investment Company Act of 1940....9
Seventh: Board of Trustees
A. Election...................................................9
B. Effect of Death, Resignation, Etc. of a Trustee........... 9
C. Powers.................................................... 9
D. Payment of Expenses by Trust..............................12
E. Ownership of Assets of the Trust..........................12
F. Advisory, Management and Distribution.....................12
Eighth: Liability
A. Trustees, Shareholders, Etc. Not Personally Liable;
Notice....................................................13
B. Trustee's Good Faith Action; Expert Advice; No Bond or
Surety....................................................13
C. Liability of Third Persons Dealing with Trustees..........14
Ninth: Determination of Net Profits, Etc.; Dividends..............14
Tenth: Indemnification.
A. Indemnification in the Event of Final Adjudication........14
B. Determination of Eligibility..............................15
C. Indemnification Not Exclusive.............................16
D. Shareholders..............................................16
Eleventh: Reservation of Right to Amend
A. By Board of Trustees......................................16
B. By Shareholders...........................................16
Twelfth: Shareholders' Voting Powers and Meetings.
A. Shareholders' Voting Powers...............................16
B. Meetings..................................................17
C. Quorum and Required Vote..................................18
D. Place of Meeting..........................................18
E. Notice of Meetings; Adjournment...........................18
F. Share Ledger..............................................18
G. Action by Written Consent.................................18
Thirteenth: Use of Name.. ........................................19
Fourteenth: Miscellaneous.........................................19
A. Duration and Termination of Trust.........................19
B. Filing of Copies; References; Headings....................19
C. Applicable Law............................................19
<PAGE> 1
AGREEMENT AND DECLARATION OF TRUST
THIS AGREEMENT AND DECLARATION OF TRUST ("Declaration of
Trust") is made at Boston, Massachusetts, this 3rd day of
January, 1986, by the Trustee hereunder, and by the holders of
shares of beneficial interest to be issued hereunder as
hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed as a voluntary
association with transferable shares under the laws of the
Commonwealth of Massachusetts to carry on the business of an
investment company; and
WHEREAS, the Trustee has agreed to manage all property
coming into her hands as Trustee of a voluntary association in
the form of a Massachusetts business trust in accordance with
the provisions hereinafter set forth.
NOW THEREFORE, the Trustee hereby declares that she will
hold all cash, securities and other assets which she may from
time to time acquire in any manner as Trustee hereunder in Trust
to manage and dispose of the same upon the following terms and
conditions for the pro rata benefit of the holders from time to
time of shares of the applicable series in this Trust as
hereinafter set forth.
FIRST: NAME.
The name of this Trust (which is hereafter called the "Trust")
is SteinRoe High-Yield Bonds.
SECOND: PURPOSES.
The purposes for which the Trust is formed are:
(1) To engage in the business of a management investment
company;
(2) To invest and reinvest in, to buy or otherwise acquire, to
hold, for investment or otherwise, to sell or otherwise
dispose of, to lend or to pledge, to trade in or deal in,
securities or interests of all kinds, or obligations of all
kinds, or rights, warrants, or contracts, and to acquire
such securities, interests, or obligations, of or
guaranteed by any private or public company, corporation,
association, general or limited partnership, trust or other
enterprise or organization, foreign or domestic, or of or
guaranteed by any national, state or local government,
foreign or domestic, or their agencies, instrumentalities
or subdivisions, including but not limited to bonds,
debentures, preferred stocks, common stocks, bills, time
notes and all other evidences of indebtedness; negotiable
or non-negotiable instruments; government securities; and
money market instruments, including but not limited to bank
certificates of deposit, finance paper, commercial paper,
bankers' acceptances, and all kinds of repurchase
agreements, of any corporation, company, trust,
association, firm or other business organization, however
established, and of any county, state, municipality or
other
<PAGE> 2
political subdivision, or of any other governmental or quasi-
governmental agency or instrumentality;
(3) To invest and reinvest in, to buy or otherwise acquire, to
hold, for investment or otherwise, to sell or otherwise
dispose of, foreign currencies, funds, and exchange, and to
make deposits in banks, savings banks, trust companies, and
savings and loan associations, foreign or domestic;
(4) To exercise all rights, powers, and privileges as owner of
any securities, property, or assets which might be
exercised by any individual owning such securities,
property, or assets in his own right;
(5) To acquire (by purchase, lease, or otherwise) and to hold,
use, maintain, develop, and dispose of (by sale or
otherwise) any property, real or personal, and any interest
therein;
(6) To aid by further investment any corporation, company,
trust, association, or firm, any obligation of or interest
in which is held by the Trust or in the affairs of which
the Trust has any direct or indirect interest; to do all
acts and things designed to protect, preserve, improve, or
enhance the value of such obligation or interest; to
guarantee or become surety on any or all of the contracts,
stocks, bonds, notes, debentures, and other obligations of
any such corporation, company, trust, association, or firm;
and
(7) In general, to carry on any other business in connection
with or incidental to any of the foregoing objects and
purposes, and to engage in any and all lawful business
except as may be prohibited to be engaged in by a business
trust organized under the laws of the Commonwealth of
Massachusetts as in force from time to time, to do
everything necessary, suitable, or proper for the
accomplishment of any purpose or the attainment of any
object or the furtherance of any power hereinbefore set
forth, either alone or in association with others, and to
do every other act or thing incidental or appurtenant to or
growing out of or connected with the aforesaid business or
purposes, objects, or powers.
The Trust shall have the power to conduct and carry on its
business, or any part thereof, and to have one or more offices,
and to exercise any or all of its trust powers and rights, in
the Commonwealth of Massachusetts, in any other states,
territories, districts, colonies, and dependencies of the United
States, and in any or all foreign countries.
The foregoing clauses shall be construed both as objects
and powers, and the foregoing enumeration of specific powers
shall not be held to limit or restrict in any manner the general
powers of the Trust.
THIRD: ADDRESS AND RESIDENT AGENT.
The post office address of the principal office of the
Trust in the Commonwealth of Massachusetts is:
<PAGE> 3
c/o CT Corporation System
2 Oliver Street
Boston, Massachusetts 02109
or such other office as the Board of Trustees may from time to
time designate. The name and post office address of the
resident agent of the Trust in the Commonwealth of Massachusetts
is:
CT Corporation System
2 Oliver Street
Boston, Massachusetts 02109
or such other person as the Board of Trustees may from time to
time designate. Such resident agent is a Massachusetts
corporation.
FOURTH: SHARES.
A. DEFINITION. "Shares" means the equal proportionate
transferable units of interest into which the beneficial
interest in the Trust shall be divided from time to time or, if
more than one series of shares is authorized by the Board of
Trustees, the equal proportionate units into which each series
shall be divided from time to time.
B. DIVISION OF BENEFICIAL INTEREST. The shares of the
Trust shall be issued in one or more series as the Board of
Trustees may, without shareholder approval, authorize. Each
series shall be preferred over all other series with respect to
the assets allocated to that series. The beneficial interest in
each series shall at all times be divided into shares, with or
without par value as the Board of Trustees may determine, each
of which shall represent an equal proportionate interest in the
series with each other share of the same series, none having
priority or preference over another. The number of shares
authorized shall be unlimited, and the shares so authorized may
be represented in part by fractional shares. The Board of
Trustees may from time to time divide or combine the shares of
any series into a greater or lesser number without thereby
changing the proportionate beneficial interests in the series.
C. OWNERSHIP OF SHARES. The ownership of shares shall be
recorded on the books of the Trust or its transfer or similar
agent. No certificates certifying the ownership of shares shall
be issued except as the Board of Trustees may otherwise
determine from time to time. The Board of Trustees may make
such rules as it considers appropriate for the issuance of share
certificates, the transfer of shares and similar matters. The
record books of the Trust as kept by the Trust or any transfer
or similar agent of the Trust, as the case may be, shall be
conclusive as to who are the shareholders of each series and as
to the number of shares of each series held from time to time by
each shareholder.
D. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY.
Shares shall be deemed to be personal property giving only the
rights provided in this instrument. Every shareholder by virtue
of having become a shareholder shall be deemed to have expressly
assented to and agreed to be bound by the terms hereof and to
have become a party hereto. The death of a shareholder during
the continuance of the Trust shall not operate to terminate the
same nor entitle the representative of such deceased shareholder
to an accounting or to take any action in court or elsewhere
against the Trust or the Board of Trustees, but only to the
rights of said decedent under this Trust. Ownership of shares
shall not
<PAGE> 4
entitle the shareholder to any title in or to the whole or any
part of the Trust property or right to call for a partition or
division of the same or for an accounting, nor shall the
ownership of shares constitute the shareholders to be partners.
Neither the Trust nor the Board of Trustees, nor any officer,
employee or agent of the Trust shall have any power to bind
personally any shareholder, nor, except as specifically provided
herein, to call upon any shareholder for the payment of any sum
of money or assessment whatsoever other than such as the
shareholder may at any time personally agree to pay.
FIFTH: NO PREEMPTIVE RIGHTS.
Shareholders shall have no preemptive or other right to
receive, purchase, or subscribe for any additional shares or
other securities issued by the Trust.
SIXTH: ISSUE, REDEMPTION, AND REPURCHASE OF SHARES.
SECTION I. ISSUE OF THE TRUST'S SHARES
1.01. GENERAL. The Board of Trustees may from time to
time issue, reissue, sell or cause to be issued and sold any of
the Trust's shares in one or more series as the Board of
Trustees may, without shareholder approval, authorize, including
any shares redeemed or repurchased by the Trust, for a
consideration determined in accordance with Section 1.02 hereof;
except that only shares previously contracted to be sold may be
issued during any period when the determination of net asset
value is suspended pursuant to the provisions of Section III
hereof.
1.02. PRICE. No shares of a series shall be issued or
sold by the Trust, except as a share dividend distributed to
shareholders of such series, for less than an amount which would
result in proceeds to the Trust, in connection with such
transaction, of at least the net asset value per share of such
series, determined as set forth in Section III hereof. The net
asset value per share applicable to any such transaction shall
be the net asset value per share of such series next determined
after receipt of an unconditional order for purchase of shares
of such series; except that, subject to applicable rules and
regulations, if any, of the Securities and Exchange Commission
(or any other governmental body having similar jurisdiction over
the Trust), the Board of Trustees may prescribe that requests
for purchase received prior to a time of day (the "cutoff time")
preceding the time of day prescribed for determination of net
asset value per share of such series shall be transacted at the
net asset value per share next determined and that requests for
purchase received after the cutoff time and before the time for
determination of the next net asset value per share shall be
transacted at the net asset value per share next determined
after the next net asset value per share of such series. The
criteria for determining what constitutes an unconditional order
for purchase of shares of a series and the receipt of such an
order shall be prescribed by the Board of Trustees. All shares,
when issued in accordance with the terms of this Section I,
shall be fully paid and nonassessable.
1.03. FRACTIONAL SHARES. The Trust may issue and sell or
cause to be issued and sold fractions of shares of a series
having pro rata all the rights of full shares of such series,
including, without limitation, the right to vote and to receive
dividends.
<PAGE> 5
1.04. ASSETS OF A SERIES. All consideration received by
the Trust for the issue or sale of shares of each series
authorized by the Board of Trustees, together with all income,
earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation thereof, and any
funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to
the series of shares with respect to which the same were
received by the Trust for all purposes, subject only to the
rights of creditors of Trust assets allocated to such series,
and shall be so recorded upon the books of account of the Trust
and are herein referred to as "assets of" such series.
SECTION II. REDEMPTION AND REPURCHASE OF THE TRUST'S SHARES
2.01. REDEMPTION OF SHARES. Any shares of the Trust may
be redeemed at the option of the holder of such shares and, to
the extent permitted in Section 2.06 hereof, at the option of
the Trust, at the redemption price of the appropriate series for
such shares, determined in the manner set out in this
Declaration of Trust or in any amendment hereto. Unless
otherwise provided by resolution of the Board of Trustees,
shares redeemed shall be cancelled. Redeemed shares which have
not been cancelled may be resold by the Trust. The Trust shall
redeem shares subject to the conditions and at the price
determined as hereinafter set forth.
2.02. PRICE. Shares shall be redeemed at the net asset
value per share of the appropriate series, determined as set
forth in Section III hereof. The net asset value per share of
such series applicable to any such redemption of shares shall be
the net asset value per share next determined after receipt of a
request for redemption of such shares in proper form, except
that, subject to applicable rules and regulations, if any, of
the Securities and Exchange Commission (or any other
governmental body having similar jurisdiction over the Trust),
the Board of Trustees may prescribe that requests for redemption
received prior to the cutoff time preceding the time of day
prescribed for determination of net asset value per share of
such series shall be transacted at the net asset value per share
next determined and that requests for redemption after the
cutoff time and before the time for determination of the next
net asset value per share shall be transacted at the net asset
value per share next determined after the next net asset value
per share. The criteria for determining what constitutes a
proper request for redemption of shares of a series and the
receipt of such request for redemption shall be prescribed by
the Board of Trustees.
2.03. PAYMENT. Subject to the provisions of Section 2.04
hereof, payment for shares of a series shall be made in cash to,
or upon the direction of, the shareholder of record within seven
calendar days after the date of receipt of (a) a written,
unconditional and irrevocable instruction of the shareholder to
redeem, in a form acceptable to the Trust or its designated
agent, together with any certificates which may have been issued
therefor, endorsed or accompanied by proper instrument of
transfer, and such other documents as the Trust or its
designated agent may require or (b) such other direction or
authorization of redemption by the shareholder as the Board of
Trustees shall authorize. Subject to applicable rules and
regulations, if any, of the Securities and Exchange Commission
(or any other governmental body having similar jurisdiction over
the Trust), the Trust may pay the redemption price in whole or
in part by a distribution in kind of securities from the
portfolio of the Trust, in lieu
<PAGE> 6
of money, valuing such securities at their value employed for
determining the net asset value governing such redemption price,
and selecting the securities in such manner as the Board of
Trustees may determine to be fair and equitable.
2.04. EFFECT OF SUSPENSION OF DETERMINATION OF NET ASSET
VALUE. If, pursuant to Section 3.03 hereof, the Board of
Trustees shall declare a suspension of the determination of net
asset value of a particular series, (a) the rights of
shareholders (including those who shall have requested
redemption pursuant to Sections 2.01, 2.02, and 2.03 hereof but
for whom the redemption price shall not yet have been
determined) to have shares redeemed and paid for by the Trust,
and (b) the obligation of the Trust to pay for shares previously
redeemed, shall be suspended until the termination of such
suspension is declared. Any record holder who shall have his
redemption right so suspended may, during the period of such
suspension, by appropriate written notice of revocation at the
office or agency where request for redemption was made, revoke
any request or instruction for redemption not honored and
withdraw any certificates tendered for redemption. The
redemption price of shares for which redemption requests have
been made and not revoked shall be the net asset value of such
shares next determined as set forth in Section III hereof after
the termination of such suspension, and payment shall be made
within seven days after the date upon which the requirements of
Section 2.03 were met plus the period during which the
determination of net asset value was suspended.
2.05. REPURCHASE BY AGREEMENT. The Trust may repurchase
shares of the Trust directly, or through a principal
underwriter, if any, or another agent designated for the
purpose, by agreement with the owner thereof at a price not
exceeding the net asset value per share of the appropriate
series determined as of the time when the purchase or contract
of purchase is made or the net asset value as of any time which
may be later determined pursuant to Section III hereof, provided
payment is not made for the shares prior to the time as of which
such net asset value is determined. Repurchased shares may be
resold by the Trust.
2.06. REDEMPTION OF SHAREHOLDER'S INTEREST. The Trust
shall have the right at its option and at any time to redeem
shares of any shareholder at the net asset value thereof
determined in accordance with Section III hereof: (i) if at such
time such shareholder owns fewer shares than, or shares having
an aggregate net asset value of less than, an amount determined
from time to time by the Board of Trustees; or (ii) to the
extent that such shareholder owns shares of a particular series
of shares equal to or in excess of a percentage of the
outstanding shares of that series determined from time to time
by the Board of Trustees; or (iii) to the extent that such
shareholder owns shares of the Trust representing a percentage
equal to or in excess of such percentage of the aggregate number
of outstanding shares of the Trust or the aggregate net asset
value of the Trust determined from time to time by the Board of
Trustees, and subject to the Trust's giving general notice to
all shareholders of its intention to avail itself of such right,
either by publication in the Trust's prospectus, if any, or by
such other means as the Board of Trustees may determine.
Subject to the same terms and conditions, the Trust shall also
have the right to redeem shares of the Trust, or a particular
series, owned by any shareholder if, in the opinion of the Board
of Trustees, ownership of shares of the Trust or series,
respectively, has or may become concentrated to an extent which
could cause the Trust to become a personal holding company
within the meaning of the Internal Revenue Code and disqualified
under Subchapter M thereof.
<PAGE> 7
2.07 ADDITIONAL PROVISIONS RELATING TO REDEMPTIONS AND
REPURCHASES. The completion of redemption of shares shall
constitute a full discharge of the Trust and the Trustees with
respect to such shares, and the Trustees may require that any
certificate or certificates issued by the Trust to evidence the
ownership of such shares shall be surrendered to the Trustees
for cancellation or notation.
SECTION III. NET ASSET VALUE OF SHARES
3.01. BY WHOM DETERMINED. Subject to the provisions of
Section 3.04 of this Article SIXTH, the Board of Trustees shall
have the power and duty to determine from time to time the net
asset value per share of the outstanding shares of each series
authorized by the Board of Trustees and any such determination
shall be binding on all parties.
3.02. WHEN DETERMINED. The net asset value of a series
shall be determined at such times as the Board of Trustees,
subject to applicable rules and regulations, if any, of the
Securities and Exchange Commission (or any other governmental
body having similar jurisdiction over the Trust), shall
prescribe, provided that such net asset value shall be
determined at least once each week. In the absence of a
resolution of the Board of Trustees, the net asset value of a
series shall be determined as of the close of trading on the New
York Stock Exchange on each business day.
3.03. SUSPENSION OF DETERMINATION OF NET ASSET VALUE. The
Board of Trustees may declare a suspension of the determination
of net asset value of a series (a) for any period during which
trading on the New York Stock Exchange is restricted, as
determined by the Securities and Exchange Commission, or that
Exchange is closed (other than customary weekend and holiday
closings), (b) for any period during which an emergency exists
as a result of which disposal of the investments held by that
series or determination of net asset value of that series is not
reasonably practicable, or (c) for such period as the Securities
and Exchange Commission by order may permit. Such suspension
shall take effect at such time as the Board of Trustees shall
specify and thereafter there shall be no determination of net
asset value until the Board of Trustees shall declare the
suspension at an end, except that the suspension shall terminate
in any event on the first day on which (1) the condition giving
rise to the suspension shall have ceased to exist and (2) no
other condition exists under which suspension is authorized
under this Section 3.03. Each declaration by the Board of
Trustees pursuant to this Section 3.03 shall be consistent with
such official rules and regulations, if any, relating to the
subject matter thereof as shall have been promulgated by the
Securities and Exchange Commission (or any other governmental
body having similar jurisdiction over the Trust). To the extent
not inconsistent with such official rules and regulations, the
determination of the Board of Trustees shall be conclusive.
3.04. COMPUTATION OF PER SHARE NET ASSET VALUE.
a. Net Asset Value Per Share. The net asset value of each
share of a series as of any particular time shall be the
quotient obtained by dividing the value of the net assets of the
Trust allocated to such series by the total number of shares of
such series outstanding, rounded to such extent as the Board of
Trustees shall determine from time to time.
<PAGE> 8
b. Value of Trust's Net Assets. The value of the net
assets of the Trust allocated to any series as of any particular
time shall be the value of the assets so allocated less the
liabilities of the Trust so allocated, determined as follows:
(1) each security for which market quotations are readily
available shall be valued at current market value
determined by methods specified by the Board of
Trustees;
(2) each other security, including any security within (1)
for which the specified price does not appear to
represent a dependable quotation for the series'
holding of any such security as of the time of
valuation, shall be valued at a fair value as
determined in good faith by the Board of Trustees;
(3) any cash on hand shall be valued at the face amount
thereof;
(4) any cash on deposit, accounts receivable, and cash
dividends and interest declared or accrued and not yet
received, any prepaid expenses, and any other current
asset shall be valued at the face amount thereof,
unless the Board of Trustees shall determine that any
such item is not worth its face amount, in which case
such asset shall be valued at a fair value determined
in good faith by the Board of Trustees; and
(5) any other asset shall be valued at a fair value
determined in good faith by the Board of Trustees.
Notwithstanding the foregoing, short-term debt obligations,
commercial paper and repurchase agreements may be, but need not
be, valued on the basis of quoted yields for securities of
comparable maturity, quality and type, or on the basis of
amortized cost. The Board of Trustees may appoint persons to
assist it in the determination of the value of assets,
liabilities and net asset value per share of any series and to
make the actual calculations pursuant to the direction of the
Board of Trustees.
3.05. MISCELLANEOUS. For the purposes of this Section
III:
a. Shares of any series issued shall be deemed to be
outstanding as of the time immediately after the time for
determination of net asset value per share of that series
applicable to such issuance, pursuant to Section 1.02 hereof,
and the net sale price thereof shall thereupon be deemed an
asset of that series.
b. Shares of any series for which a request for redemption
has been made in proper form or which are being repurchased by
the Trust shall be deemed to be outstanding up to and including
the time as of which the redemption or repurchase price is
determined for that series. After such time, they shall be
deemed to be no longer outstanding and the price until paid
shall thereupon be deemed to be a liability of that series.
c. Funds on deposit and contractual obligations payable to
the Trust in foreign currency and liabilities and contractual
obligations payable by the Trust in foreign currency shall be
taken at the current applicable rate of exchange as nearly as
practicable at the time as of which the net asset value is
computed for the series to which such items relate.
<PAGE> 9
SECTION IV. COMPLIANCE WITH INVESTMENT COMPANY ACT OF 1940
Notwithstanding any of the foregoing provisions of this
Article SIXTH, the Board of Trustees may prescribe such other
bases and times for determining the per share net asset value of
any series of the Trust as it shall deem necessary or desirable
to enable the Trust to comply with any provision of the
Investment Company Act of 1940, or any rule or regulation
thereunder, all as now in effect or hereafter amended or added
(the "1940 Act"), including any rule or regulation adopted by
any securities association registered under the Securities
Exchange Act of 1934.
SEVENTH: BOARD OF TRUSTEES.
A. ELECTION. The number of Trustees shall be fixed
pursuant to the By-Laws. Trustees shall be elected by the
shareholders, except as otherwise provided herein. The initial
Trustees, each of whom shall serve until the first meeting of
shareholders at which Trustees are elected and until his or her
successor is elected and qualified, or until he or she sooner
dies, resigns or is removed, shall be Jilaine Hummel Bauer and
such other persons as the Trustee or Trustees then in office
shall, prior to any sale of shares pursuant to a public
offering, appoint.
Any vacancy occurring in the Board of Trustees may be
filled by the Trustees, unless immediately after filling any
such vacancy, less than two-thirds of the Trustees then holding
office would have been elected to such office by the
shareholders. The Board of Trustees shall call a meeting of
shareholders for the purpose of electing Trustees whenever less
than a majority of the Trustees have been elected by
shareholders. Each Trustee elected by the shareholders or by
the Board of Trustees shall serve until the next meeting of
shareholders and until the election and qualification of his or
her successor, or until he or she sooner dies, resigns or is
removed. At any meeting called for such purpose, a Trustee may
be removed by a vote of two-thirds of the outstanding shares.
By vote of a majority of the Trustees then in office, the
Trustees also may remove a Trustee with or without cause.
B. EFFECT OF DEATH, RESIGNATION, ETC. OF A TRUSTEE. The
death, declination, resignation, retirement, removal, or
incapacity of the Trustees, or any one of them, shall not
operate to annul the Trust or to revoke any existing agency
created pursuant to the terms of this Declaration of Trust.
C. POWERS. Subject to the provisions of this Declaration
of Trust, the business of the Trust shall be managed by the
Board of Trustees, and they shall have all powers necessary or
convenient to carry out that responsibility. Without limiting
the foregoing, the Board of Trustees may adopt By-Laws not
inconsistent with this Declaration of Trust providing for the
conduct of the business of the Trust and may amend and repeal
them to the extent that such By-Laws do not reserve that right
to the shareholders; they may fill vacancies in their number,
including vacancies resulting from increases in their number,
and may elect and remove such officers and appoint and terminate
such agents as they consider appropriate; they may appoint from
their own number, and terminate, any one or more committees
consisting of two or more Trustees, including an executive
committee which may, when the Board of Trustees is not in
session, exercise some or all of the power and authority of the
Board of Trustees as the
<PAGE> 10
Trustees may determine; they may appoint an advisory board, the
members of which shall not be Trustees and need not be
shareholders; they may employ one or more custodians of the
assets of the Trust and may authorize such custodians to employ
subcustodians and to deposit all or any part of such assets in a
system or systems for the central handling of securities, retain
a transfer agent or a shareholder services agent, or both,
provide for the distribution of shares by the Trust, through one
or more principal underwriters or otherwise, set record dates
for the determination of shareholders with respect to various
matters and in general delegate such authority as they consider
desirable to any officers of the Trust, to any committee of the
Board of Trustees and to any agent or employee of the Trust or
to any such custodian or underwriter.
Without limiting the foregoing, the Board of Trustees shall
have power and authority:
(1) To invest and reinvest in securities, options, futures
contracts, options on futures contracts and other property, and
to hold cash uninvested;
(2) To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the assets
of the Trust;
(3) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or
property; and to execute and deliver proxies or powers of
attorney to such person or persons as the Board of Trustees
shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the
Board of Trustees shall deem proper;
(4) To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of
securities;
(5) To hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or other
negotiable form, or in the name of the Trustees or of the Trust
or in the name of a custodian, subcustodian or other depository
or a nominee or nominees or otherwise;
(6) To allocate assets, liabilities and expenses of the
Trust to a particular series of shares or to apportion the same
among two or more series, provided that any liabilities or
expenses incurred by a particular series of shares shall be
payable solely out of the assets of that series;
(7) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
issuer, any security of which is or was held in the Trust; to
consent to any contract, lease, mortgage, purchase or sale of
property by such corporation or issuer, and to pay calls or
subscriptions with respect to any security held in the Trust;
(8) To join with other security holders in acting through a
committee, depositary, voting trustee or otherwise, and in that
connection to deposit any security with, or transfer any
security to, any such committee, depositary or trustee, and to
delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the
Board of Trustees shall deem proper, and to agree to pay, and to
pay, such portion of the expenses and compensation of such
committee, depositary or trustee as the Board of Trustees shall
deem proper;
<PAGE> 11
(9) To compromise, arbitrate or otherwise adjust claims in
favor of or against the Trust on any matter in controversy,
including but not limited to claims for taxes;
(10) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(11) To borrow funds;
(12) To endorse or guarantee the payment of any notes or
other obligations of any person; to make contracts of guarantee
or suretyship, or otherwise assume liability for payment
thereof; and to mortgage and pledge the Trust property or any
part thereof to secure any of or all of such obligations;
(13) To purchase and pay for, entirely out of Trust
property, such insurance as they may deem necessary or
appropriate for the conduct of the business, including without
limitation, insurance policies insuring the assets of the Trust
and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the shareholders,
Trustees, officers, employees, agents, investment advisers or
managers, principal underwriters, or independent contractors of
the Trust individually against all claims and liabilities of
every nature arising by reason of holding, being or having held
any such office or position, or by reason of any action alleged
to have been taken or omitted by any such person as shareholder,
Trustee, officer, employee, agent, investment adviser or
manager, principal underwriter, or independent contractor,
including any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have the
power to indemnify such person against such liability;
(14) To pay pensions for faithful service, as deemed
appropriate by the Board of Trustees, and to adopt, establish
and carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and provisions, including the purchasing
of life insurance and annuity contracts as a means of providing
such retirement and other benefits, for any or all of the
Trustees, officers, employees, and agents of the Trust;
(15) To pay remuneration to each Trustee for his services,
including reimbursement of expenses incurred, as shall be fixed
from time to time by resolution of the Board of Trustees.
Nothing herein contained shall be construed to preclude any
Trustee from serving the Trust in any other capacity and
receiving compensation therefor; and
(16) To do all acts and things appropriate in the
furtherance of the foregoing and in furtherance of the purposes
of the Trust.
The Board of Trustees shall not in any way be bound or
limited by any present or future law or custom in regard to
investments by trustees. Except as otherwise provided herein or
from time to time in the By-Laws, any action to be taken by the
Board of Trustees may be taken by a majority of the Trustees
present at a meeting of the Board of Trustees (a quorum being
present), within or without Massachusetts, including any meeting
held by means of conference telephone or other communications
equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation
by such means shall constitute presence in person at a meeting,
or by written consents of a majority of the Trustees then in
office.
<PAGE> 12
D. PAYMENT OF EXPENSES BY TRUST. The Board of Trustees is
authorized to pay or to cause to be paid out of the principal or
income of the Trust, or partly out of principal and partly out
of income, as they deem appropriate, all expenses, fees,
charges, taxes and liabilities incurred or arising in connection
with the Trust, or in connection with the management thereof,
including, but not limited to, the Trustees' compensation and
such expenses and charges for the services of the Trust's
officers, employees, investment adviser or manager, principal
underwriter, auditor, counsel, custodian, transfer agent,
shareholder servicing agent, and such other agents or
independent contractors and such other expenses and charges as
the Board of Trustees may deem necessary or proper to incur,
provided, however, that all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with a particular
series of shares, as determined by the Board of Trustees, shall
be payable solely out of the assets of that series.
E. OWNERSHIP OF ASSETS OF THE TRUST. Title to all of the
assets of the Trust, including all assets allocated to each
series of shares, shall at all times be considered as vested in
the Board of Trustees.
F. ADVISORY, MANAGEMENT AND DISTRIBUTION. Subject to a
vote meeting the requirements of the 1940 Act, the Board of
Trustees may, at any time and from time to time, contract for
exclusive or nonexclusive advisory and/or management services
with Stein Roe & Farnham, an Illinois limited partnership, or
any other partnership, corporation, trust, association or other
organization (the "Adviser"), every such contract to comply with
such requirements and restrictions as may be set forth in the
By-Laws; and any such contract may contain such other terms
interpretive of or in addition to said requirements and
restrictions as the Board of Trustees may determine, including,
without limitation, authority to determine from time to time
what investments shall be purchased, held, sold or exchanged and
what portion, if any, of the assets of the Trust shall be held
uninvested and to make changes in the Trust's investments. The
Board of Trustees may also, at any time and from time to time,
contract with the Adviser or any other partnership, corporation,
trust, association or other organization, appointing it
exclusive or nonexclusive distributor or principal underwriter
for the shares, every such contract to comply with such
requirements and restrictions as may be set forth in the By-
Laws; and any such contract may contain such other terms
interpretive of or in addition to said requirements and
restrictions as the Board of Trustees may determine.
The fact that:
(i) any of the shareholders, Trustees or officers of
the Trust is a shareholder, director, officer, partner, trustee,
employee, manager, adviser, principal underwriter, or
distributor or agent of or for any corporation, trust,
association, or other organization, or of or for any parent or
affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's
contract, or transfer, shareholder services or other agency
contract may have been or may hereafter be made, or that any
organization, or any company parent or affiliate thereof, is a
shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory or management contract or
principal underwriter's or distributor's contract, or transfer,
shareholder services or other agency contract may have been or
may hereafter be made also has an advisory or management
contract, or principal underwriter's or distributor's contract,
or transfer,
<PAGE> 13
shareholder services or other agency contract with one or more
other corporations, trusts, associations, or other
organizations, or has other business or interests, shall not
affect the validity of any such contract or disqualify any
shareholder, Trustee or officer of the Trust from voting upon or
executing the same or create any liability or accountability to
the Trust or its shareholders.
EIGHTH: LIABILITY:
A. TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE;
NOTICE. All persons extending credit to, contracting with or
having any claim against the Trust or a particular series of
shares shall look only to the assets of the Trust or the assets
of that particular series of shares for payment under such
credit, contract or claim; and neither the shareholders nor the
Trustees, nor any of the Trust's officers, employees or agents,
whether past, present or future, shall be personally liable
therefor.
The Board of Trustees shall not be responsible or liable in
any event for any neglect or wrongdoing of any officer, agent,
employee, Adviser or principal underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any
other Trustee, but nothing herein shall protect any Trustee
against any liability to which such Trustee would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or
undertaking made or issued by any Trustees or Trustee or by any
officers or officer shall give notice that this Declaration of
Trust is on file with the Secretary of the Commonwealth of
Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust or by them as Trustees or
Trustee or as officers or officer and not individually and that
the obligations of such instrument are not binding upon any of
them or the shareholders individually but are binding only upon
the assets and property of the Trust, or of the particular
series of shares to which such instrument relates, and may
contain such further recital as he or she or they may deem
appropriate, but the omission thereof shall not operate to bind
any Trustees or Trustee or officers or officer, or shareholders
or shareholder individually.
Every note, bond, contract, instrument, certificate, share
or undertaking and every other act or thing whatsoever executed
or done by or on behalf of the Trust or the Board of Trustees or
any of them in connection with the Trust shall be conclusively
deemed to have been executed or done only in or with respect to
their or his capacity as Trustees or Trustee, and such Trustees
or Trustee shall not be personally liable thereon.
B. TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR
SURETY. The exercise by the Trustees of their powers and
discretions hereunder shall be binding upon everyone interested.
A Trustee shall be liable for his or her own willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of Trustee,
and for nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees may take
advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust, and shall be under
no liability for any act or omission in accordance with such
advice or for failing
<PAGE> 14
to follow such advice. The Trustees shall not be required to
give any bond as such, nor any surety if a bond is required.
C. LIABILITY OF THIRD PERSONS DEALING WITH TRUSTEES. No
person dealing with the Board of Trustees or any Trustee shall
be bound to make any inquiry concerning the validity of any
transaction made or to be made by either or to see to the
application of any payments made or property transferred to the
Trust or upon its order.
NINTH: DETERMINATION OF NET PROFITS, ETC.; DIVIDENDS.
With respect to each series of shares authorized by the
Board of Trustees, the Board is expressly authorized to
determine in accordance with generally accepted accounting
principles and practices what constitutes net income, profits or
earnings, or surplus and capital, to include in net income,
profits or earnings the portion of subscription or redemption
prices attributable to accrued net income, profits or earnings
in such prices, and to determine what accounting periods shall
be used by the Trust for any purpose, whether annual or any
other period, including daily; to set apart out of any funds of
such series such reserves for such purposes as it shall
determine and to abolish the same; to declare and pay dividends
and distributions in cash, securities, or other property from
surplus or capital or any funds of such series legally available
therefor, at such intervals (which may be as frequently as
daily) or on such other periodic basis as it shall determine; to
declare such dividends or distributions by means of a formula or
other method of determination at meetings held less frequently
than the frequency of the effectiveness of such declarations; to
establish payment dates for dividends or any other distributions
on any basis, including dates occurring less frequently than the
effectiveness of the declaration thereof; and to provide for the
payment of declared dividends on a date earlier than the
specified payment date in the case of shareholders of such
series redeeming their entire ownership of shares of such
series. Inasmuch as the computation of net income, profits or
earnings for Federal income tax purposes may vary from the
computation thereof on the books, the above provisions shall be
interpreted to give to the Board of Trustees the power in its
discretion to distribute for any fiscal year as dividends and as
capital gain distributions, respectively, additional amounts
sufficient to enable the Trust to avoid or reduce its liability
for taxes.
No dividend or distribution (including, without limitation,
any distribution paid upon termination of the Trust or of any
series) with respect to, nor any redemption or repurchase of,
the shares of any series shall be effected by the Trust other
than from the assets of such series.
TENTH: INDEMNIFICATION.
A. INDEMNIFICATION IN THE EVENT OF FINAL ADJUDICATION.
The Trust shall indemnify each person who is or has been a
Trustee or officer (including each person who serves or has
served at the Trust's request as a director, officer, or trustee
of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to as
a "Covered Person") against all liabilities and expenses,
including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel
fees reasonably incurred by such Covered Person in connection
with the defense or disposition of any action, suit or other
proceeding,
<PAGE> 15
whether civil or criminal before any court or administrative or
legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such
person may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a director,
Trustee or officer, except (unless otherwise permitted under the
1940 Act) with respect to any matter as to which such Covered
Person shall have been finally adjudicated in a decision on the
merits in any such action, suit or other proceeding 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
the Trust.
B. DETERMINATION OF ELIGIBILITY. Notwithstanding the
provisions of Section A of Article TENTH, to the extent required
under the 1940 Act,
(i) Article TENTH, Section A, shall not protect any
person against any liability to the Trust 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 shall be permitted unless a determination that
such person was not so liable shall have been made on behalf of
the Trust by (a) the vote of a majority of the Trustees who are
neither "interested persons" of the Trust as defined in Section
2(a)(19) of the 140 Act, nor parties to the proceeding
("disinterested, non-party Trustees"), or (b) an independent
legal counsel as expressed in a written opinion; and
(iii) the Trust shall not advance attorneys' fees or
other expense incurred by a Covered Person in connection with a
civil or criminal action, suit, or proceeding unless the Trust
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 shall
provide security for his undertaking, or (b) the Trust shall be
insured against losses arising by reason of any lawful advances,
or (c) a majority of the disinterested, non-party Trustees of
the Trust or an independent legal counsel, as expressed in a
written opinion, shall 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 pursuant to this Section shall not prevent the
recovery from any Covered Person of any amount paid to such
Covered Person in accordance with this Section as
indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have
acted in good faith in the reasonable belief that such Covered
Person's action was in, or not opposed to, the best interests of
the Trust or to have been liable to the Trust or its
shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of such Covered Person's office.
<PAGE> 16
C. INDEMNIFICATION NOT EXCLUSIVE. The right of
indemnification hereby provided shall not be exclusive of or
affect any other rights to which any such Covered Person may be
entitled. As used in this Article TENTH, the term "Covered
Person" shall include such person's heirs, executors and
administrators, and "disinterested person" is a person against
whom none of the actions, suits or other proceedings in question
or another action, suit or other proceeding on the same or
similar grounds is then or has been pending. Nothing contained
in this article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees and officers,
and other persons may be entitled by contract or otherwise under
law, nor to limit the power of the Trust to indemnify such
persons.
D. SHAREHOLDERS. In case any shareholder or former
shareholder shall be held to be personally liable solely by
reason of his or her being or having been a shareholder and not
because of his or her acts or omissions or for some other
reason, the shareholder or former shareholder (or his or her
heirs, executors, administrators or other legal representatives
or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled to be held
harmless from and indemnified against all loss and expense
arising from such liability, but only out of assets of the
particular series of shares of which he or she is or was a
shareholder.
ELEVENTH: RESERVATION OF RIGHT TO AMEND.
A. BY BOARD OF TRUSTEES. Except when otherwise required
by the 1940 Act, this Declaration of Trust may be amended at any
time by a majority of the Trustees then in office, provided
notice of any amendment (other than amendments having the
purpose of supplying any omission, curing any ambiguity or
curing, correcting or supplementing any defective or
inconsistent provision contained herein, or having any other
purpose which is ministerial or clerical in nature) shall be
mailed promptly to shareholders of record at the close of
business on the effective date of such amendment.
B. BY SHAREHOLDERS. Except when otherwise required by the
1940 Act, this Declaration of Trust may be amended at any time
by a majority vote of the shares of the Trust entitled to be
voted.
TWELFTH: SHAREHOLDERS' VOTING POWERS AND MEETINGS.
A. SHAREHOLDERS' VOTING POWERS. The shareholders shall
have power to vote only (i) for the election or removal of
Trustees as provided in Article SEVENTH, Section A; (ii) with
respect to any Adviser as provided in Article SEVENTH, Section
F; (iii) with respect to any termination of this Trust or a
series thereof to the extent and as provided in Article
FOURTEENTH; (iv) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Article
ELEVENTH, Section B; (v) to the same extent as the stockholders
of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be
brought or maintained
<PAGE> 17
derivatively or as a class action on behalf of the Trust or the
shareholders; and (vi) with respect to such additional matters
relating to the Trust as may be required by the 1940 Act, this
Declaration of Trust, the By-Laws or any registration of the
Trust with the Securities and Exchange Commission (or any other
successor agency), or as the Board of Trustees may consider
necessary or desirable. Each whole share outstanding on the
record date established in accordance with the By-Laws shall be
entitled to one vote as to any matter on which it is entitled to
vote and each fractional share shall be entitled to a
proportionate fractional vote. Notwithstanding any other
provision of this Declaration of Trust, on any matter submitted
to a vote of shareholders, shares shall be voted in the
aggregate and not by individual series except: (1) when required
by the 1940 Act or other applicable law, shares shall be voted
in the aggregate and not by individual series; or (2) when the
Board of Trustees has determined that the matter affects only
the interests of one or more series, then shareholders of the
unaffected series shall not be entitled to vote thereon. There
shall be no cumulative voting in the election of the Board of
Trustees.
Shares may be voted in person or by proxy. A proxy with
respect to shares held in the names of two or more persons shall
be valid if executed by any one of them unless at or prior to
exercise of the proxy, the Trust receives a specific written
notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a shareholder shall be deemed
valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger. At
all meetings of shareholders, unless inspectors of election have
been appointed, all questions relating to the qualification of
voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by the chairman of the
meeting. Unless otherwise specified in the proxy, the proxy
shall apply to all shares of each series of the Trust owned by
the shareholder.
Until shares are issued, the Board of Trustees may exercise
all rights of shareholders and may take any action required by
law, this Declaration of Trust or the By-Laws to be taken by
shareholders.
B. MEETINGS. Meetings of shareholders of the Trust or of
any series may be called by the Board of Trustees, the
President, the Executive Vice-President, any Vice-President, or
such other person or persons as may be specified in the By-Laws
and held from time to time for the purpose of taking action upon
any matter requiring the vote or the authority of the
shareholders of the Trust or any series as herein provided or
upon any other matter deemed by the Board of Trustees to be
necessary or desirable. Meetings of shareholders of the Trust
or of any series shall be called by the Secretary or such other
person or persons as may be specified in the By-Laws upon
written application by shareholders holding at least 10% of the
outstanding shares of the Trust, if shareholders of all series
are required hereunder to vote in the aggregate and not by
individual series at such meeting, or of any series, if
shareholders of such series are entitled hereunder to vote by
individual series at such meeting, requesting that a meeting be
called for a purpose requiring action by the shareholders as
provided herein or in the By-Laws and provided that such
application shall state the purpose or purposes of such meeting
and the matters proposed to be acted on.
<PAGE> 18
C. QUORUM AND REQUIRED VOTE. Thirty percent of the shares
entitled to vote shall be a quorum for the transaction of
business at a shareholders' meeting, except that if any
provision of law or of this Declaration of Trust permits or
requires that holders of any series shall vote as a series, then
thirty percent of the aggregate number of shares of each series
entitled to vote shall be necessary to constitute a quorum for
the transaction of business by that series. Any lesser number,
however, shall be sufficient for adjournments or if no shares
are represented thereat, any officer present thereat entitled to
preside or act as secretary of such meeting may adjourn the
meeting. Any adjourned session or sessions may be held within a
reasonable time after the date set for the original meeting
without the necessity of further notice. Except when a larger
vote is required by any provision of this Declaration of Trust
or the By-Laws, a majority of the shares voted shall decide any
questions and a plurality shall elect any Trustee, provided that
where any provision of law or of this Declaration of Trust
permits or requires that the holders of any series shall vote as
a series, then a majority of the shares of that series voted on
the matter shall decide that matter insofar as that series is
concerned.
The vote upon any question shall be by written ballot
whenever requested by any person entitled to vote but, unless
such a request is made, voting may be conducted by voice vote or
in any other way approved by the meeting.
D. PLACE OF MEETING. All shareholders' meetings shall be
held at the office of the Trust in the City of Chicago, State of
Illinois, except that the Board of Trustees or the President of
the Trust may fix a different place of meeting within the United
States, which shall be specified in the notice or waiver of
notice of such meeting.
E. NOTICE OF MEETINGS; ADJOURNMENT. The Secretary or an
Assistant Secretary shall cause notice of the place, date and
hour and the purpose or purposes for which a meeting is called,
to be mailed, postage prepaid, not less than seven days before
the date of such meeting, to each shareholder entitled to vote
at such meeting, at his address as it appears on the records of
the Trust. Notice of any shareholders' meeting need not be
given to any shareholder who shall sign a written waiver of such
notice, whether before or after the time of such meeting, which
waiver shall be filed with the record of such meeting, or to any
shareholder who shall attend such meeting in person or by proxy.
A meeting of shareholders convened on the date for which it was
called may be adjourned from time to time, without further
notice, to a date not more than 120 days after the original
record date.
F. SHARE LEDGER. It shall be the duty of the Secretary or
Assistant Secretary of the Trust to cause an original or
duplicate share ledger to be maintained at the office of the
Trust's transfer agent. Such share ledger may be in written
form or any other form capable of being converted into written
form within a reasonable time for visual inspection.
G. ACTION BY WRITTEN CONSENT. Any action taken by
shareholders may be taken without a meeting if a majority of
shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision
of this Declaration of Trust or the By-Laws) consent to the
action in writing and such written consents are filed with the
records of the meetings of shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of
shareholders.
<PAGE> 19
THIRTEENTH: USE OF NAME.
The Trust acknowledges that it is adopting its trust name,
and may adopt the names of various series of the Trust, through
permission of Stein Roe & Farnham, a limited partnership, and
agrees that Stein Roe & Farnham reserves to itself and any
successor to its business the right to grant the non-exclusive
right to use the name "SteinRoe High-Yield Bonds," or "Stein Roe
& Farnham High-Yield Bonds" or "SteinRoe ______ Fund" or "Stein
Roe & Farnham _______ Fund" or "SR&F High-Yield Bonds" or "Stein
Roe High-Yield Bonds" or "Stein High-Yield Bonds" or "SteinRoe,"
or "Stein Roe," or "Stein," or any similar name to any other
entity, including but not limited to any investment company of
which Stein Roe & Farnham or any subsidiary or affiliate thereof
or any successor to the business thereof shall be the investment
adviser.
FOURTEENTH: MISCELLANEOUS.
A. DURATION AND TERMINATION OF TRUST. Unless terminated
as provided herein, the Trust shall continue without limitation
of time. The Trust may be terminated at any time by vote of
shareholders holding a majority of the shares of each series
entitled to vote or by the Trustees by written notice to the
shareholders. Any series of shares may be terminated at any
time by vote of shareholders holding a majority of the shares of
such series entitled to vote or by the Trustees by written
notice to the shareholders of such series.
Upon termination of the Trust or of any one or more series
of shares, after paying or otherwise providing for all charges,
taxes, expenses and liabilities, whether due or accrued or
anticipated as may be determined by the Trustees, the Trust
shall, in accordance with such procedures as the Trustees
consider appropriate, reduce the remaining assets to
distributable form in cash or shares or other securities, or any
combination thereof, and distribute the proceeds to the
shareholders of the series involved, ratably according to the
number of shares of such series held by the several shareholders
of such series on the date of termination.
B. FILING OF COPIES, REFERENCES, HEADINGS. The original or
a copy of this instrument and of each amendment hereto shall be
kept at the office of the Trust where it may be inspected by any
shareholder. A copy of this instrument and of each amendment
hereto shall be filed by the Trust with the Secretary of the
Commonwealth of Massachusetts and with the Boston City Clerk, as
well as any other governmental office where such filing may from
time to time be required. Anyone dealing with the Trust may
rely on a certificate by an officer of the Trust as to whether
or not any such amendments have been made and as to any matters
in connection with the Trust hereunder; and, with the same
effect as if it were the original, may rely on a copy certified
by an officer of the Trust to be a copy of this instrument or of
any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions
such as "herein", "hereof", and "hereunder", shall be deemed to
refer to this instrument as amended or affected by any such
amendments. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this
instrument. This instrument may be executed in any number of
counterparts, each of which shall be deemed an original.
C. APPLICABLE LAW. This Declaration of Trust is made in
the Commonwealth of Massachusetts, and it is created under and
is to be governed by and
<PAGE> 20
construed and administered according to the laws of said
Commonwealth. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the
provisions hereof, the Trust may exercise all powers which are
ordinarily exercised by such a trust.
IN WITNESS WHEREOF, the undersigned has hereunto set her
hand and seal in the City of Boston, Massachusetts, for herself
and her assigns, as of the day and year first above written.
Jilaine Hummel Bauer
Trustee
THE COMMONWEALTH OF MASSACHUSETTS)
COUNTY OF SUFFOLK ) ss
Boston, January 3, 1986.
Then personally appeared the above-named Jilaine Hummel Buaer,
Trustee, and acknowledged the foregoing instrument to be her
free act and deed, before me.
Joan D. Searfoss
Notary Public
My commission expires: February 21, 1986
(NOTARIAL SEAL)
<PAGE>
STEINROE HIGH-YIELD BONDS
AMENDMENT TO AGEEMENT AND DECLARATION OF TRUST
The undersigned, being a majority of the duly elected and
qualified Trustees of SteinRoe High-Yield Bonds, a voluntary
association with transferable shares organized under the laws of
the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust dated January 3, 1986 (the "Declaration of
Trust"), do hereby amend the Declaration of Trust as follows and
hereby consent to such amendment:
1. Article First of the Declaration of Trust is deleted and
the following is inserted in lieu thereof:
FIRST: NAME.
The name of the Trust (which is thereafter called the
"Trust") is SteinRoe Income Trust.
2. Article Thirteenth is deleted and the following is
inserted in lieu thereof:
THIRTEENTH: USE OF NAME.
The Trust acknowledges that it is adopting its trust name,
and may adopt the names of various series of the Trust, through
permission of Stein Roe & Farnham Incorporated, a Delaware
corporation, and agrees that Stein Roe & Farnham Incorporated
reserves to itself and any successor to its business the right to
grant the non-exclusive right to use the name "SteinRoe Income
Trust," or "Stein Roe & Farnham Income Trust" or "SteinRoe Trust"
or "Stein Roe & Farnham ______ Trust" or "SR&F Income Trust" or
"Stein Roe __________" or "Stein ___________" or "SteinRoe," or
"Stein Roe," or "Stein," or any similar name to any other entity,
including but not limited to any investment company of which
Stein Roe & Farnham Incorporated or any subsidiary or affiliate
thereof or any successor to the business thereof shall be the
investment adviser.
This instrument may be executed in several counterparts,
each of which shall been deemed an original, but all taken
together shall be one instrument.
IN WITNESS WHEREOF, the undersigned have hereunto set their
hands and seals this 31st day of December, 1987.
CHARLES R. NELSON FRANCIS W. MORLEY
GORDON R. WORLEY ANTHONY G. ZULFER, JR.
STATE OF ILLINOIS)
) SS
COUNTY OF COOK )
Then personally appeared before me the above-named Charles
R. Nelson, known to me to be a Trustee of SteinRoe High-Yield
Bonds, and acknowledged the foregoing instrument to be his free
act and deed.
NICOLETTE D. PARRISH
Notary Public
My commission expires 10/30/89
STATE OF ILLINOIS)
) SS
COUNTY OF COOK )
Then personally appeared before me the above-named Francis
W. Morley, known to me to be a Trustee of SteinRoe High-Yield
Bonds, and acknowledged the foregoing instrument to be his free
act and deed.
NICOLETTE D. PARRISH
Notary Public
My commission expires 10/30/89
STATE OF ILLINOIS)
) SS
COUNTY OF COOK )
Then personally appeared before me the above-named Gordon
R. Worley, known to me to be a Trustee of SteinRoe High-Yield
Bonds, and acknowledged the foregoing instrument to be his free
act and deed.
NICOLETTE D. PARRISH
Notary Public
My commission expires 10/30/89
STATE OF ILLINOIS)
) SS
COUNTY OF COOK )
Then personally appeared before me the above-named Anthony
G. Zulfer, Jr., known to me to be a Trustee of SteinRoe High-
Yield Bonds, and acknowledged the foregoing instrument to be his
free act and deed.
NICOLETTE D. PARRISH
Notary Public
My commission expires 10/30/89
<PAGE>
STEINROE INCOME TRUST
AMENDMENT TO AGREEMENT AND DECLARATION OF TRUST
SteinRoe Income Trust (the "Trust"), a voluntary
association with transferable shares organized under the laws of
the Commonwealth of Massachusetts pursuant to an Agreement and
Declaration of Trust dated January 3, 1986 (the "Declaration of
Trust"), hereby certifies the following:
Pursuant to a majority vote of the shares of the Trust entitled
to be voted, Article TWELFTH of the Declaration of Trust is
deleted and the following is inserted in lieu thereof:
TWELFTH: Shareholders' Voting Powers and Meetings.
A. Shareholders' Voting Powers. The shareholders shall have
power to vote only (i) for the election or removal of Trustees
as provided in Article SEVENTH, Section A; (ii) with respect to
any investment adviser as provided in Article SEVENTH, Section
F; (iii) with respect to any termination of this Trust or a
series thereof to the extent and as provided in Article
FOURTEENTH; (iv) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Article
ELEVENTH, Section B; (v) to the same extent as the stockholders
of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on
behalf of the Trust or the shareholders; and (vi) with respect
to such additional matters relating to the Trust as may be
required by the 1940 Act, this Declaration of Trust, the By-Laws
or any registration of the Trust with the SEC, or as the Board
of Trustees may consider necessary or desirable. Each whole
share (or fractional share) outstanding on the record date
established in accordance with the By-Laws shall be entitled to
a number of votes on any matter on which it is entitled to vote
equal to the net asset value of the share (or fractional share)
in United States dollars determined at the close of business on
the record date (for example, a share having a net asset value
of $10.50 would be entitled to 10.5 votes). Notwithstanding any
other provision of this Declaration of Trust, on any matter
submitted to a vote of shareholders, shares shall be voted in
the aggregate and not by individual series except: (1) when
required by the 1940 Act or other applicable law, shares shall
be voted by individual series; or (2) when the Board of Trustees
has determined that the matter affects only the interests of one
or more series, then shareholders of the unaffected series shall
not be entitled to vote thereon. There shall be no cumulative
voting in the election of the Board of Trustees.
Shares may be voted in person or by proxy. A proxy with respect
to shares held in the names of two or more persons shall be
valid if executed by any one of them unless at or prior to
exercise of the proxy, the Trust receives a specific written
notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a shareholder shall be deemed
valid unless challenged at or prior to its exercise and the
burden of proving invalidity shall rest on the challenger. At
all meetings of shareholders, unless inspectors of election have
been appointed, all questions relating to the qualification of
voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by the chairman of the
meeting. Unless otherwise specified in the proxy, the proxy
shall apply to all shares of each series of the Trust owned by
the shareholder.
Until shares are issued, the Board of Trustees may exercise all
rights of shareholders and may take any action required by law,
this Declaration of Trust or the By-Laws to be taken by
shareholders.
IN WITNESS WHEREOF, the Trust has caused this amendment to
be signed and sealed in its name and on its behalf by Timothy K.
Armour, President and Trustee of the Trust, on October 25, 1994.
STEINROE INCOME TRUST
By TIMOTHY K. ARMOUR
President and Trustee
STATE OF ILLINOIS)
) SS
COUNTY OF COOK )
Then personally appeared before me the above-named Timothy
K. Armour, known to be to be the President and a Trustee of
SteinRoe Income Trust, and acknowledged the foregoing instrument
to be his free act and deed.
NICOLETTE D. PARRISH
Notary Public
My commission expires 10/30/97
<PAGE>
Exhibit 5(a)
INVESTMENT ADVISORY AGREEMENT
STEINROE INCOME TRUST, a Massachusetts business trust
registered under the Investment Company Act of 1940 ("1940 Act") as
an open-end diversified management investment company ("Trust"),
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 manage
the portion of its assets represented by the shares of beneficial
interest issued in the series designated STEINROE CASH RESERVES
("Fund") and to furnish certain administrative services.
In connection therewith, Trust and Manager hereby agree that:
1. Management. Manager shall manage the investment and
reinvestment of Trust's assets represented by Fund shares ("Fund
assets") and advise with respect thereto for the period and on the
terms set forth in this Agreement, subject to the overall control of
the Board of Trustees of Trust. Manager shall give due
consideration to the investment policies and restrictions and the
other statements concerning Fund in Trust's agreement and
declaration of trust, by-laws, and registration statements under the
1940 Act and the Securities Act of 1933 ("1933 Act"), and to the
provisions of the Internal Revenue Code applicable to Fund as a
regulated investment company. Manager shall for all purposes be
deemed to be an independent contractor and not an agent of Trust and
shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent Trust in any way.
2. Expenses Borne by Trust. Subject to paragraph 3, Trust
shall pay all expenses incidental to its organization, operations
and business not specifically assumed or agreed to be paid by
Manager pursuant to paragraphs 4 and 6, including, without
limitation: all charges of depostories, custodians and other
agencies for the safekeeping and servicing of its cash, securities,
and other property, and of its transfer, shareholder recordkeeping,
dividend disbursing, and redemption agents, if any; all charges for
equipment or services used for obtaining price quotations or for
communication between Manager or Trust and the custodian, transfer
agent or any other agent selected by Trust; all charges for
accounting services provided to Trust by the custodian, the Manager,
or any other provider of accounting services; all charges for
services of Trust's independent auditors; all charges for services
to Trust by legal counsel; all compensation of trustees, other than
those affiliated with Manager, and all expenses incurred in
connection with their services to Trust; all expenses of notices,
proxy solicitation material and reports to its shareholders; all
expenses of preparation and printing of annual or more frequent
revisions of Trust's prospectus and of supplying each then-existing
shareholder or beneficial owner with a copy of such revised
prospectus; all expenses related to preparing and transmitting
certificates representing Trust shares; all expenses of bond and
insurance coverage required by law or deemed advisable by the Board
of Trustees; all brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities; all taxes
and corporate fees payable to Federal, state or other governmental
agencies, domestic or foreign; all stamp or other transfer taxes;
all expenses of registering and maintaining the registration of
Trust under the 1940 Act and of Trust's shares under the 1933 Act,
of qualifying and maintaining qualification of Trust and of Trust's
shares for sale under securities laws of various states or other
jurisdictions and of registration and qualification of Trust under
all other laws applicable to the Trust or its business activities;
and all fees, dues or other expenses incurred by Trust in connection
with membership of Trust in any trade association or other
investment company organization.
3. Allocation of Expenses Borne by Trust. Any expenses borne
by Trust that are attributable solely to the organization, operation
or business of Fund shall be paid solely out of Fund assets. Any
expense borne by Trust which is not solely attributable to Fund, nor
solely to any other series of shares of Trust, shall be apportioned
in such manner as Manager determines is fair and appropriate, or as
otherwise specified by the Board of Trustees.
4. Expenses Borne by Manager. Manager at its own expense
shall furnish administrative services, executive and other
personnel, office space, and office facilities for conducting that
portion of Trust's business relating to Fund. However, Manager
shall not be required to pay or provide any credit for services
provided by Trust's custodian, transfer agent, or other agents
without additional cost to the Trust.
5. Management Fee. For the services to be rendered and the
charges to be assumed and to be paid by Manager hereunder, Trust
shall pay to Manager out of Fund assets a monthly fee, which is
computed and accrued daily, of (a) one twenty-fourth of one percent
(1/24 of 1%) the first $1 billion dollars of average net assets of
Fund; plus (b) nineteen four-hundred-eightieths of one percent (19/480
of 1%) of the average net assets in excess of $1 billion but not
exceeding $1.5 billion, plus (c) three-eightieths of one percent (3/80
of 1%) of the average net assets of Fund in excess of $1.5 billion,
as determined as of the close of each day in the monthly period.
6. Expense Limitation. The total expenses allocated to Fund
pursuant to paragraph 3, including fees paid to Manager, but
exclusive of taxes, of interest, of all commissions and other normal
charges incident to the purchase and sale of portfolio securities,
and extraordinary charges such as litigation costs, shall not exceed
the most restrictive applicable limits prescribed by any state in
which Fund shares are being offered for sale to the public, and
Manager agrees to reimburse Trust for any such expense in excess of
such limits, provided that Manager shall not be required to make
such reimbursement for any fiscal year to the extent the
reimbursement exceeds the amount of management fees paid by the Fund
for such year.
7. Non-Exclusivity. The services of Manager to Trust
hereunder are not to be deemed exclusive and Manager shall be free
to render similar services to others.
8. Investment in Fund Shares. Neither Manager nor any of its
directors, officers or stockholders (or partners of stockholders)
shall purchase or sell, or take a long or short position in, Fund
shares, except (a) at the same price as the price to the public at
the time of purchase or sale, or (b) prior to the commencement of
the public offering of shares of Fund at the net asset value of such
shares.
9. Standard of Care. Neither Manager, nor any of its
directors, officers or stockholders (or partners of stockholders),
agents or employees shall be liable or responsible to Trust or its
shareholders 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 Manager of its duties under this Agreement, except
for 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.
10. Amendment. This Agreement may not be amended without the
affirmative votes (a) of a majority of the Board of Trustees,
including a majority of those trustees who are not "interested
persons" of Trust 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 Fund. The terms "interested
persons" and "vote of a majority of the outstanding shares" shall be
construed in accordance with their respective definitions in
Sections 2(a)(19) and 2(a)(42) of the 1940 Act and, with respect to
the latter term, in accordance with Rule 18f-2 under the 1940 Act.
11. Termination. This Agreement may be terminated at any
time, without payment of any penalty, by the Board of Trustees of
Trust, or by a vote of a majority of the outstanding shares of Fund,
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 Trust. This Agreement shall
terminate automatically in the event of its assignment (as defined
in Section 2(a)(4) of the 1940 Act). Unless terminated as
hereinbefore provided, this Agreement shall continue in effect until
June 30, 1996 and thereafter from year to year only so long as such
continuance is specifically approved at least annually (a) by a
majority of those trustees who are not interested persons of Trust
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 Trustees
of Trust or by a vote of a majority of the outstanding shares of
Fund.
12. Non-Liability of Trustees and Shareholders. Any
obligation of Trust hereunder shall be binding only upon the assets
of Trust (or the applicable series thereof) and shall not be binding
upon any trustee, officer, employee, agent or shareholder of Trust.
Neither the authorization of any action by the trustees or
shareholders of Trust nor the execution of this Agreement on behalf
of Trust shall impose any liability upon any trustee or any
shareholder.
13. Use of Manager's Name. The Trust may use the name
"SteinRoe Income Trust" and the Fund may use the name "SteinRoe
Cash Reserves" 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 the 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, the Trust and Fund will cease to use any name derived from
the name "Stein Roe & Farnham" or otherwise connected with the
Manager, or with any organization which shall have succeeded to the
Manager's business as investment adviser.
14. 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 1, 1994
STEINROE INCOME TRUST
Attest: By: TIMOTHY K. ARMOUR
President
JILAINE HUMMEL BAUER
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Chief Executive Officer
KEITH J. RUDOLF
Secretary
<PAGE>
Exhibit 5(b)
INVESTMENT ADVISORY AGREEMENT
STEINROE INCOME TRUST, a Massachusetts business trust
registered under the Investment Company Act of 1940 ("1940 Act") as
an open-end diversified management investment company ("Trust"),
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 manage
the portion of its assets represented by the shares of beneficial
interest issued in the series designated STEINROE GOVERNMENT RESERVES
("Fund") and to furnish certain administrative services.
In connection therewith, Trust and Manager hereby agree that:
1. Management. Manager shall manage the investment and
reinvestment of Trust's assets represented by Fund shares ("Fund
assets") and advise with respect thereto for the period and on the
terms set forth in this Agreement, subject to the overall control of
the Board of Trustees of Trust. Manager shall give due
consideration to the investment policies and restrictions and the
other statements concerning Fund in Trust's agreement and
declaration of trust, by-laws, and registration statements under the
1940 Act and the Securities Act of 1933 ("1933 Act"), and to the
provisions of the Internal Revenue Code applicable to Fund as a
regulated investment company. Manager shall for all purposes be
deemed to be an independent contractor and not an agent of Trust and
shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent Trust in any way.
2. Expenses Borne by Trust. Subject to paragraph 3, Trust
shall pay all expenses incidental to its organization, operations
and business not specifically assumed or agreed to be paid by
Manager pursuant to paragraphs 4 and 6, including, without
limitation: all charges of depostories, custodians and other
agencies for the safekeeping and servicing of its cash, securities,
and other property, and of its transfer, shareholder recordkeeping,
dividend disbursing, and redemption agents, if any; all charges for
equipment or services used for obtaining price quotations or for
communication between Manager or Trust and the custodian, transfer
agent or any other agent selected by Trust; all charges for
accounting services provided to Trust by the custodian, the Manager,
or any other provider of accounting services; all charges for
services of Trust's independent auditors; all charges for services
to Trust by legal counsel; all compensation of trustees, other than
those affiliated with Manager, and all expenses incurred in
connection with their services to Trust; all expenses of notices,
proxy solicitation material and reports to its shareholders; all
expenses of preparation and printing of annual or more frequent
revisions of Trust's prospectus and of supplying each then-existing
shareholder or beneficial owner with a copy of such revised
prospectus; all expenses related to preparing and transmitting
certificates representing Trust shares; all expenses of bond and
insurance coverage required by law or deemed advisable by the Board
of Trustees; all brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities; all taxes
and corporate fees payable to Federal, state or other governmental
agencies, domestic or foreign; all stamp or other transfer taxes;
all expenses of registering and maintaining the registration of
Trust under the 1940 Act and of Trust's shares under the 1933 Act,
of qualifying and maintaining qualification of Trust and of Trust's
shares for sale under securities laws of various states or other
jurisdictions and of registration and qualification of Trust under
all other laws applicable to the Trust or its business activities;
and all fees, dues or other expenses incurred by Trust in connection
with membership of Trust in any trade association or other
investment company organization.
3. Allocation of Expenses Borne by Trust. Any expenses borne
by Trust that are attributable solely to the organization, operation
or business of Fund shall be paid solely out of Fund assets. Any
expense borne by Trust which is not solely attributable to Fund, nor
solely to any other series of shares of Trust, shall be apportioned
in such manner as Manager determines is fair and appropriate, or as
otherwise specified by the Board of Trustees.
4. Expenses Borne by Manager. Manager at its own expense
shall furnish administrative services, executive and other
personnel, office space, and office facilities for conducting that
portion of Trust's business relating to Fund. However, Manager
shall not be required to pay or provide any credit for services
provided by Trust's custodian, transfer agent, or other agents
without additional cost to the Trust.
5. Management Fee. For the services to be rendered and the
charges to be assumed and to be paid by Manager hereunder, Trust
shall pay to Manager out of Fund assets a monthly fee, which is
computed and accrued daily, of one twenty-fourth of one percent
(1/24 of 1%) the average net assets of Fund as determined as of the
close of each day in the monthly period.
6. Expense Limitation. The total expenses allocated to Fund
pursuant to paragraph 3, including fees paid to Manager, but
exclusive of taxes, of interest, of all commissions and other normal
charges incident to the purchase and sale of portfolio securities,
and extraordinary charges such as litigation costs, shall not exceed
the most restrictive applicable limits prescribed by any state in
which Fund shares are being offered for sale to the public, and
Manager agrees to reimburse Trust for any such expense in excess of
such limits, provided that Manager shall not be required to make
such reimbursement for any fiscal year to the extent the
reimbursement exceeds the amount of management fees paid by the Fund
for such year.
7. Non-Exclusivity. The services of Manager to Trust
hereunder are not to be deemed exclusive and Manager shall be free
to render similar services to others.
8. Investment in Fund Shares. Neither Manager nor any of its
directors, officers or stockholders (or partners of stockholders)
shall purchase or sell, or take a long or short position in, Fund
shares, except (a) at the same price as the price to the public at
the time of purchase or sale, or (b) prior to the commencement of
the public offering of shares of Fund at the net asset value of such
shares.
9. Standard of Care. Neither Manager, nor any of its
directors, officers or stockholders (or partners of stockholders),
agents or employees shall be liable or responsible to Trust or its
shareholders 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 Manager of its duties under this Agreement, except
for 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.
10. Amendment. This Agreement may not be amended without the
affirmative votes (a) of a majority of the Board of Trustees,
including a majority of those trustees who are not "interested
persons" of Trust 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 Fund. The terms "interested
persons" and "vote of a majority of the outstanding shares" shall be
construed in accordance with their respective definitions in
Sections 2(a)(19) and 2(a)(42) of the 1940 Act and, with respect to
the latter term, in accordance with Rule 18f-2 under the 1940 Act.
11. Termination. This Agreement may be terminated at any
time, without payment of any penalty, by the Board of Trustees of
Trust, or by a vote of a majority of the outstanding shares of Fund,
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 Trust. This Agreement shall
terminate automatically in the event of its assignment (as defined
in Section 2(a)(4) of the 1940 Act). Unless terminated as
hereinbefore provided, this Agreement shall continue in effect until
June 30, 1996 and thereafter from year to year only so long as such
continuance is specifically approved at least annually (a) by a
majority of those trustees who are not interested persons of Trust
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 Trustees
of Trust or by a vote of a majority of the outstanding shares of
Fund.
12. Non-Liability of Trustees and Shareholders. Any
obligation of Trust hereunder shall be binding only upon the assets
of Trust (or the applicable series thereof) and shall not be binding
upon any trustee, officer, employee, agent or shareholder of Trust.
Neither the authorization of any action by the trustees or
shareholders of Trust nor the execution of this Agreement on behalf
of Trust shall impose any liability upon any trustee or any
shareholder.
13. Use of Manager's Name. The Trust may use the name
"SteinRoe Income Trust" and the Fund may use the name "SteinRoe
Government Reserves" 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 the 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, the Trust and Fund will cease to use any name derived from
the name "Stein Roe & Farnham" or otherwise connected with the
Manager, or with any organization which shall have succeeded to the
Manager's business as investment adviser.
14. 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 1, 1994
STEINROE INCOME TRUST
Attest: By: TIMOTHY K. ARMOUR
President
JILAINE HUMMEL BAUER
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Chief Executive Officer
KEITH J. RUDOLF
Secretary
<PAGE>
Exhibit 5(c)
INVESTMENT ADVISORY AGREEMENT
STEINROE INCOME TRUST, a Massachusetts business trust
registered under the Investment Company Act of 1940 ("1940 Act") as
an open-end diversified management investment company ("Trust"),
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 manage
the portion of its assets represented by the shares of beneficial
interest issued in the series designated STEINROE INCOME FUND ("Fund")
and to furnish certain administrative services. In connection
therewith, Trust and Manager hereby agree that:
1. Management. Manager shall manage the investment and
reinvestment of Trust's assets represented by Fund shares ("Fund
assets") and advise with respect thereto for the period and on the
terms set forth in this Agreement, subject to the overall control of
the Board of Trustees of Trust. Manager shall give due
consideration to the investment policies and restrictions and the
other statements concerning Fund in Trust's agreement and
declaration of trust, by-laws, and registration statements under the
1940 Act and the Securities Act of 1933 ("1933 Act"), and to the
provisions of the Internal Revenue Code applicable to Fund as a
regulated investment company. Manager shall for all purposes be
deemed to be an independent contractor and not an agent of Trust and
shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent Trust in any way.
2. Expenses Borne by Trust. Subject to paragraph 3, Trust
shall pay all expenses incidental to its organization, operations
and business not specifically assumed or agreed to be paid by
Manager pursuant to paragraphs 4 and 6, including, without
limitation: all charges of depostories, custodians and other
agencies for the safekeeping and servicing of its cash, securities,
and other property, and of its transfer, shareholder recordkeeping,
dividend disbursing, and redemption agents, if any; all charges for
equipment or services used for obtaining price quotations or for
communication between Manager or Trust and the custodian, transfer
agent or any other agent selected by Trust; all charges for
accounting services provided to Trust by the custodian, the Manager,
or any other provider of accounting services; all charges for
services of Trust's independent auditors; all charges for services
to Trust by legal counsel; all compensation of trustees, other than
those affiliated with Manager, and all expenses incurred in
connection with their services to Trust; all expenses of notices,
proxy solicitation material and reports to its shareholders; all
expenses of preparation and printing of annual or more frequent
revisions of Trust's prospectus and of supplying each then-existing
shareholder or beneficial owner with a copy of such revised
prospectus; all expenses related to preparing and transmitting
certificates representing Trust shares; all expenses of bond and
insurance coverage required by law or deemed advisable by the Board
of Trustees; all brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities; all taxes
and corporate fees payable to Federal, state or other governmental
agencies, domestic or foreign; all stamp or other transfer taxes;
all expenses of registering and maintaining the registration of
Trust under the 1940 Act and of Trust's shares under the 1933 Act,
of qualifying and maintaining qualification of Trust and of Trust's
shares for sale under securities laws of various states or other
jurisdictions and of registration and qualification of Trust under
all other laws applicable to the Trust or its business activities;
and all fees, dues or other expenses incurred by Trust in connection
with membership of Trust in any trade association or other
investment company organization.
3. Allocation of Expenses Borne by Trust. Any expenses borne
by Trust that are attributable solely to the organization, operation
or business of Fund shall be paid solely out of Fund assets. Any
expense borne by Trust which is not solely attributable to Fund, nor
solely to any other series of shares of Trust, shall be apportioned
in such manner as Manager determines is fair and appropriate, or as
otherwise specified by the Board of Trustees.
4. Expenses Borne by Manager. Manager at its own expense
shall furnish administrative services, executive and other
personnel, office space, and office facilities for conducting that
portion of Trust's business relating to Fund. However, Manager
shall not be required to pay or provide any credit for services
provided by Trust's custodian, transfer agent, or other agents
without additional cost to the Trust.
5. Management Fee. For the services to be rendered and the
charges to be assumed and to be paid by Manager hereunder, Trust
shall pay to Manager out of Fund assets a monthly fee, which is
computed and accrued daily, of (a) thirteen two-hundred and fortieths
of one percent (13/240 of 1%) of the first $100 million of the average
net assets of Fund, plus (b) one twentieth of one percent (1/20 of 1%)
of the average net assets of Fund in excess of $100 million, as
determined as of the close of each day in the monthly period.
6. Expense Limitation. The total expenses allocated to Fund
pursuant to paragraph 3, including fees paid to Manager, but
exclusive of taxes, of interest, of all commissions and other normal
charges incident to the purchase and sale of portfolio securities,
and extraordinary charges such as litigation costs, shall not exceed
the most restrictive applicable limits prescribed by any state in
which Fund shares are being offered for sale to the public, and
Manager agrees to reimburse Trust for any such expense in excess of
such limits, provided that Manager shall not be required to make
such reimbursement for any fiscal year to the extent the
reimbursement exceeds the amount of management fees paid by the Fund
for such year.
7. Non-Exclusivity. The services of Manager to Trust
hereunder are not to be deemed exclusive and Manager shall be free
to render similar services to others.
8. Investment in Fund Shares. Neither Manager nor any of its
directors, officers or stockholders (or partners of stockholders)
shall purchase or sell, or take a long or short position in, Fund
shares, except (a) at the same price as the price to the public at
the time of purchase or sale, or (b) prior to the commencement of
the public offering of shares of Fund at the net asset value of such
shares.
9. Standard of Care. Neither Manager, nor any of its
directors, officers or stockholders (or partners of stockholders),
agents or employees shall be liable or responsible to Trust or its
shareholders 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 Manager of its duties under this Agreement, except
for 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.
10. Amendment. This Agreement may not be amended without the
affirmative votes (a) of a majority of the Board of Trustees,
including a majority of those trustees who are not "interested
persons" of Trust 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 Fund. The terms "interested
persons" and "vote of a majority of the outstanding shares" shall be
construed in accordance with their respective definitions in
Sections 2(a)(19) and 2(a)(42) of the 1940 Act and, with respect to
the latter term, in accordance with Rule 18f-2 under the 1940 Act.
11. Termination. This Agreement may be terminated at any
time, without payment of any penalty, by the Board of Trustees of
Trust, or by a vote of a majority of the outstanding shares of Fund,
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 Trust. This Agreement shall
terminate automatically in the event of its assignment (as defined
in Section 2(a)(4) of the 1940 Act). Unless terminated as
hereinbefore provided, this Agreement shall continue in effect until
June 30, 1996 and thereafter from year to year only so long as such
continuance is specifically approved at least annually (a) by a
majority of those trustees who are not interested persons of Trust
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 Trustees
of Trust or by a vote of a majority of the outstanding shares of
Fund.
12. Non-Liability of Trustees and Shareholders. Any
obligation of Trust hereunder shall be binding only upon the assets
of Trust (or the applicable series thereof) and shall not be binding
upon any trustee, officer, employee, agent or shareholder of Trust.
Neither the authorization of any action by the trustees or
shareholders of Trust nor the execution of this Agreement on behalf
of Trust shall impose any liability upon any trustee or any
shareholder.
13. Use of Manager's Name. The Trust may use the name
"SteinRoe Income Trust" and the Fund may use the name "SteinRoe
Income Fund" 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 the 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, the Trust and Fund will cease to use any name derived from
the name "Stein Roe & Farnham" or otherwise connected with the
Manager, or with any organization which shall have succeeded to the
Manager's business as investment adviser.
14. 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 1, 1994
STEINROE INCOME TRUST
Attest: By: TIMOTHY K. ARMOUR
President
JILAINE HUMMEL BAUER
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Chief Executive Officer
KEITH J. RUDOLF
Secretary
<PAGE>
Exhibit 5(d)
INVESTMENT ADVISORY AGREEMENT
STEINROE INCOME TRUST, a Massachusetts business trust
registered under the Investment Company Act of 1940 ("1940 Act") as
an open-end diversified management investment company ("Trust"),
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 manage
the portion of its assets represented by the shares of beneficial
interest issued in the series designated STEINROE GOVERNMENT INCOME
FUND ("Fund") and to furnish certain administrative services.
In connection therewith, Trust and Manager hereby agree that:
1. Management. Manager shall manage the investment and
reinvestment of Trust's assets represented by Fund shares ("Fund
assets") and advise with respect thereto for the period and on the
terms set forth in this Agreement, subject to the overall control of
the Board of Trustees of Trust. Manager shall give due
consideration to the investment policies and restrictions and the
other statements concerning Fund in Trust's agreement and
declaration of trust, by-laws, and registration statements under the
1940 Act and the Securities Act of 1933 ("1933 Act"), and to the
provisions of the Internal Revenue Code applicable to Fund as a
regulated investment company. Manager shall for all purposes be
deemed to be an independent contractor and not an agent of Trust and
shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent Trust in any way.
2. Expenses Borne by Trust. Subject to paragraph 3, Trust
shall pay all expenses incidental to its organization, operations
and business not specifically assumed or agreed to be paid by
Manager pursuant to paragraphs 4 and 6, including, without
limitation: all charges of depostories, custodians and other
agencies for the safekeeping and servicing of its cash, securities,
and other property, and of its transfer, shareholder recordkeeping,
dividend disbursing, and redemption agents, if any; all charges for
equipment or services used for obtaining price quotations or for
communication between Manager or Trust and the custodian, transfer
agent or any other agent selected by Trust; all charges for
accounting services provided to Trust by the custodian, the Manager,
or any other provider of accounting services; all charges for
services of Trust's independent auditors; all charges for services
to Trust by legal counsel; all compensation of trustees, other than
those affiliated with Manager, and all expenses incurred in
connection with their services to Trust; all expenses of notices,
proxy solicitation material and reports to its shareholders; all
expenses of preparation and printing of annual or more frequent
revisions of Trust's prospectus and of supplying each then-existing
shareholder or beneficial owner with a copy of such revised
prospectus; all expenses related to preparing and transmitting
certificates representing Trust shares; all expenses of bond and
insurance coverage required by law or deemed advisable by the Board
of Trustees; all brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities; all taxes
and corporate fees payable to Federal, state or other governmental
agencies, domestic or foreign; all stamp or other transfer taxes;
all expenses of registering and maintaining the registration of
Trust under the 1940 Act and of Trust's shares under the 1933 Act,
of qualifying and maintaining qualification of Trust and of Trust's
shares for sale under securities laws of various states or other
jurisdictions and of registration and qualification of Trust under
all other laws applicable to the Trust or its business activities;
and all fees, dues or other expenses incurred by Trust in connection
with membership of Trust in any trade association or other
investment company organization.
3. Allocation of Expenses Borne by Trust. Any expenses borne
by Trust that are attributable solely to the organization, operation
or business of Fund shall be paid solely out of Fund assets. Any
expense borne by Trust which is not solely attributable to Fund, nor
solely to any other series of shares of Trust, shall be apportioned
in such manner as Manager determines is fair and appropriate, or as
otherwise specified by the Board of Trustees.
4. Expenses Borne by Manager. Manager at its own expense
shall furnish administrative services, executive and other
personnel, office space, and office facilities for conducting that
portion of Trust's business relating to Fund. However, Manager
shall not be required to pay or provide any credit for services
provided by Trust's custodian, transfer agent, or other agents
without additional cost to the Trust.
5. Management Fee. For the services to be rendered and the
charges to be assumed and to be paid by Manager hereunder, Trust
shall pay to Manager out of Fund assets a monthly fee, which is
computed and accrued daily, of (a) one-twentieth of one percent (1/20
of 1%) of the first $100 million of the average net assets of Fund,
plus (b) eleven two-hundred and fortieths of one percent (11/240 of
1%) of the average net assets of Fund in excess of $100 million, as
determined as of the close of each day in the monthly period.
6. Expense Limitation. The total expenses allocated to Fund
pursuant to paragraph 3, including fees paid to Manager, but
exclusive of taxes, of interest, of all commissions and other normal
charges incident to the purchase and sale of portfolio securities,
and extraordinary charges such as litigation costs, shall not exceed
the most restrictive applicable limits prescribed by any state in
which Fund shares are being offered for sale to the public, and
Manager agrees to reimburse Trust for any such expense in excess of
such limits, provided that Manager shall not be required to make
such reimbursement for any fiscal year to the extent the
reimbursement exceeds the amount of management fees paid by the Fund
for such year.
7. Non-Exclusivity. The services of Manager to Trust
hereunder are not to be deemed exclusive and Manager shall be free
to render similar services to others.
8. Investment in Fund Shares. Neither Manager nor any of its
directors, officers or stockholders (or partners of stockholders)
shall purchase or sell, or take a long or short position in, Fund
shares, except (a) at the same price as the price to the public at
the time of purchase or sale, or (b) prior to the commencement of
the public offering of shares of Fund at the net asset value of such
shares.
9. Standard of Care. Neither Manager, nor any of its
directors, officers or stockholders (or partners of stockholders),
agents or employees shall be liable or responsible to Trust or its
shareholders 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 Manager of its duties under this Agreement, except
for 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.
10. Amendment. This Agreement may not be amended without the
affirmative votes (a) of a majority of the Board of Trustees,
including a majority of those trustees who are not "interested
persons" of Trust 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 Fund. The terms "interested
persons" and "vote of a majority of the outstanding shares" shall be
construed in accordance with their respective definitions in
Sections 2(a)(19) and 2(a)(42) of the 1940 Act and, with respect to
the latter term, in accordance with Rule 18f-2 under the 1940 Act.
11. Termination. This Agreement may be terminated at any
time, without payment of any penalty, by the Board of Trustees of
Trust, or by a vote of a majority of the outstanding shares of Fund,
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 Trust. This Agreement shall
terminate automatically in the event of its assignment (as defined
in Section 2(a)(4) of the 1940 Act). Unless terminated as
hereinbefore provided, this Agreement shall continue in effect until
June 30, 1996 and thereafter from year to year only so long as such
continuance is specifically approved at least annually (a) by a
majority of those trustees who are not interested persons of Trust
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 Trustees
of Trust or by a vote of a majority of the outstanding shares of
Fund.
12. Non-Liability of Trustees and Shareholders. Any
obligation of Trust hereunder shall be binding only upon the assets
of Trust (or the applicable series thereof) and shall not be binding
upon any trustee, officer, employee, agent or shareholder of Trust.
Neither the authorization of any action by the trustees or
shareholders of Trust nor the execution of this Agreement on behalf
of Trust shall impose any liability upon any trustee or any
shareholder.
13. Use of Manager's Name. The Trust may use the name
"SteinRoe Income Trust" and the Fund may use the name "SteinRoe
Government Income Fund" 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 the 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, the Trust and Fund will cease to use any name derived from
the name "Stein Roe & Farnham" or otherwise connected with the
Manager, or with any organization which shall have succeeded to the
Manager's business as investment adviser.
14. 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 1, 1994
STEINROE INCOME TRUST
Attest: By: TIMOTHY K. ARMOUR
President
JILAINE HUMMEL BAUER
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Chief Executive Officer
KEITH J. RUDOLF
Secretary
<PAGE>
Exhibit 5(e)
INVESTMENT ADVISORY AGREEMENT
STEINROE INCOME TRUST, a Massachusetts business trust
registered under the Investment Company Act of 1940 ("1940 Act") as
an open-end diversified management investment company ("Trust"),
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 manage
the portion of its assets represented by the shares of beneficial
interest issued in the series designated STEINROE INTERMEDIATE BOND
FUND ("Fund") and to furnish certain administrative services.
In connection therewith, Trust and Manager hereby agree that:
1. Management. Manager shall manage the investment and
reinvestment of Trust's assets represented by Fund shares ("Fund
assets") and advise with respect thereto for the period and on the
terms set forth in this Agreement, subject to the overall control of
the Board of Trustees of Trust. Manager shall give due
consideration to the investment policies and restrictions and the
other statements concerning Fund in Trust's agreement and
declaration of trust, by-laws, and registration statements under the
1940 Act and the Securities Act of 1933 ("1933 Act"), and to the
provisions of the Internal Revenue Code applicable to Fund as a
regulated investment company. Manager shall for all purposes be
deemed to be an independent contractor and not an agent of Trust and
shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent Trust in any way.
2. Expenses Borne by Trust. Subject to paragraph 3, Trust
shall pay all expenses incidental to its organization, operations
and business not specifically assumed or agreed to be paid by
Manager pursuant to paragraphs 4 and 6, including, without
limitation: all charges of depostories, custodians and other
agencies for the safekeeping and servicing of its cash, securities,
and other property, and of its transfer, shareholder recordkeeping,
dividend disbursing, and redemption agents, if any; all charges for
equipment or services used for obtaining price quotations or for
communication between Manager or Trust and the custodian, transfer
agent or any other agent selected by Trust; all charges for
accounting services provided to Trust by the custodian, the Manager,
or any other provider of accounting services; all charges for
services of Trust's independent auditors; all charges for services
to Trust by legal counsel; all compensation of trustees, other than
those affiliated with Manager, and all expenses incurred in
connection with their services to Trust; all expenses of notices,
proxy solicitation material and reports to its shareholders; all
expenses of preparation and printing of annual or more frequent
revisions of Trust's prospectus and of supplying each then-existing
shareholder or beneficial owner with a copy of such revised
prospectus; all expenses related to preparing and transmitting
certificates representing Trust shares; all expenses of bond and
insurance coverage required by law or deemed advisable by the Board
of Trustees; all brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities; all taxes
and corporate fees payable to Federal, state or other governmental
agencies, domestic or foreign; all stamp or other transfer taxes;
all expenses of registering and maintaining the registration of
Trust under the 1940 Act and of Trust's shares under the 1933 Act,
of qualifying and maintaining qualification of Trust and of Trust's
shares for sale under securities laws of various states or other
jurisdictions and of registration and qualification of Trust under
all other laws applicable to the Trust or its business activities;
and all fees, dues or other expenses incurred by Trust in connection
with membership of Trust in any trade association or other
investment company organization.
3. Allocation of Expenses Borne by Trust. Any expenses borne
by Trust that are attributable solely to the organization, operation
or business of Fund shall be paid solely out of Fund assets. Any
expense borne by Trust which is not solely attributable to Fund, nor
solely to any other series of shares of Trust, shall be apportioned
in such manner as Manager determines is fair and appropriate, or as
otherwise specified by the Board of Trustees.
4. Expenses Borne by Manager. Manager at its own expense
shall furnish administrative services, executive and other
personnel, office space, and office facilities for conducting that
portion of Trust's business relating to Fund. However, Manager
shall not be required to pay or provide any credit for services
provided by Trust's custodian, transfer agent, or other agents
without additional cost to the Trust.
5. Management Fee. For the services to be rendered and the
charges to be assumed and to be paid by Manager hereunder, Trust
shall pay to Manager out of Fund assets a monthly fee, which is
computed and accrued daily, of one twenty-fourth of one percent
(1/24 of 1%) the average net assets of Fund as determined as of the
close of each day in the monthly period.
6. Expense Limitation. The total expenses allocated to Fund
pursuant to paragraph 3, including fees paid to Manager, but
exclusive of taxes, of interest, of all commissions and other normal
charges incident to the purchase and sale of portfolio securities,
and extraordinary charges such as litigation costs, shall not exceed
the most restrictive applicable limits prescribed by any state in
which Fund shares are being offered for sale to the public, and
Manager agrees to reimburse Trust for any such expense in excess of
such limits, provided that Manager shall not be required to make
such reimbursement for any fiscal year to the extent the
reimbursement exceeds the amount of management fees paid by the Fund
for such year.
7. Non-Exclusivity. The services of Manager to Trust
hereunder are not to be deemed exclusive and Manager shall be free
to render similar services to others.
8. Investment in Fund Shares. Neither Manager nor any of its
directors, officers or stockholders (or partners of stockholders)
shall purchase or sell, or take a long or short position in, Fund
shares, except (a) at the same price as the price to the public at
the time of purchase or sale, or (b) prior to the commencement of
the public offering of shares of Fund at the net asset value of such
shares.
9. Standard of Care. Neither Manager, nor any of its
directors, officers or stockholders (or partners of stockholders),
agents or employees shall be liable or responsible to Trust or its
shareholders 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 Manager of its duties under this Agreement, except
for 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.
10. Amendment. This Agreement may not be amended without the
affirmative votes (a) of a majority of the Board of Trustees,
including a majority of those trustees who are not "interested
persons" of Trust 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 Fund. The terms "interested
persons" and "vote of a majority of the outstanding shares" shall be
construed in accordance with their respective definitions in
Sections 2(a)(19) and 2(a)(42) of the 1940 Act and, with respect to
the latter term, in accordance with Rule 18f-2 under the 1940 Act.
11. Termination. This Agreement may be terminated at any
time, without payment of any penalty, by the Board of Trustees of
Trust, or by a vote of a majority of the outstanding shares of Fund,
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 Trust. This Agreement shall
terminate automatically in the event of its assignment (as defined
in Section 2(a)(4) of the 1940 Act). Unless terminated as
hereinbefore provided, this Agreement shall continue in effect until
June 30, 1996 and thereafter from year to year only so long as such
continuance is specifically approved at least annually (a) by a
majority of those trustees who are not interested persons of Trust
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 Trustees
of Trust or by a vote of a majority of the outstanding shares of
Fund.
12. Non-Liability of Trustees and Shareholders. Any
obligation of Trust hereunder shall be binding only upon the assets
of Trust (or the applicable series thereof) and shall not be binding
upon any trustee, officer, employee, agent or shareholder of Trust.
Neither the authorization of any action by the trustees or
shareholders of Trust nor the execution of this Agreement on behalf
of Trust shall impose any liability upon any trustee or any
shareholder.
13. Use of Manager's Name. The Trust may use the name
"SteinRoe Income Trust" and the Fund may use the name "SteinRoe
Intermediate Bond Fund" 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 the 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, the Trust and Fund will cease to use any name derived from
the name "Stein Roe & Farnham" or otherwise connected with the
Manager, or with any organization which shall have succeeded to the
Manager's business as investment adviser.
14. 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 1, 1994
STEINROE INCOME TRUST
Attest: By: TIMOTHY K. ARMOUR
President
JILAINE HUMMEL BAUER
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Chief Executive Officer
KEITH J. RUDOLF
Secretary
<PAGE>
Exhibit 5(e)
INVESTMENT ADVISORY AGREEMENT
STEINROE INCOME TRUST, a Massachusetts business trust
registered under the Investment Company Act of 1940 ("1940 Act") as
an open-end diversified management investment company ("Trust"),
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 manage
the portion of its assets represented by the shares of beneficial
interest issued in the series designated STEINROE LIMITED MATURITY
INCOME FUND ("Fund") and to furnish certain administrative services.
In connection therewith, Trust and Manager hereby agree that:
1. Management. Manager shall manage the investment and
reinvestment of Trust's assets represented by Fund shares ("Fund
assets") and advise with respect thereto for the period and on the
terms set forth in this Agreement, subject to the overall control of
the Board of Trustees of Trust. Manager shall give due
consideration to the investment policies and restrictions and the
other statements concerning Fund in Trust's agreement and
declaration of trust, by-laws, and registration statements under the
1940 Act and the Securities Act of 1933 ("1933 Act"), and to the
provisions of the Internal Revenue Code applicable to Fund as a
regulated investment company. Manager shall for all purposes be
deemed to be an independent contractor and not an agent of Trust and
shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent Trust in any way.
2. Expenses Borne by Trust. Subject to paragraph 3, Trust
shall pay all expenses incidental to its organization, operations
and business not specifically assumed or agreed to be paid by
Manager pursuant to paragraphs 4 and 6, including, without
limitation: all charges of depostories, custodians and other
agencies for the safekeeping and servicing of its cash, securities,
and other property, and of its transfer, shareholder recordkeeping,
dividend disbursing, and redemption agents, if any; all charges for
equipment or services used for obtaining price quotations or for
communication between Manager or Trust and the custodian, transfer
agent or any other agent selected by Trust; all charges for
accounting services provided to Trust by the custodian, the Manager,
or any other provider of accounting services; all charges for
services of Trust's independent auditors; all charges for services
to Trust by legal counsel; all compensation of trustees, other than
those affiliated with Manager, and all expenses incurred in
connection with their services to Trust; all expenses of notices,
proxy solicitation material and reports to its shareholders; all
expenses of preparation and printing of annual or more frequent
revisions of Trust's prospectus and of supplying each then-existing
shareholder or beneficial owner with a copy of such revised
prospectus; all expenses related to preparing and transmitting
certificates representing Trust shares; all expenses of bond and
insurance coverage required by law or deemed advisable by the Board
of Trustees; all brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities; all taxes
and corporate fees payable to Federal, state or other governmental
agencies, domestic or foreign; all stamp or other transfer taxes;
all expenses of registering and maintaining the registration of
Trust under the 1940 Act and of Trust's shares under the 1933 Act,
of qualifying and maintaining qualification of Trust and of Trust's
shares for sale under securities laws of various states or other
jurisdictions and of registration and qualification of Trust under
all other laws applicable to the Trust or its business activities;
and all fees, dues or other expenses incurred by Trust in connection
with membership of Trust in any trade association or other
investment company organization.
3. Allocation of Expenses Borne by Trust. Any expenses borne
by Trust that are attributable solely to the organization, operation
or business of Fund shall be paid solely out of Fund assets. Any
expense borne by Trust which is not solely attributable to Fund, nor
solely to any other series of shares of Trust, shall be apportioned
in such manner as Manager determines is fair and appropriate, or as
otherwise specified by the Board of Trustees.
4. Expenses Borne by Manager. Manager at its own expense
shall furnish administrative services, executive and other
personnel, office space, and office facilities for conducting that
portion of Trust's business relating to Fund. However, Manager
shall not be required to pay or provide any credit for services
provided by Trust's custodian, transfer agent, or other agents
without additional cost to the Trust.
5. Management Fee. For the services to be rendered and the
charges to be assumed and to be paid by Manager hereunder, Trust
shall pay to Manager out of Fund assets a monthly fee, which is
computed and accrued daily, of one twentieth of one percent
(1/20 of 1%) the first $100 million of the average net assets of Fund,
eleven two hundred and fortieths of one percent (11/240 of 1%) of
average net assets of Fund n excess of $100 million but not exceeding
$200 million, plus one twenty fourth of one percent (1/24 of 1%) of
average net assets of Fund in excess of $200 million, as determined as
of the close of each day in the monthly period.
6. Expense Limitation. The total expenses allocated to Fund
pursuant to paragraph 3, including fees paid to Manager, but
exclusive of taxes, of interest, of all commissions and other normal
charges incident to the purchase and sale of portfolio securities,
and extraordinary charges such as litigation costs, shall not exceed
the most restrictive applicable limits prescribed by any state in
which Fund shares are being offered for sale to the public, and
Manager agrees to reimburse Trust for any such expense in excess of
such limits, provided that Manager shall not be required to make
such reimbursement for any fiscal year to the extent the
reimbursement exceeds the amount of management fees paid by the Fund
for such year.
7. Non-Exclusivity. The services of Manager to Trust
hereunder are not to be deemed exclusive and Manager shall be free
to render similar services to others.
8. Investment in Fund Shares. Neither Manager nor any of its
directors, officers or stockholders (or partners of stockholders)
shall purchase or sell, or take a long or short position in, Fund
shares, except (a) at the same price as the price to the public at
the time of purchase or sale, or (b) prior to the commencement of
the public offering of shares of Fund at the net asset value of such
shares.
9. Standard of Care. Neither Manager, nor any of its
directors, officers or stockholders (or partners of stockholders),
agents or employees shall be liable or responsible to Trust or its
shareholders 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 Manager of its duties under this Agreement, except
for 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.
10. Amendment. This Agreement may not be amended without the
affirmative votes (a) of a majority of the Board of Trustees,
including a majority of those trustees who are not "interested
persons" of Trust 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 Fund. The terms "interested
persons" and "vote of a majority of the outstanding shares" shall be
construed in accordance with their respective definitions in
Sections 2(a)(19) and 2(a)(42) of the 1940 Act and, with respect to
the latter term, in accordance with Rule 18f-2 under the 1940 Act.
11. Termination. This Agreement may be terminated at any
time, without payment of any penalty, by the Board of Trustees of
Trust, or by a vote of a majority of the outstanding shares of Fund,
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 Trust. This Agreement shall
terminate automatically in the event of its assignment (as defined
in Section 2(a)(4) of the 1940 Act). Unless terminated as
hereinbefore provided, this Agreement shall continue in effect until
June 30, 1996 and thereafter from year to year only so long as such
continuance is specifically approved at least annually (a) by a
majority of those trustees who are not interested persons of Trust
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 Trustees
of Trust or by a vote of a majority of the outstanding shares of
Fund.
12. Non-Liability of Trustees and Shareholders. Any
obligation of Trust hereunder shall be binding only upon the assets
of Trust (or the applicable series thereof) and shall not be binding
upon any trustee, officer, employee, agent or shareholder of Trust.
Neither the authorization of any action by the trustees or
shareholders of Trust nor the execution of this Agreement on behalf
of Trust shall impose any liability upon any trustee or any
shareholder.
13. Use of Manager's Name. The Trust may use the name
"SteinRoe Income Trust" and the Fund may use the name "SteinRoe
Limited Maturity Income Fund" 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 the 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, the Trust and Fund will cease to use any name derived from
the name "Stein Roe & Farnham" or otherwise connected with the
Manager, or with any organization which shall have succeeded to the
Manager's business as investment adviser.
14. 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 1, 1994
STEINROE INCOME TRUST
Attest: By: TIMOTHY K. ARMOUR
President
JILAINE HUMMEL BAUER
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Chief Executive Officer
KEITH J. RUDOLF
Secretary
<PAGE>
Exhibit 5(g)
October 29, 1993
SteinRoe Income Trust
300 West Adams Street
Chicago, Illinois 60606
Re: SteinRoe Income Fund
Gentlemen:
The firm of Stein Roe & Farnham Incorporated hereby undertakes as
follows:
In the interest of limiting the expenses of the series of
SteinRoe Income Trust designated SteinRoe Income Fund (the
"Fund"), Stein Roe & Farnham Incorporated ("SR&F"), the
investment adviser to the Fund, undertakes to reimburse the
Fund to the extent, but only to the extent, that annualized
expenses (excluding taxes, interest, all commissions and
other normal charges incident to the purchase and sale of
portfolio securities, and extraordinary charges such as
litigation costs, but including fees paid to SR&F) exceed
0.82% of average net assets of the Fund through October 31,
1998. The amount of the expense reimbursement (or any
offsetting reimbursement by the Fund to SR&F) shall be
computed on an annual basis, but accrued and paid monthly.
Sincerely,
STEIN ROE & FARNHAM INCORPORATED
By: Timothy K. Armour
President, Mutual Funds Division
Attest:
By: Jilaine Hummel Bauer
Assistant Secretary
Stein Roe & Farnham Incorporated
300 West Adams Street
Chicago, IL
60606-5109
312.368.7800
Liberty Securities Corporation, Distributor
<PAGE>
October 31, 1994
SteinRoe Income Trust
P.O. Box 804058
Chicago, Illinois 60680
Re: SteinRoe Government Income Fund
Gentlemen:
The firm of Stein Roe & Farnham Incorporated hereby undertakes as
follows:
In the interest of limiting the expenses of the series of
SteinRoe Income Trust designated SteinRoe Government Income
Fund (the "Fund"), Stein Roe & Farnham Incorporated ("SR&F"),
the investment adviser to the Fund, undertakes to reimburse
the Fund to the extent, but only to the extent, that
annualized expenses (excluding taxes, interest, all
commissions and other normal charges incident to the purchase
and sale of portfolio securities, and extraordinary charges
such as litigation costs, but including fees paid to SR&F)
exceed 1% of average net assets of the Fund through October
31, 1995, subject to the right of SR&F on 30 days' notice to
terminate this undertaking. The amount of the expense
reimbursement (or any offsetting reimbursement by the Fund to
SR&F) shall be computed on an annual basis, but accrued and
paid monthly.
Sincerely,
STEIN ROE & FARNHAM INCORPORATED
By: Timothy K. Armour
President, Mutual Funds Division
Attest:
By: Jilaine Hummel Bauer
Assistant Secretary
Stein Roe & Farnham Incorporated
300 West Adams Street
Chicago, IL
60606-5109
312.368.7800
Liberty Securities Corporation, Distributor
<PAGE>
October 31, 1994
SteinRoe Income Trust
P.O. Box 804058
Chicago, Illinois 60680
Re: SteinRoe Government Reserves
Gentlemen:
The firm of Stein Roe & Farnham Incorporated hereby undertakes as
follows:
In the interest of limiting the expenses of the series of
SteinRoe Income Trust designated SteinRoe Government Reserves
(the "Fund"), Stein Roe & Farnham Incorporated ("SR&F"), the
investment adviser to the Fund, undertakes to reimburse the
Fund to the extent, but only to the extent, that annualized
expenses (excluding taxes, interest, all commissions and
other normal charges incident to the purchase and sale of
portfolio securities, and extraordinary charges such as
litigation costs, but including fees paid to SR&F) exceed .7
of 1% of average net assets of the Fund through October 31,
1995, subject to the right of SR&F on 30 days' notice to
terminate this undertaking. The amount of the expense
reimbursement (or any offsetting reimbursement by the Fund to
SR&F) shall be computed on an annual basis, but accrued and
paid monthly.
Sincerely,
STEIN ROE & FARNHAM INCORPORATED
By: Timothy K. Armour
President, Mutual Funds Division
Attest:
By: Jilaine Hummel Bauer
Assistant Secretary
Stein Roe & Farnham Incorporated
300 West Adams Street
Chicago, IL
60606-5109
312.368.7800
Liberty Securities Corporation, Distributor
<PAGE>
October 31, 1994
SteinRoe Income Trust
P.O. Box 804058
Chicago, Illinois 60680
Re: SteinRoe Limited Maturity Income Fund
Gentlemen:
The firm of Stein Roe & Farnham Incorporated hereby undertakes as
follows:
In the interest of limiting the expenses of the series of
SteinRoe Income Trust designated SteinRoe Limited Maturity
Income Fund (the "Fund"), Stein Roe & Farnham Incorporated
("SR&F"), the investment adviser to the Fund, undertakes to
reimburse the Fund to the extent, but only to the extent,
that annualized expenses (excluding taxes, interest, all
commissions and other normal charges incident to the purchase
and sale of portfolio securities, and extraordinary charges
such as litigation costs, but including fees paid to SR&F)
exceed .45 of 1% of average net assets of the Fund through
October 31, 1995, subject to the right of SR&F on 30 days'
notice to terminate this undertaking. The amount of the
expense reimbursement (or any offsetting reimbursement by the
Fund to SR&F) shall be computed on an annual basis, but
accrued and paid monthly.
Sincerely,
STEIN ROE & FARNHAM INCORPORATED
By: Timothy K. Armour
President, Mutual Funds Division
Attest:
By: Jilaine Hummel Bauer
Assistant Secretary
Stein Roe & Farnham Incorporated
300 West Adams Street
Chicago, IL
60606-5109
312.368.7800
Liberty Securities Corporation, Distributor
<PAGE>
May 1, 1995
SteinRoe Income Trust
One South Wacker Drive
Chicago, Illinois 60606
Re: SteinRoe Intermediate Bond Fund
Gentlemen:
The firm of Stein Roe & Farnham Incorporated hereby undertakes as
follows:
In the interest of limiting the expenses of the series of
SteinRoe Income Trust designated SteinRoe Intermediate Bond
Fund (the "Fund"), Stein Roe & Farnham Incorporated ("SR&F"),
the investment adviser to the Fund, undertakes to voluntarily
waive its management fee and/or absorb certain expenses for
the Fund to the extent, but only to the extent, that
annualized fees and expenses (excluding taxes, interest, all
commissions and other normal charges incident to the purchase
and sale of portfolio securities, and extraordinary charges
such as litigation costs) during the period that this
undertaking is in effect exceed 0.70% of average net assets
of the Fund. Unless extended in writing by SR&F, this
undertaking shall terminate on October 31, 1995, subject to
the right of SR&F on 30 days' written notice to terminate
this undertaking. The amount of the fee waiver and/or
expense absorption (or any offsetting reimbursement by the
Fund to SR&F) shall be computed on an annual basis, but
accrued and paid monthly.
Sincerely,
STEIN ROE & FARNHAM INCORPORATED
By: Kenneth J. Kozanda
Vice President and Treasurer
Attest:
By: Jilaine Hummel Bauer
Assistant Secretary
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL
60606-4585
312.368.7700
<PAGE>
Exhibit 8
CUSTODIAN CONTRACT
Between
STEINROE HIGH-YIELD BONDS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
1. Employment Of Custodian and Property to be
Held By It ...........................................1
2. Duties of the Custodian with Respect to Property
of the Trust Held by the Custodian....................2
2.1 Holding Securities................................2
2.2 Delivery of Securities ...........................2
2.3 Registration of Securities .......................6
2.4 Bank Accounts ....................................7
2.5 Payment for Shares ...............................8
2.6 Investments and Availability of Federal Funds ....8
2.7 Collection of Income .............................9
2.8 Payment of Trust Moneys .........................10
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased .................12
2.10 Payments for Repurchases or Redemptions
of Shares of a Fund ............................12
2.11 Appointment of Agents ..........................13
2.12 Deposit of Trust Assets in Securities System ...13
2.13 Segregated Account .............................16
2.14 Ownership Certificates for Tax Purposes ........17
2.15 Proxies ........................................17
2.16 Communications Relating to Trust
Portfolio Securities ...........................17
2.17 Proper Instructions ............................18
2.18 Actions Permitted Without Express Authority ....18
2.19 Evidence of Authority ..........................19
3. Duties of Custodian With Respect to the Books of
Account and Calculation of Net Asset Value and
Net Income ........................................19
4. Records .............................................20
5. Opinion of Trust's Independent Accountant ...........21
6. Reports to Trust by Independent Public Accountants ..21
7. Compensation of Custodian ...........................21
8. Responsibility of Custodian ........................ 22
9. Effective Period, Termination and Amendment .........23
10. Successor Custodian .................................24
11. Interpretive and Additional Provisions ..............25
12. Massachusetts Law to Apply ..........................26
13. Prior Contracts .....................................26
14. Notices .............................................26
15. Successors ..........................................26
16 Duties of the Custodian with Respect to Property
of the Trust Held Outside of the United States ......26
16.1 Appointment of Foreign Sub-Custodians..........26
16.2 Assets to be Held .............................27
16.3 Foreign Securities Depositories................27
16.4 Segregation of Securities .....................27
16.5 Agreements with Foreign Banking Institutions ..28
16.6 Access of Independent Accountant of the Trust..28
16.7 Reports by Custodian ..........................29
16.8 Transactions in Foreign Custody Account .......29
16.9 Liability of Foreign Sub-Custodians............30
16.10 Liability of Custodian ........................30
16.11 Monitoring Responsibilities ...................30
16.12 Branches of U.S. Banks.........................31
17. Non-Liability of Trustees and Shareholders ..........31
18. Additional Funds ....................................32
<PAGE> 1
CUSTODIAN CONTRACT
This Contract between SteinRoe High-Yield Bonds, a voluntary
association organized under the laws of the Commonwealth of
Massachusetts in the form commonly known as a business trust, having
its principal place of business at 300 West Adams Street, Chicago,
Illinois 60606, hereinafter called the "Trust," and State Street
Bank and Trust Company, a Massachusetts trust company, having its
principal place of business at 225 Franklin Street, Boston,
Massachusetts 02110, hereinafter called the "Custodian."
WHEREAS, the Trust is authorized to issue shares of beneficial
interest ("Shares") in separate series, with each such series
representing interests in a separate portfolio of securities and other
assets (any such series being referred to as a "Fund"); and
WHEREAS, the Trust intends to initially offer Shares in one series
only designated SteinRoe High-Yield Bonds;
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of its
assets, including securities it desires to be held in places within
the United States and securities it desires to be held outside the
United States, pursuant to the provisions of its Agreement and
Declaration of Trust. The Trust agrees to deliver to the Custodian
all securities and cash owned by it, and all payments of income,
payments of principal or capital distributions received by it with
respect to all securities owned by the Trust from time to time, and
the cash consideration received by it for such new or treasury Shares,
of any series, with or without par value, of the Trust as may be
issued or sold from time to time. The Custodian shall not be responsible
for any property of the Trust
<PAGE> 2
held or received by the Trust and not delivered to the Custodian or any
sub-custodian appointed as prescribed herein.
Upon receipt of "Proper Instructions" (within the meaning of
Section 2.17), the Custodian shall from time to time employ one or
more sub-custodians, but only in accordance with an applicable vote by
the Board of Trustees of the Trust, and provided that the Custodian
shall have no more or less responsibility or liability to the Trust on
account of any actions or omissions of any sub-custodian so employed
than any such sub-custodian has to the Custodian.
The Custodian may employ as sub-custodians for the Trust's
securities and other assets the foreign banking institutions and foreign
securities depositories designated in Schedule "A" hereto, but only in
accordance with the provisions of Article 16.
2. Duties of the Custodian with Respect to Property of the Trust Held
by the Custodian
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Fund all non-cash property,
including all securities, owned by the Trust and allocated to
that Fund, other than securities which are maintained pursuant to
Section 2.12 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein as
"Securities System."
2.2 Delivery of Securities. The Custodian shall release and
deliver securities owned by the Trust, held for the account of a
Fund, held either by the Custodian or in a Securities System
account of the
<PAGE> 3
Custodian only upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties, and
only in the following cases:
(1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Trust;
(3) In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.12 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the
name of the Trust or into the name of any nominee or
nominees of the Custodian or into the name or nominee name
of any agent appointed pursuant to Section 2.11 or into the
name or nominee name of any sub-custodian appointed pursuant
to Article 1; or for exchange for a different number of
bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to the
Custodian and will be held by the Custodian for the account
of the Fund;
<PAGE> 4
(7) To the broker selling the same for examination, in accordance
with "street delivery" custom;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization, or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian and will be held by the Custodian for the account
of the Fund;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts
or temporary securities for definitive securities; provided
that, in any such case, the new securities and cash, if any,
are to be delivered to the Custodian and will be held by the
Custodian for the account of the Fund;
(10) For delivery in connection with any loans of securities made
by the Trust from the Fund's portfolio, but only against
receipt of adequate collateral as agreed upon from time to
time by the Custodian and the Trust, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that
in connection with any loans for which collateral is to be
<PAGE> 5
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Trust prior to the
receipt of such collateral;
(11) For delivery as security in connection with any borrowings
by the Trust requiring a pledge of assets in the Fund's
portfolio, but only against receipt of amounts borrowed;
(12) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer, relating to compliance with the rules of The Options
Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with options transactions by the Trust;
(13) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account
deposits in connection with futures transactions by the
Trust for the account of the Fund;
<PAGE> 6
(14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Trust, for delivery to such
Transfer Agent or to the holders of Shares of the Fund in
connection with distributions in kind, as may be described
from time to time in the Fund's currently effective
prospectus and statement of additional information
("prospectus"), in satisfaction of requests by holders of
Shares of the Fund for repurchase or redemption;
(15) For delivery in connection with any reverse repurchase
agreement entered into by the Trust with respect to the
Fund, but only against receipt for the account of the Fund
of the amount payable by the other party to the agreement;
and
(16) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or of the Executive Committee
signed by an officer of the Trust and certified by the Secretary
or an Assistant Secretary, specifying the securities to be
delivered, setting forth the purpose for which such delivery is
to be made, declaring such purposes to be proper purposes, and
naming the person or persons to whom delivery of such securities
shall be made.
2.3 Registration of Securities. Securities held by the
Custodian (other than bearer securities) shall be registered in
the name of the Trust or in the name of any nominee of the Trust
for the account of the
<PAGE> 7
particular Fund or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Trust for the account of such Fund unless the
Trust has authorized in writing the appointment of a nominee to be used
in common with other registered investment companies having the same
investment adviser as the Trust, or in the name or nominee name
of any agent appointed pursuant to Section 2.11 or in the name or
nominee name of any sub-custodian appointed pursuant to Article
1. All securities accepted by the Custodian on behalf of the
Trust under the terms of this Contract shall be in "street name"
or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts for each Fund in the name of the Trust,
subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by
it from or for the account of that Fund, other than cash
maintained by the Trust in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of
1940. Funds held by the Custodian for the Trust may be deposited
by it to its credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies as it may in
its discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to act
as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited
with each such bank or trust company shall be approved by vote of
a majority of the Board of Trustees of the Trust. Such funds
<PAGE> 8
shall be deposited by the Custodian in its capacity as Custodian
and shall be withdrawable by the Custodian only in that capacity.
If and when authorized by Proper Instructions in accordance with
a resolution adopted by the Board of Trustees, the Custodian may
open and maintain an additional account or accounts in such other
bank or trust company as may be designated by such instructions,
such account or accounts, however, to be in the name of the
Custodian in its capacity as the Custodian and subject only to
its draft or credit in accordance with the terms of this
Contract. The Custodian shall furnish the Trust, not later than
twenty (20) calendar days after the last business day of each
month, a statement reflecting the current status of its internal
reconciliation of the closing balance as of that day in all
accounts described in this Paragraph to the balance shown on the
daily cash report for the day rendered to the Trust.
2.5 Payments for Shares. The Custodian shall receive from the Trust
or from the Transfer Agent of the Trust and deposit into a Fund's
account such payments as are received for Shares of that Fund
issued or sold from time to time by the Trust. The Custodian
will provide timely notification to the Trust and the Transfer
Agent of any receipt by it of payments for Shares of each Fund.
2.6 Investment and Availability of Federal Funds. Upon mutual
agreement between the Trust and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions,
(1) invest in such instruments as may be set forth in such
instructions on the same day as received all federal funds
received after a time agreed upon between the Custodian and
the Trust; and
<PAGE> 9
(2) make federal funds available to the Trust as of specified
times agreed upon from time to time by the Trust and the
Custodian in the amount of checks received in payment for
Shares of a Fund which are deposited into that Fund's
account.
2.7 Collection of Income. The Custodian shall collect on a timely
basis all income and other payments with respect to registered
securities held hereunder to which the Trust shall be entitled
either by law or pursuant to custom in the securities business,
and shall collect on a timely basis all income and other payments
with respect to bearer securities if, on the date of payment by
the issuer, such securities are held by the Custodian or agent
thereof and shall credit such income, as collected, to the
appropriate Fund account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and when
they become due and shall collect interest when due on securities
held hereunder. Income due the Trust on securities loaned
pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Trust. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the
Trust with such information or data as may be necessary to assist
the Trust in arranging for the timely delivery to the Custodian
of the income to which the Trust is properly entitled. The
Custodian shall notify the Trust of any income or such other
payments that are not collected in due course within a reasonable
time after they become payable.
<PAGE> 10
2.8 Payment of Trust Moneys. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out Trust moneys held in a
Fund's account in the following cases only:
(1) Upon the purchase of securities, options, futures contracts
or options on futures contracts for the account of
the Fund but only (a) against the delivery of such
securities, or evidence of title to futures contracts or
options on futures contracts, to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment Company
Act of 1940, as amended, to act as a custodian and has been
designated by the Custodian as its agent for this purpose)
registered in the name of the Trust or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof
or in proper form for transfer; (b) in the case of a
purchase for the Fund effected through a Securities System,
in accordance with the conditions set forth in Section 2.12
hereof; or (c) in the case of a repurchase agreement
entered into between the Trust (on behalf of the Fund) and
the Custodian, or another bank, or a broker-dealer, (i)
against delivery of the securities either in certificate
form or through an entry crediting the Custodian's
segregated non-proprietary account at the Federal Reserve
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Trust of securities owned
by the Custodian along with written evidence of the
agreement by the Custodian to
<PAGE> 11
repurchase such securities from the Trust;
(2) In connection with conversion, exchange or surrender of
securities owned by the Trust in the Fund's portfolio as set
forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Fund Shares issued by the
Trust as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by the
Trust for the account of the Fund, including but not limited
to the following payments: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be
in whole or part capitalized or treated as deferred
expenses;
(5) For the payment of any dividends on Shares of the Fund
declared pursuant to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect of
securities sold short from the Fund's portfolio;
(7) For any other proper purposes, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or of the Executive
Committee of the Trust signed by an officer of the Trust and
certified by its Secretary or an Assistant Secretary, specifying
the amount of such payment, setting forth the purpose for which
such payment is to be made, declaring such purpose to be a
proper purpose, and naming the person or persons to whom
such payment is to be made.
<PAGE> 12
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for purchase of
securities for the account of a Fund is made by the Custodian in
advance of receipt of the securities purchased, in the absence of
specific written Proper Instructions from the Trust to so pay in
advance, the Custodian shall be absolutely liable to the Trust
for such securities to the same extent as if the securities had
been received by the Custodian, except that in the case of a
repurchase agreement entered into by the Trust with a bank, or
with a broker-dealer clearing through a bank, which is a member
of the Federal Reserve System, the Custodian may transfer funds
to the account of such bank prior to the receipt of (i) written
evidence that the securities subject to such repurchase agreement
have been transferred by book-entry into a segregated non-
proprietary account of the Custodian maintained with the Federal
Reserve Bank of Boston or (ii) of the safe-keeping receipt,
provided that such securities have in fact been so transferred by
book-entry.
2.10 Payments for Repurchases or Redemptions of Shares of a Fund.
From such funds as may be available for the purpose, but subject
to the limitations of the Agreement and Declaration of Trust and
any applicable votes of the Board of Trustees of the Trust pursuant
thereto, the Custodian shall, upon receipt of instructions from the
Transfer Agent, make funds in the account of a Fund available for
payment to holders of Shares of that Fund who have delivered to
the Transfer Agent a request for redemption or repurchase of
their Shares. In connection with the redemption or repurchase of
Shares of the Fund, the Custodian is authorized upon receipt of
instructions
<PAGE> 13
from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian
shall honor checks drawn on the Custodian by a holder of Shares,
which checks have been furnished by the Trust to holders of Shares
of the Fund, when presented to the Custodian in accordance with such
procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
2.11 Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other
bank or trust company which is itself qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian, as its agent to carry out such of the provisions of
this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities
hereunder.
2.12 Deposit of Trust Assets in Securities System. The Custodian may
deposit and/or maintain securities owned by the Trust in a
clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of
1934, which acts as a securities depository, or in the book-entry
system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as
"Securities System", in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and regulations,
if any, and subject to the following provisions:
<PAGE> 14
(1) The Custodian may keep securities of the Trust in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in
the Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
(2) The records of the Custodian with respect to securities of
the Trust which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Trust and further identify the Fund in whose portfolio the
securities are held;
(3) The Custodian shall pay for securities purchased for the
account of a Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment and
transfer for the account of that Fund. The Custodian shall
transfer securities sold for the account of a Fund upon (i)
receipt of advice from the Securities System that payment
for such securities has been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian
to reflect such transfer and payment for the account of that
Fund. Copies of all advices from the Securities System of
transfers of securities for the account of a Fund shall
identify the Fund, be maintained for that Fund by the
Custodian and be provided to the Trust at its request. Upon
request, the Custodian shall furnish the
<PAGE> 15
Trust confirmation of each transfer to or from the account of that
Fund in the form of a written advice or notice and shall furnish
to the Trust copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of that
Fund.
(4) The Custodian shall provide the Trust with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
(5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 9
hereof;
(6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Trust for any loss or
damage to the Trust resulting from the use of the Securities
System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any
of its or their employees or from failure of the Custodian
or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of
the Trust, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claim against
the Securities System or any other person which the
Custodian may have as a consequence of any such loss or
damage if and to the extent that the Trust has not been
made whole for any such loss or damage.
<PAGE> 16
2.13 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or
accounts for and on behalf of each Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.12 hereof, (i) in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-dealer
registered under the Exchange Act (or any futures commission
merchant registered under the Commodity Exchange Act), relating
to compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Trust, (ii) for purposes of segregating cash
or government securities in connection with options purchased,
sold or written by the Trust for the account of such Fund or
commodity futures contracts or options thereon purchased or sold
by the Trust for the account of such Fund, (iii) for the purposes
of compliance by the Trust with the procedures required by
Investment Company Act Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper purposes, but
only, in the case of clause (iv), upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Trust and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or
<PAGE> 17
purposes of such segregated account and declaring such purposes to be
proper purposes.
2.14 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to securities of the Trust
held by it and in connection with transfers of securities.
2.15 Proxies. The Custodian shall, with respect to the securities
held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered
otherwise than in the name of the Trust or a nominee of the
Trust, all proxies, without indication of the manner in which
such proxies are to be voted, and shall promptly deliver to the
Trust such proxies, all proxy soliciting materials and all
notices relating to such securities.
2.16 Communications Relating to Trust Portfolio Securities. The
Custodian shall transmit promptly to the Trust all written
information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection
therewith and notices of exercise of call and put options written
by the Trust and the maturity of futures contracts purchased or
sold by the Trust) received by the Custodian from issuers of the
securities being held for the Trust. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the
Trust all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and
from the party (or his agents) making the tender or exchange
offer. If the Trust desires to take action with respect to any
tender offer, exchange offer or any other similar
<PAGE> 18
transaction, the Trust shall notify the Custodian at least one
business day prior to the date on which the Custodian is to take
such action.
2.17 Proper Instructions. Proper Instructions as used throughout
this Article 2 means a writing signed or initialed by one or more
persons as the Board of Trustees shall have from time to time
authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested.
Oral instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a person
authorized to give such instructions with respect to the
transaction involved. The Trust shall cause all oral
instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Trust accompanied
by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected
directly between electromechanical or electronic devices provided
that the Board of Trustees and the Custodian are satisfied that
such procedures afford adequate safeguards for the Trust's
assets.
2.18 Actions Permitted Without Express Authority. The Custodian may
in its discretion, without express authority from the Trust:
(1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Trust;
<PAGE> 19
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of the Trust, checks,
drafts and other negotiable instruments; and
(4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Trust except as otherwise directed by the Board of
Trustees of the Trust.
2.19 Evidence of Authority. The Custodian shall be protected in
acting upon any instructions, notice, request, consent,
certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the
Trust. The Custodian may receive and accept a certified copy of
a vote of the Board of Trustees of the Trust as conclusive
evidence (a) of the authority of any person to act in accordance
with such vote or (b) of any determination or of any action by
the Board of Trustees pursuant to its Agreement and Declaration
of Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
3. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of
Trustees to keep the books of account of each Fund and/or compute the
net asset value per share of the outstanding shares of each Fund or,
if directed in writing to do so by the Trust, shall itself keep such
books of account and/or compute such net
<PAGE> 20
asset value per share. If so directed, the Custodian shall also
calculate daily the net income of each Fund as described in that
Fund's currently effective prospectus and shall advise the Trust
and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer for the Trust to do so,
shall advise the Transfer Agent periodically of the division of such
net income among its various components. The calculations of the
net asset value per share and the daily income of a Fund shall be
made at the time or times described from time to time in that Fund's
currently effective prospectus.
4. Records
The Custodian shall create and maintain all records relating to
its activities and obligations under this Contract in such manner as
will meet the obligations of the Trust under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder, applicable federal and state tax laws and
any other law or administrative rules and procedures which may be
applicable to the Trust. All such records shall be the property of
the Trust and shall at times during the regular business hours of the
Custodian be open for inspection by duly authorized officers,
employees or agents of the Trust and employees and agents of the
Securities and Exchange Commission. The Custodian shall, at the
Trust's request, supply the Trust with a list of securities held by
the Custodian for the account of each Fund and shall, when requested
to do so by the Trust and for such compensation as shall be agreed
upon between the Trust and the Custodian, include certificate numbers
in such lists.
<PAGE> 21
5. Opinion of Trust's Independent Accountant
The Custodian shall take all reasonable action, as the Trust may
from time to time request, to obtain from year to year favorable
opinions from the Trust's independent accountants with respect to its
activities hereunder in connection with the preparation of the Trust's
Form N-1A, and the Form N-SAR or other annual reports to the Securities
and Exchange Commission and with respect to any other requirements of
such Commission.
6. Reports to Trust by Independent Public Accountants
The Custodian shall provide the Trust, at such times as the Trust
may reasonably require, with reports by independent public accountants
on the accounting system, internal accounting control and procedures
for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a
Securities System, relating to the services provided by the Custodian
under this Contract; such reports, which shall be of sufficient scope
and in sufficient detail, as may reasonably be required by the Trust, to
provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies,
shall so state.
7. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for
its services and expenses as Custodian, as agreed upon from time to
time between the Trust and the Custodian.
<PAGE> 22
8. Responsibility of Custodian
So long as and to the extent that it is in the exercise of
reasonable care, the Custodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Contract and shall
be held harmless in acting upon any notice, request, consent,
certificate or other instrument reasonably believed by it to be
genuine and to be signed by the proper party or parties. The Custodian
shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and
shall be without liability to the Trust for any action taken or
omitted by it in good faith without negligence. It shall be entitled
to rely on and may act upon advice of counsel (who may be counsel for
the Trust) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice.
Notwithstanding the foregoing, the responsibility of the Custodian
with respect to redemptions effected by check shall be in accordance
with a separate Agreement entered into between the Custodian and the
Trust.
If the Trust requires the Custodian to take any action with
respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Trust being liable for the
payment of money or incurring liability of some other form, the Trust,
as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
<PAGE> 23
If the Trust requires the Custodian to advance on behalf of the
account of the Fund cash or securities for any purpose or in the event
that the Custodian or its nominee shall incur on behalf of, or be
assessed with respect to, the account of the Fund any taxes, charges,
expenses, assessments, claims or liabilities in connection with the
performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund
shall be security therefor and should the Trust fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available
cash of such Fund and to dispose of the assets held for such Fund to the
extent necessary to obtain reimbursement.
9. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an instrument
in writing delivered or mailed, postage prepaid to the other party,
such termination to take effect not sooner than thirty (30) days after
the date of such delivery or mailing; provided, however that the
Custodian shall not act under Section 2.12 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Trustees of the Trust has approved the
initial use of a particular Securities System and the receipt of an
annual certificate of the Secretary or an Assistant Secretary that the
Board of Trustees have reviewed the use by the Trust of such Securities
System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended; provided further, however, that the
Trust shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or
<PAGE> 24
any provision of its Agreement and Declaration of Trust, and further
provided, that the Trust may at any time by action of its Board of
Trustees (i) substitute another bank or trust company for the Custodian
by giving notice as described above to the Custodian, or (ii) immediately
terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the
Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the
Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for its costs,
expenses and disbursements.
10. Successor Custodian
If a successor custodian shall be appointed by the Board of
Trustees of the Trust, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian, duly
endorsed and in the form for transfer, all securities and all funds
and other assets then held by it hereunder and shall transfer to an
account of the successor custodian all of the Trust's securities held
in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of
the Board of Trustees of the Trust, deliver at the office of the
Custodian and transfer such securities, funds and other properties in
accordance with such vote.
In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Trustees shall
have been delivered to the Custodian on or before the date when such
termination shall become effective, then the Custodian shall have the
right to deliver to a bank or trust company, which is a "bank" as
defined in the Investment Company Act of
<PAGE> 25
1940, doing business in Boston, Massachusetts, of its own selection,
having an aggregate capital, surplus, and undivided profits, as shown
by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian and all
instruments held by the Custodian relative thereto and all other
property held by it under this Contract and to transfer to an account of
such successor custodian all of the Trust's securities held in any
Securities System. Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain
in the possession of the Custodian after the date of termination
hereof owing to failure of the Trust to procure the certified copy of
vote referred to or of the Board of Trustees to appoint a successor
custodian, the Custodian shall be entitled to fair compensation for
its services during such period as the Custodian retains possession of
such securities, funds and other properties and the provisions of this
Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
11. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian
and the Trust may from time to time agree on such provisions
interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall
be in a writing signed by both parties and shall be annexed hereto,
provided that no such interpretive or additional provisions shall
contravene any applicable federal or state regulations or any
provisions of the Agreement and Declaration of Trust of the Trust. No
interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this
Contract.
<PAGE> 26
12. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
13. Prior Contracts
This Contract supersedes and terminates, as of the date hereof,
all prior contracts between the Trust and the Custodian relating to
the custody of the Trust's assets.
14. Notices
Notices and other writings delivered or mailed by registered mail
postage prepaid to the Trust, Attention: Secretary, Eleventh Floor,
300 West Adams, Chicago, Illinois 60606, or to the Custodian,
Attention: Custody and Shareholder Services--Stein Roe & Farnham, 225
Franklin Street, Boston, Massachusetts 02101, or to such other address as
the Trust or State Street may hereafter specify, shall be deemed to have
been properly delivered or given hereunder to the respective addresses.
15. Successors
This Agreement shall be binding on and shall inure to the benefit
of the Trust and the Custodian and their respective successors.
16. Duties of the Custodian with Respect to Property of the Trust Held
Outside of the United States
16.1 Appointment of Foreign Sub-Custodians
The Custodian is authorized and instructed to employ as sub-
custodians for the Trust's securities and other assets maintained
outside of the United States the foreign banking institutions and
foreign securities depositories designated o Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions," as defined in
Section 2.17, together with a certified
<PAGE> 27
resolution of the Trust's Board of Trustees, Schedule A hereto may be
amended from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as sub-
custodians. Upon receipt of Proper Instructions from the Trust, the
Custodian shall cease the employment of any one or more of such sub-
custodians for maintaining custody of the Trust's assets.
16.2 Assets to be Held
The Custodian shall limit the securities and other assets
maintained in the custody of the foreign sub-custodians to: (a) "foreign
securities," as defined in paragraph (c)(1) of Rule 17f-5 under the
Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Trust may determine to be
reasonably necessary to effect the Trust's foreign securities
transactions.
16.3 Foreign Securities Depositories
Except as may otherwise be agreed upon in writing by the Custodian
and the Trust, assets of the Trust shall be maintained in foreign
securities depositories designated on Schedule A hereto only through
arrangements implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof.
16.4 Segregation of Securities
The Custodian shall identify on its books as belonging to a Fund
the foreign securities held for the Fund by each foreign sub-custodian.
Each agreement pursuant to which the Custodian employs a foreign
banking institution shall require that such institution establish a
custody account (as defined in Exhibit 1 and hereinafter referred to as
"Account") for the Custodian on behalf of the Trust and physically
segregate in that Account, securities and other assets held for the Fund
and, in the event that such institution deposits the
<PAGE> 28
Trust's securities in a foreign securities depository, that it shall
identify on its books as belonging to the Custodian, as agent for the
Trust, the securities so deposited.
16.5 Agreements with Foreign Banking Institutions
Each agreement with a foreign banking institution shall be
substantially in the form set forth in Exhibit 1 hereto and shall
provide in substance that: (a) the foreign banking institution assumes
full responsibility for the acts and obligations of any of its nominees;
(b) the Trust's assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the foreign
banking institution or its creditors, except a claim of payment for
their safe custody or administration; (c) beneficial ownership for the
Trust's assets will be freely transferable without the payment of money
or value other than for custody or administration; (d) adequate records
within the meaning of Rule 17f-5(a)(l)(iii)(D) under the Investment
Company Act of 1940 will be maintained identifying the assets as
belonging to the Trust; (e) officers of, or auditors employed by, or
other representatives of, the Custodian, including to the extent
permitted under applicable law the independent public accountants for
the Trust will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with the
Custodian; and (f) assets of the Trust held by the foreign sub-custodian
will be subject only to the instructions of the Custodian or its agents.
16.6 Access of Independent Accountant of the Trust
Upon request of the Trust, the Custodian will use its best efforts
to arrange for the independent accountants of the Trust to be afforded
access to the books and records of any foreign banking institution
employed as a foreign sub-custodian insofar as such books and records
relate to the performance of such foreign banking institution under its
agreement with the Custodian.
16.7 Reports by Custodian
The Custodian will supply to the Trust from time to time such
statements in respect of the securities and other assets of the Trust
held by foreign sub-custodians as the Trust may reasonably request,
including, but not limited to an identification of entities having
possession of the Trust's securities and other assets and advices or
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian on
behalf of the Trust indicating, as to securities acquired for the Trust,
the identify of the entity having physical possession of such
securities.
16.8 Transactions in Foreign Custody Account
(a) Notwithstanding any provision of the Custodian Contract to the
contrary, settlement and payment for securities received for the account
of any Fund and delivery of securities maintained for the account of any
Fund may be effected in accordance with the customary or established
securities trading or securities processing practices and procedures in
the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or to
a dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer.
(b) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same
extent as set forth in Section 2.3 of this Contract and the Trust agrees
to hold any such nominee harmless from any liability as a holder of
record of such securities.
<PAGE> 30
16.9 Liability of Foreign Sub-Custodians
Each agreement pursuant to which the Custodian employs a foreign
banking institution as a foreign sub-custodian shall require the
institution to exercise reasonable care in the performance of its duties
and to indemnify, and hold harmless, the Custodian and each Account from
and against any loss, damage, cost, expense, liability or claim arising
out of or in connection with the institution's performance of such
obligations. At the election of the Trust, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims
against a foreign sub-custodian as a consequence of any such loss,
damage, cost, expense, liability or claim if and to the extent that the
Trust has not been made whole for any such loss, damage, cost, expense
liability or claim.
16.10 Liability of Custodian
The Custodian shall be liable for the acts or omissions of a
foreign sub-custodian to the same extent as set forth in this contract
with respect to sub-custodians generally and, regardless of whether
assets are maintained in the custody of a foreign banking institution, a
foreign securities depository or a branch of a U.S. bank as contemplated
by Section 16.12 hereof, the Custodian shall not be liable for any loss,
damage, cost, expense, liability or claim resulting from, or caused by,
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or other causes beyond the control of the Custodian or such
foreign sub-custodian.
16.11 Monitoring Responsibilities
The Custodian shall furnish annually to the Trust, information
concerning the foreign sub-custodians employed by the Custodian. Such
information shall be of a kind and scope needed to assist the Board of
Trustees in its compliance with Rule 17f-5 under the Investment Company
Act of 1940.
<PAGE> 31
In addition, the Custodian will promptly inform the Trust in the event
that the Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or is notified by a foreign banking
institution employed as a foreign sub-custodian that there appears to be
a substantial likelihood that its shareholders' equity will decline
below $200 million (U.S. dollars or the equivalent) or that its
shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting
principles).
16.12 Branches of U.S. Banks
Except as otherwise set forth in this Article 16, the provisions
hereof shall not apply where the custody of the Trust assets maintained
in a foreign branch of a banking institution which his a "bank" defined
by Section 2(a)(5) of the Investment Company Act of 1940 which meets the
qualification set forth in Section 26(a) of said Act. The appointment
of any such branch a sub-custodian and the use of a foreign branch of
the custodian shall be governed by Article 1 of this Contract.
17. Non-Liability of Trustees and Shareholders
Any obligation of the Trust hereunder shall be binding only upon
the assets of the Trust (or the applicable Fund), as provided in the
Agreement and Declaration of Trust of the Trust, and shall not be
binding upon any Trustee, officer, employee, agent or shareholder of
the Trust nor upon the assets held in the account of any other Fund.
Neither the authorization of any action by the Trustees or the
shareholders of a Fund, nor the execution of this Contract on behalf
of the Trust shall impose any liability upon any Trustee or any
shareholder. Nothing in this Contract shall protect any Trustee
against any liability to which such Trustee would otherwise be subject
by willful
<PAGE> 32
misfeasance, bad faith or gross negligence in the performance of his
duties, or reckless disregard of his obligations and duties under this
Contract.
18. Additional Funds
In the event that the Trust establishes one or more series of
Shares in addition to the series designated SteinRoe High-Yield Bonds
with respect to which it desires to have Custodian render services as
Custodian under the terms hereof, it shall so notify Custodian in
writing, and if Custodian agrees in writing to provide such services,
such series of Shares shall become a Fund hereunder.
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly
authorized representative and its seal to be hereunder affixed as of
the 24th day of February, 1986.
STEINROE HIGH-YIELD BONDS
BY: LAWRENCE R. MAFFIA
Attest: Senior Vice-President
NICOLETTE D. PARRISH
Assistant Secretary
STATE STREET BANK AND TRUST COMPANY
BY: B. WEIDLICH
Attest: Vice President
V. RENZI
Assistant Secretary
<PAGE>
REVISED
SCHEDULE A TO
CUSTODIAN AGREEMENT
BETWEEN STEINROE INCOME TRUST
AND
STATE STREET BANK AND TRUST COMPANY
Depository: Euroclear
Custodian: State Street London Limited
Acknowledged by State Street Bank: Myrna F. Giberson
Date: 5/17/88
<PAGE>
Exhibit 1
CUSTODIAN AGREEMENT
To:
Gentlemen:
The undersigned ("State Street") hereby requests that you (the Bank)
establish a custody account and a cash account for each
custodian/employee benefit plan identified in the Schedule attached to
this Agreement and each additional account which is identified to this
Agreement. Each such custody or cash account as applicable will be
referred to herein as the "Account" and will be subject to the
following terms and conditions:
1. The Bank shall hold as agent for State Street and shall physically
segregate in the Account such cash, bullion, coin, stocks, shares,
bonds, debentures, notes and other securities and other property
which is delivered to the Bank for that State Street Account (the
"Property").
2. a. Without the prior approval of State Street it will not deposit
securities in any securities depository or utilize a clearing
agency, incorporated or organized under the laws of a country
other than the United States, unless such depository or
clearing house operates the central system for handling of
securities or equivalent book-entries in that country or
operates a transnational system for the central handling of
securities or equivalent book-entries;
b. When securities held for an Account are deposited in a
securities depository or clearing agency by the Bank, the Bank
shall identify on its books as belonging to State Street as
agent for such Account, the securities so deposited.
3. The Bank represents that either:
a. It currently has stockholders' equity in excess of $200
million (U.S. dollars or the equivalent of U.S. dollars
computed in accordance with generally accepted U.S. accounting
principles) and will promptly inform State Street in the event
that there appears to be a substantial likelihood that its
stockholders' equity will decline below $200 million, or in
any event, at such time as its stockholders' equity in fact
declines below $200 million; or
b. It is the subject of an exemptive order issued by the United
States Securities and Exchange Commission, which such order
permits State Street to employ the Bank as a subcustodian,
notwithstanding the fact that the Bank's stockholders' equity
is currently below $200 million or may in the future decline
below $200 million due to currency fluctuation.
4. Upon the written instructions of State Street, as permitted by
Paragraph 8, the Bank is authorized to pay cash from the Account
and to sell, assign, transfer, deliver or exchange, or to purchase
for the Account, any and all stocks, shares, bonds, debentures,
notes and other securities ("Securities"), bullion, coin and any
other property, but only as provided in such written instructions.
The bank shall not be held liable for any act or omission to act
on instructions given or purported to be given should there be any
error in such instructions.
5. Unless the Bank receives written instructions of State Street to
the contrary, the Bank is authorized:
a. To promptly receive and collect all income and principal with
respect to the Property and to credit cash receipts to the
Account;
b. To promptly exchange securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the securities themselves);
c. To promptly surrender securities at maturity or when called
for redemption upon receiving payment therefor;
d. Whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or
stock split is received for the Account and such rights
entitlement or fractional interest bears an expiration date,
the Bank will endeavor to obtain State Street Bank's
instructions, but should these not be received in time for the
Bank to take timely action, the Bank is authorized to sell
such rights entitlement or fractional interest and to credit
the Account;
e. To hold registered in the name of the nominee of the Bank or
its agent such Securities as are ordinarily held in registered
form;
f. To execute in State Street's name for the account, whenever
the Bank deems it appropriate, such ownership and other
certifies as may be required to obtain the payment of income
from the Property; and
g. To pay or cause to be paid, from the Account any and all taxes
and levies in the nature of taxes imposed on such assets by
any governmental authority and shall use reasonable efforts,
to promptly reclaim any foreign withholding tax relating to
the Account.
6. If the Bank shall receive any proxies, notices, reports or other
communications relative to any of the Securities of the Account in
connection with tender offers, reorganization, mergers,
consolidations, or similar events which may have an impact upon
the issuer thereof, the Bank shall promptly transmit any such
communication to State Street Bank by means as will permit State
Street Bank to take timely action with respect thereto.
7. The Bank is authorized in its discretion to appoint brokers and
agents in connection with the Banks' handling of transactions
relating to the Property provided that any such appointment shall
not relieve the Bank of any of its responsibilities or liabilities
hereunder.
8. Written instructions shall include (i) instructions in writing
signed by such persons as are designated in writing by State
Street; (ii) telex or tested telex instructions of State Street;
(iii) other forms of instruction in computer readable form as
shall be customarily utilized for the transmission of like
information; and (iv) such other forms of communication as from
time to time shall be agreed upon by State Street and the Bank.
9. The Bank shall supply periodic reports with respect to the
safekeeping of assets held by it under this agreement. The
content of such reports shall include but not be limited to any
transfer to or from any account held by the Bank hereunder and
such other information as State Street may reasonably request.
10. In addition to its obligation sunder Section 2B hereof, the Bank
shall maintain such other records a may be necessary to identify
the assets hereunder as belonging to each custodian/employee
benefit plan identified in our Schedule attached to this agreement
and each additional account which is identified to this agreement.
11. The Bank agrees that its books and records relating to its
actions under this Agreement shall be opened to the physical, on-
premises inspection and audit at reasonable times by officers of,
auditors employed by or other representatives of State Street
(including to the extent permitted under _____ law the independent
public accountants for any entity whose Property is being held
hereunder) and shall be retained for such period as shall be
agreed by State Street and the Bank.
12. The Bank shall be entitled to reasonable compensation for its
services and expenses as custodian under this Agreement, as agreed
upon from time to time by the Bank and State Street.
13. The Bank shall exercise reasonable care in the performance of its
duties, as are set forth or contemplated herein or contained in
instructions given to the Bank which are not contrary to this
Agreement, shall maintain adequate insurance and agrees to
indemnify and hold harmless, State Street and each Account from
and against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the Bank's performance of its
obligations hereunder.
14. The bank agrees (i) the property held hereunder is not subject to
any right, charge, security interest, lien or claim of any kind in
favor of the Bank or any of its agents or its creditors except a
claim of payment for their safe custody and administration and
(ii) the beneficial ownership of the property shall be freely
transferable without the payment of money or other value other
than for safe custody or administration.
15. This Agreement may be terminated by the Bank or State Street by
60 days' written notice to the other, sent by registered mail or
express courier. The Bank, upon the date this Agreement
terminates pursuant to notice which has been given in a timely
fashion, shall deliver the Property to the beneficial owner unless
the Bank has received from the beneficial owner 60 days' prior to
the date on which this Agreement is to be terminated written
instructions of State Street specifying the name(s) of the
person(s) to whom the Property shall be delivered.
16. The Bank and State Street shall each use its best efforts to
maintain the confidentially of the property in each Account,
subject, however, to the provisions of any laws requiring the
disclosure of the Property.
17. Unless otherwise specified in this Agreement, all notices with
respect to matters contemplated by this Agreement shall be deemed
duly given when received in writing or by confirmed telex by the
Bank or State Street at their respective addresses set forth
below, or at such other address as to be specified in each case in
a notice similarly given:
To State Street Master Trust Division, Global Custody
STATE STREET BANK AND TRUST COMPANY
P.O. Box 1713
Boston, Massachusetts 02105
U.S.A.
To the Bank
18. This Agreement shall be governed by and construed in accordance
with the laws of _______ except to the extent that such laws are
preempted by the laws of the United States of America.
Please acknowledge your agreement to the foregoing by executing a copy
of this letter.
Very truly yours,
STATE STREET BANK AND TRUST COMPANY
By:_________________________
Vice President
Date: _________________________
Agreed to by:
By: _______________
Date: _____________
0043k/4
<PAGE> 1
AMENDMENT TO THE CUSTODIAN CONTRACT
BETWEEN STATE STREET BANK AND TRUST COMPANY AND
STEINROE HIGH-YIELD BONDS
AGREEMENT made this 4th day of November, 1986 by and between
State Street Bank and Trust Company (the "Custodian") and SteinRoe
High-Yield Bonds (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a
custodian contract dated February 24, 1986 (the "Custodian
Contract") governing the terms and conditions under which the
Custodian maintains custody of the securities and other assets of
the Fund; and
WHEREAS, the terms of the Custodian Contract provide for the
maintenance of the Fund's foreign securities, and cash incidental
to transactions in such securities, in the custody of certain
foreign banking institutions and foreign securities depositories.
WHEREAS, the parties hereto desire further to amend the
Custodian Contract to provide for the maintenance of certain of
the Fund's foreign securities and other assets in the custody of
State Street London Limited (the "Trust Company"), a company
incorporated under the laws of the United Kingdom with the power
to act as a trustee and as a custodian of securities;
NOW THEREFORE, in consideration of the premises and covenants
contained herein, the Custodian and the Fund hereby amend the
terms of the Custodian Contract and agree to the following terms
and conditions:
1. The Fund hereby authorizes and instructs the Custodian to
employ the services of the Trust Company, as the sub-custodian in
the United Kingdom, to hold securities and other assets of the
Fund, subject to the terms of the Custodian Agreement, as
heretofore amended, and to the terms and conditions hereof.
2. The securities to be held by the Trust Company shall be
limited to "foreign securities" as defined by paragraph (c)(1) of
Rule 17f-5 under the Investment Company Act of 1940 (the "1940
Act").
3. Cash held for the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the Fund
with the Trust Company, which account shall be subject to the
direction of the Custodian, the Trust Company, or both.
<PAGE> 2
4. The Custodian represents that it has obtained an order
from the Securities and Exchange Commission, pursuant to Section
6(c) of the 1940 Act, exempting the Custodian and the Fund from
the provisions of Section 17(f) of said Act, to the extent
necessary to permit the securities and other assets of the Fund to
be maintained in the custody of the Trust Company.
5. In delegating custody duties and obligations to the Trust
Company as permitted hereunder, the Custodian agrees that it
shall not be relieved of any responsibility to the Fund for any
loss due to such delegation to the Trust Company except for such
loss as may result from: (a) political risk (including, but not
limited to, exchange control restrictions, confiscation,
expropriation, nationalization, insurrection, civil strife or
armed hostilities) or (b) other risk of loss (excluding a
bankruptcy or insolvency of the Trust Company not caused by a
political risk) for which neither the Custodian nor the Trust
Company would be liable (including, but not limited to, losses due
to Acts of God, nuclear incident and other losses under
circumstances where the Custodian and the Trust Company have
exercised reasonable care).
6. Except as specifically superseded or modified herein, the
terms and conditions of the Custodian Contract, as heretofore
amended, shall continue to apply with full force and effect.
7. This instrument may be executed in counterparts.
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly
authorized representative and its seal to be hereunder affixed as
of the 4th day of November, 1986.
STEINROE HIGH-YIELD BONDS
By: LAWRENCE R. MAFFIA
ATTEST: Senior Vice-President
JILAINE HUMMEL BAUER
Secretary
STATE STREET BANK AND TRUST COMPANY
BY:
Vice President
ATTEST:
P. H. LARSEN
Assistant Secretary
<PAGE> 1
AMENDMENT TO CUSTODIAN CONTRACT
BETWEEN STATE STREET BANK AND
TRUST COMPANY AND
STEINROE HIGH-YIELD BONDS
AMENDMENT made this 20th day of April 1987 by and between
State Street Bank and Trust Company (the "Custodian") and SteinRoe
High-Yield Bonds (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a
Custodian Contract dated February 24, 1986 ( the "Custodian
Contract") governing the terms and conditions under which the
Custodian maintains custody of the securities and other assets of
the Fund; and
WHEREAS, the terms of the Custodian Contract provide for the
maintenance of the Fund's foreign securities, and cash incidental
to transactions in such securities, in the custody of certain
foreign banking institutions and foreign securities depositories;
and
WHEREAS, the terms of the Custodian Contract were further
modified to provide for the maintenance of certain of the Fund's
foreign securities and other assets in the custody of State Street
London Limited (the "Trust Company"), a company incorporated under
the laws of the Untied Kingdom with the power to act as a trustee
and as a custodian of securities, pursuant to an amendment to the
Custodian Contract dated November 4, 1986 (the "November 4, 1986
Amendment"); and
WHEREAS, at the request of the Custodian, the parties hereto
further modified the terms of the Custodian by striking the phrase
"Custodian's London Branch" in Section 3 of the November 4, 1986
Amendment and inserting in its place the phrase "Trust Company"
(the "Corrected November 4, 1986 Amendment"); and
WHEREAS, the modification to Section 3 of the November 4,
1986 Amendment was erroneously made and therefore the parties
hereto desire to amend Section 3 by striking the phrase "Trust
Company" in Section 3 of the Corrected November 4, 1986 Amendment
and reinserting in its place the original phrase "Custodian's
London Branch";
NOW, THEREFORE, in consideration of the premises and covenant
contained herein, the Custodian and the Fund hereby amend and
restate Section 3 as follows:
Cash held for the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the
Fund with the Custodian's London Branch, which account shall
be subject to the direction of the Custodian, the Trust
Company, or both.
<PAGE> 2
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its dully
authorized representative and its seal to be hereunder affixed as
of the 20th day of April, 1987.
STEINROE HIGH-YIELD BONDS
By: LAWRENCE R. MAFFIA
ATTEST: Senior Vice-President
NICOLETTE D. PARRISH
Assistant Secretary
STATE STREET BANK AND TRUST COMPANY
BY:
Vice President
ATTEST:
J. FARRELL
Assistant Secretary
<PAGE> 1
AMENDMENT TO THE CUSTODIAN CONTRACT
BETWEEN STATE STREET BANK AND TRUST COMPANY AND
STEINROE INCOME TRUST (PREVIOUSLY NAMED STEINROE HIGH-YIELD BONDS)
Amendment made this 1st day of January, 1988 by and between
State Street Bank (the "Custodian") and SteinRoe Income Trust (the
"Trust").
WHEREAS, the Custodian and the Trust and parties to a
Custodian Contract dated February 24, 1986 (the "Custodian
Contract") governing the terms and conditions under which the
Custodian maintains custody of the securities and other assets of
the Trust;
WEHEREAS, the Custodian Contract provides for release and
delivery of securities owned by the Trust only in certain
enumerated cases;
WHEREAS, one such case is in accordance with the "street
delivery" custom described in Section 2.2(7) of the Custodian
Contract;
WHEREAS, the Custodian and the Trust desire to amend the
provisions of Section 2.2(7) of the Custodian Contract describing
the "street delivery" custom;
NOW THEREFORE, in consideration of the premises and covenants
contained herein, the Custodian and Trust hereby agree that
Section 2.2(7) of the Custodian Contract is restated as follows:
Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, in
accordance with "street delivery" custom; provided that in
any such case, the Custodian shall have no responsibility or
liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities
except as may arise from the Custodian's own negligence or
willful misconduct;
IN WITNESS WHEREOF, each of the parties has caused this
Amendment to be executed in its name and behalf by its duly
authorized representative this 1st day of January, 1988.
STEINROE INCOME TRUST
By: LAWRENCE R. MAFFIA
ATTEST: Senior Vice-President
NICOLETTE D. PARRISH
Assistant Secretary
STATE STREET BANK AND TRUST COMPANY
BY: M. GIBERSON
Vice President
ATTEST:
J. FARRELL
Assistant Secretary
<PAGE> 1
AMENDMENT
TO CUSTODIAN CONTRACT
The Custodian Contract dated February 24, 1986 between
SteinRoe Income Trust (the "Trust") and State Street Bank and
Trust Company (the "Custodian") is hereby amended as follows:
I. Section 2.1 is amended to read as follows:
"Holding Securities. The Custodian shall hold and
physically segregate for the account of each Fund all non-cash
property, including all securities, owned by the Trust and
allocated to that Fund, other than (a) securities which are
maintained pursuant to Section 2.12 in a clearing agency which
acts as a securities depository or in a book- entry system
authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System" and (b) commercial
paper of an issuer for which the Custodian acts as issuing and
paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian pursuant to
Section 2.12.A."
II. Section 2.2 is amended to read, in relevant part, as
follows:
"Delivery of Securities. The Custodian shall release and
deliver securities owned by the Trust, held for the account of a
Fund, held either (i) by the Custodian, (ii) in a Securities
System account of the Custodian, or (iii) in the Custodian's
Direct Paper book entry system account ("Direct Paper System
Account") only upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties,
and only in the following cases:
(1) Upon sale of such securities for the account of the Fund
and receipt of payment therefor;
<PAGE> 2
(2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered
into by the Trust;
(3) In the case of a sale effected through a Securities
System, in accordance with the provisions of Section 2.12
hereof;
(4) To the depository agent in connection with tender or
other similar offers for portfolio securities of the
Fund;
(5) To the issuer thereof or its agent when such securities
are called, redeemed, retired or otherwise become
payable; provided that, in any such case, the cash or
other consideration is to be delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into
the name of the Trust or into the name of any nominee or
nominees of the Custodian or into the name or nominee
name of any agent appointed pursuant to Section 2.11 or
into the name or nominee name of any subcustodian
appointed pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other evidence
presenting the same aggregate face amount or number of
units; provided that, in such case, the new securities
are to be delivered to the Custodian and will be held by
the Custodian for the account of the Fund;
(7) To the broker selling the same for examination in
accordance with the "street delivery" custom;
(8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization,
or readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
<PAGE> 3
securities and cash, if any, are to be delivered to the
Custodian and will be held by the Custodian for the
account of the Fund;
(9) In the case of warrants, rights or similar securities,
the surrender thereof in the exercise of such warrants,
rights or similar securities or the surrender of interim
receipts or temporary securities for definitive
securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian and will be held by the Custodian for the
account of the Fund;
(10) For delivery in connection with any loans of securities
made by the Trust from the Fund's portfolio, but only
against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Trust, which
may be in the form of cash or obligations issued by the
United States government, its agencies or
instrumentalities, except that in connection with any
loans for which collateral is to be credited to the
Custodian's account in the book-entry system authorized
by the U.S. Department of the Treasury, the Custodian
will not be held liable or responsible for the delivery
of securities owned by the Trust prior to the receipt of
such collateral;
(11) For delivery as security in connection with any
borrowings by the Trust requiring a pledge of assets in
the Fund's portfolio, but only against receipt of amounts
borrowed;
(12) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer, relating to compliance with the rules of The
Options Clearing Corporation and of any registered
national securities exchange, or of any similar
<PAGE> 4
organization or organizations, regarding escrow or other
arrangements in connection with options transactions by
the Trust;
(13) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian, and a Futures
Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or
organizations, regarding account deposits in connection
with futures transactions by the Trust for the account of
the Fund;
(14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Trust, for delivery to such
Transfer Agent or to the holders of Shares of the Fund in
connection with distributions in kind, as may be
described from time to time in the Fund's currently
effective prospectus and statement of additional
information ("prospectus"), in satisfaction of requests
by holders of Shares of the Fund for repurchase or
redemption;
(15) For delivery in connection with any reverse repurchase
agreement entered into by the Trust with respect to the
Fund, but only against receipt for the account of the
Fund of the amount payable by the other party to the
agreement;
(16) For any other proper purpose, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or of the Executive
Committee signed by an officer of the Trust and certified
by the Secretary or an Assistant Secretary, specifying
the securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such
purposes to be proper purposes, and naming the person or
persons to whom delivery of such securities shall be
made; and
<PAGE> 5
(17) In the case of a sale effected through the Direct Paper
System of the Custodian, in accordance with the
provisions of Section 2.12.A hereof."
III. Section 2.8(1) is amended to read, in relevant part, as
follows:
"Payment of Trust Moneys. Upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, the Custodian shall pay out Trust
moneys held in a Fund's account in the following cases only:
(1) Upon purchase of securities, options, futures contracts
or options on futures contracts for the account of the
Fund but only (a) against the delivery of such
securities, or evidence of title to such options, futures
contracts or options on futures contracts, to the
Custodian (or any bank, banking firm or trust company
doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as
amended, to act as a custodian and has been designated by
the Custodian as its agent for this propose) registered
in the name of the Trust or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of a purchase
effected through a Securities System, in accordance with
the conditions set forth Section 2.12 hereof; (c) in the
case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section
2.12.A; or (d) in the case of repurchase agreements
entered into between the Trust (on behalf of the Fund)
and the Custodian, or another bank, or a broker-dealer,
(i) against delivery of the securities either in
certificate form or through an entry crediting the
Custodian's segregated non-proprietary account
<PAGE> 6
at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by
the Trust of securities owned by the Custodian along with
written evidence of the agreement by the Custodian to
repurchase such securities from the Trust."
IV. Following Section 2.12, there is inserted a new Section
2.12.A to read as follows:
"2.12.A. Trust Assets held in the Custodian's Direct Paper
System. The Custodian may deposit and/or maintain securities
owned by the Trust, held for the account of a Fund, in the Direct
Paper System of the Custodian subject to the following provisions:
(1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper
Instructions;
(2) The Custodian may keep securities of the Fund in the
Direct Paper System only if such securities are
represented in an account ("Account") of the Custodian in
the Direct Paper System which shall not include any
assets of the Custodian other than assets held as a
fiduciary, custodian, or otherwise for customers;
(3) The records of the Custodian with respect to securities
of the Fund which are maintained in the Direct Paper
System shall identify by book-entry those securities
belonging to the Fund;
(4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the
records of the Custodian to reflect such payment and
transfer of securities to the account of the Fund. The
Custodian shall transfer securities sold for the account
of the Fund upon the making of an entry on the
<PAGE> 7
records of the Custodian to reflect such transfer and
receipt of payment for the account of the Fund;
(5) The Custodian shall furnish the Trust confirmation of
each transfer to or from the account of the Fund, in the
form of a written advice or notice, of Direct Paper on
the next business day following such transfer and shall
furnish to the Trust copies of daily transaction sheets
reflecting each day's transactions in the Securities
System for the account of the Fund; and
(6) The Custodian shall provide the Trust with any report on
its system of internal accounting controls as the Trust
may reasonably request from time to time."
V. Section 9 is hereby amended to read as follows:
"Effective Period, Termination and Amendment. This Contract
shall become effective as of its execution, shall continue in full
force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and
may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid to the other party, such
termination to take effect not sooner than thirty (30) days after
the date of such delivery or mailing; provided, however that the
Custodian shall not act under Section 2.12 hereof in the absence
of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees of the Trust has
approved the initial use of a particular Securities System and the
receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Trustees has reviewed the use by the
Trust of such Securities system, as required in each case by Rule
17f-4 under the Investment Company Act of 1940, as amended, and
that the Custodian shall not act under Section 2.12.A hereof in
the absence of receipt of an initial certificate of
<PAGE> 8
the Secretary or an Assistant Secretary that the Board of Trustees
has approved the initial use of the Direct Paper System and the
receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Trustees has reviewed the use by the
Trust of the Direct Paper System; provided further, however, that
the Trust shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or
any provision of its Agreement and Declaration of Trust, and
further provided, that the Trust may at any time by action of its
Board of Trustees (i) substitute another bank or trust company for
the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the
event of the appointment of a conservator or receiver for the
Custodian by the Comptroller of the Currency or upon the happening
of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the
Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements."
Except as otherwise expressly amended and modified herein,
the provisions of the Custodian Contract shall remain in full
force and effect.
IN WITNESS WHREOF, each of the parties hereto has caused this
amendment to be executed in its name and on its behalf by its duly
authorized representatives and its Seal to be hereto affixed as of
the 29th day of October, 1992.
STEINROE INCOME TRUST
By: LAWRENCE R. MAFFIA
ATTEST: Senior Vice-President
JILAINE HUMMEL BAUER
Secretary
STATE STREET BANK AND TRUST COMPANY
BY: MAUREEN L. CORCORAN
Vice President
ATTEST:
CHRISTINE MARTIN
Assistant Secretary
<PAGE> 1
STATE STREET BANK AND TRUST COMPANY
ORIGINATING BANK AGREEMENT
FOR AUTOMATED CLEARING HOUSE SERVICES
In consideration of their mutual promises contained herein,
SteinRoe Income Trust ("Company") and State Street Bank and
Trust Company ("SSB") agree as follows:
1. TERMS. Terms used herein which are defined in the Operating
Rules of the New England Automated Clearing House Association ("the
Association") shall have the same meaning herein as they have under
those Operating Rules.
2. PURPOSE. For the purpose of effecting payment through the
Association, the Company may from time to time initiate electronic
credit and debit entries to and from deposit accounts maintained by
its Receiver at a Receiving Depositor Financial Institution
("Receiving Bank"). Under such a plan, SSB will act as an Originating
Depository Financial Institution ("Originating Bank") for the
electronic debit and credit entries originated by the Company in
accordance with the Operating Rules of the Association.
3. RULES. The company shall comply with and be bound by the
Operating Rules of the Association and the Operating Rules of the
National Automated Clearing House Association as in effect from time
to time. The Company represents and warrants to SSB that it is an
Organization and its Receivers are Organizations as defined in the
Operating Rules of the Association.
4. COMPANY ACCOUNT. The Company shall establish or designate in
writing to SSB the Company Account or Accounts (collectively referred
to as the Company Account) at SSB for the purpose of this Agreement.
The Company shall notify SSB in writing of any change in the
designation of the Company Account. Any electronic debit or credit
entry to the Company Account shall be made on the banking day at SSB
on which the entry to or from the account is made at the Receiving
Bank. SSB may debit the Company Account for any amount payable by the
Company to SSB.
5. AUTHORIZATION BY RECEIVRS. Each of the Company's Receivers
participating in this plan will authorize the Company to initiate
electronic debit entries payable at the Receiving Bank where its
checking account is maintained and will authorize such Bank as the
case may be to honor and pay such debit entries. Each of the
Company's Receivers participating in this plan will also authorize the
Company to initiate electronic credit entries for sums due and payable
to it for deposit at the Receiving Bank where its deposit account is
maintained and will authorize such Bank as the case may be to accept
such credit entries.
6. PREPARATION OF ENTRIES. SSB shall prepare Prenotifications
and Entries (referred to herein collectively as "entries") on the
basis of data provided by the Company. Such data (referred to herein
as "entry data") shall be in the form, have the content, and be
transmitted to SSB as set forth by SSB standards. SSB shall have no
obligation to act on entry data received which does not comply with
SSB standards and SSB shall have no obligation to reverse, adjust, or
stop payment or posting of any such entry data received or any entry
prepared therefrom; provided, however, if requested by Company, SSB
shall not unreasonably refuse to reverse, adjust, or stop payment or
posting of any such entry data received on any entry prepared
therefrom.
<PAGE> 2
7. COMPANY AUTHORIZATIONS.
(a) The Company shall provide, on forms supplied by SSB,
certification of signatures of one or more persons authorized by the
Company (an "Authorized Person") to deliver entry data via electronic
tape or disk to SSB on behalf of the Company under this Agreement.
The signature of each Authorized Person shall be certified by the
Secretary of the Company. All such tape or disk entry data shall be
accompanied by a transmittal letter executed by an Authorized Person.
SSB shall be entitled to act (or refrain from acting, if appropriate)
under this Agreement on any signature reasonably believed by SSB to be
that of an Authorized Person. Any writing bearing such a signature
shall be deemed to have been executed by an Authorized Person on
behalf of the Company.
(b) For transmittal of entry data via telephone or terminal
authorization, SSB will provide passwords to the Company. It is the
responsibility of the Company to control password usage and to guard
against unauthorized use of the password. SSB may act upon all entry
data successfully transmitted via usage of the Company's password and
SSB shall have no obligation, responsibility, or liability for entry
data transmitted via unauthorized use of the Company's password.
8. TRANSMITTAL OF ENTRIES AND SETTLEMENT. Except in the case of
entries initiated to accounts maintained with SSB (referred to herein
as "on us entries"), SSB shall transmit entries which comply with the
requirements provided for herein to the Association and settle for
such entries in accordance with the Association's Rules. Where entry
data is received by SSB prior to a deadline set by SSB, SSB shall
transmit the entries prepared from such entry data (other than on us
entries) to the Association prior to the applicable Association
deadline. In the event SSB receives entry data after 5:00 p.m.,
Chicago time, SSB shall have no obligation to transmit the entries
derived therefrom to the Association prior to the Association
deadline. Any SSB deadline may be changed by SSB from time to time on
30 days' prior written notice to the Company.
9. DEBIT ENTRIES
(a) SSB shall credit the Company Account with the amount of each
debit entry transmitted by SSB to the Association. Thereafter, the
Company shall be entitled to withdraw the amount of such credit. In
the event such a debit entry is returned by a Receiving Bank in
accordance with the Operating Rules after SSB has provided such
credit, the Company shall, upon demand, repay SSB the amount of such
entry.
(b) Upon receipt of debit entries at a Receiving Bank, the
payment amounts will be debited to the Receiver's account, provided,
however, that should such Bank be unable or unwilling to make such
charge, it may return the debit entry in accordance with the Operating
Rules of the Association or SSB Operating Procedures, whichever is
applicable.
10. CREDIT ENTRIES.
(a) SSB shall debit the Company Account with the amount of each
credit entry transmitted by SSB to the Association. The Company shall
maintain in the Company Account sufficient immediately-available funds
to pay each credit entry sent to the Association.
<PAGE> 3
(b) In the event that there are not sufficient collected funds to
perform the debit, SSB has no obligation to perform the requested
transfer.
(c) SSB shall promptly recredit the Company Account with the
amount of each credit entry (which was a debit to the Company Account)
which is rejected by SSB, and each other credit entry which is
returned by the Receiving Bank, provided that SSB has obtained payment
for the returned entry from such Receiving Bank.
(d) Upon receipt of credit entries at a Receiving Bank, the
payment amounts will be credited to the Receiver's account, provided,
however, that should such Bank be unable or unwilling to make such
credit, it may return the credit entry in accordance with the
Operating Rules of the Association or SSB Operating Procedures,
whichever is applicable. Upon receipt by SSB of the returned credit
entry, the Company account shall be credited with the amount of the
entry.
11. ON US ENTRIES. In the case of on us entries, SSB shall
credit or debit the amount of each such entry to the appropriate
Receiver's account maintained with SSB.
12. REVERSING ENTRIES. SSB shall initiate reversing entries, at
the Company's request, in accordance with the Operating Rules of the
Association; however, SSB does not guarantee that such reversing
entries will be accepted by the Receiving Bank. If a Receiving Bank
does not or cannot accept the reversing entry, SSB shall have no
further obligations to the Company with respect to such reversing
entries, except to notify the Company by telephone followed by written
confirmation.
13. ACCURACY OF ENTRIES. SSB shall not have any responsibility
for the accuracy of any entry furnished by the Company nor shall SSB
be under any duty to furnish advices of entries, or any other
statements to the Receivers concerned, except as otherwise provided by
applicable law or rules. By the act of transmitting entries to SSB,
the Company shall warrant to SSB that the Company has full right to
use and deal with the funds represented by those entries. SSB may act
upon an entry provided by the Company regardless of the medium by
which the entry is transmitted to SSB, including the Company's entries
that will be communicated by the Company to SSB as a result of
telephone authorization. SSB may rely upon the authenticity and
accuracy of communications made to SSB on behalf of the Company. SSB
shall not be responsible nor liable for acting upon, in good faith,
any communication for debit or credit or other entries believed by it
to be genuine, but that were not authorized by the Company; provided
that SSB has acted in accordance with its own procedures and all
applicable rules.
14. BANK LIABILITY. Notwithstanding any provision to the
contrary contained herein, SSB shall only be liable to the Company
under this Agreement for its failure to exercise ordinary care in
performing the services provided for herein. SSB shall have no
liability or responsibility to the Company with regard to any other
matter, including without limitation, any act or omission by the
Association, any other financial institution, the Federal Reserve Bank
of Boston, or any other person or entity. SSB shall have no liability
to the Company for any damages or losses due to strikes, breakdowns or
other nonfunctioning of equipment, impossibility of performance, or
other causes or circumstances beyond SSB's control. In the event that
SSB or its employees shall
<PAGE> 4
become liable to the Company for failure to exercise ordinary care,
such liability will be limited to actual damages proved, or the amount
of the entry reduced by the amount which could not have been realized
by the exercise of ordinary care, whichever is less. SSB shall have
no liability to the Company for any consequential or special damages.
15. COMPANY LIABLITY. The Company shall be deemed to make the
same warranties to SSB with respect to both on us entries and other
entries subject to this Agreement as SSB is deemed to make under the
Rules, and SSB shall have no responsibility with respect to the
matters so warranted by Company. In the case of on us entries, such
warranties shall apply as of the time such entries are processed by
SSB. The Company shall indemnify and hold SSB harmless from and
against any and all claims, demands, loss, liability, or expenses
(including attorneys' fees and costs) resulting directly or indirectly
from (a) a breach of any such warranty, (b) the debiting or crediting
of the amount of an entry to the account of any person, as requested
by the Company, (c) the delay of any financial institution other than
SSB in debiting or crediting, or the failure of such institution to
debit or credit the amount of any entry, as requested by the Company,
(d) delay of the Company in initiating or the failure of the Company
to initiate any entry, (e) claims by the Company's receivers with
respect to acts or omissions or claimed acts or omissions of the
Company, (f) claims by any Receiving Bank with respect to acts or
omissions or claimed acts or omissions of the Company, (g) claims by
the Association with respect to acts or omissions or claimed acts or
omissions of the Company, and (h) acts of, or claims by, any person or
entity which receives entry data from the Company and transmits such
data to SSB.
16. COOPERATION. The Company and SSB agree to cooperate
promptly and fully in the investigation of any claim asserted by any
person arising out of this Agreement or the transactions contemplated
thereby.
17. SERVICE FEE. The Company shall pay SSB a service fee which
may be changed from time to time by SSB upon 30 days' prior written
notice to the Company. Such service fee shall be paid in cash or by
any other means agreed upon by the Company and SSB from time to time.
18. HEADINGS. Headings are used for reference only and shall
not be deemed a part of this Agreement.
19. TERMINATION. This Agreement may be terminated either by SSB
or the Company upon 30 days' prior notice in writing. Notwithstanding
such termination, this Agreement shall remain in full force and effect
as to all transactions taking place prior to the termination date.
20. APPLICABLE LAW. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts. In the
event of any conflict between provisions of this Agreement and any
applicable law or regulation, these provisions shall be deemed
modified to the extent, and only to the extent, required to comply
with such law or regulation.
21. ENTIRE AGREEMENT. This Agreement supplements the Custodian
Contract dated February 24, 1986 and its amendments, and together they
embody the entire agreement of the parties with regard to the subject
matter hereof and supersedes all previous negotiations,
representations, and agreements with respect thereof. This Agreement
shall be binding upon the parties hereto and
<PAGE> 5
their respective successors and assignees. This Agreement may be
amended only in writing signed by both parties.
22. NON-LIABILITY OF COMPANY AND ITS SHAREHOLDERS. Any
obligation of the Company hereunder shall be binding only upon the
assets of the Company (or the applicable series there) and shall not
be binding upon any trustee, officer, employee, agent, or shareholder
of the Company. Neither the authorization of any action by the
trustees or shareholders of Company nor the execution of this
Agreement on behalf of Company shall impose any liability upon any
trustee or shareholder.
The Company has executed two counterpart originals of this
Agreement. The Company requests that SSB assent to each one, insert
an effective date on each one, and return one to the Company.
This Agreement is effective as of the 4th day of May, 1989.
STEINROE INCOME TRUST
By: JAMES D. WINSHIP Date: May 4, 1989
Title: Chief Executive Officer
STATE STREET BANK AND TRUST COMPANY
By: PATRICIA T. MAHONEY Date: May 30, 1989
Title: Vice President
<PAGE>
AMENDMENT TO
CUSTODIAN CONTRACT
Amendment to the Custodian Contract between SteinRoe
Income Trust, a business trust organized and existing under the laws
of Massachusetts, having a principal place of business at 300 W.
Adams, Chicago, Illinois 60606 (hereinafter called the "Fund"), and
State Street Bank and Trust Company, a Massachusetts trust company,
having its principal place of business at 225 Franklin Street, Boston
Massachusetts 02110 (hereafter called the "Custodian").
WHEREAS: The Fund and the Custodian are parties to a Custodian
Contract dated January 1, 1988 (the "Custodian Contract");
WHEREAS: The Fund desires that the Custodian issue a letter of
credit (the "Letter of Credit") on behalf of the Fund for the benefit
of ICI Mutual Insurance Company (the "Company") in accordance with the
Continuing Letter of Credit and Security Agreement and that the Fund's
obligations to the Custodian with respect to the Letter of Credit
shall be fully collateralized at all times while the Letter of Credit
is outstanding by, among other things, segregated assets of the Fund
equal to 125% of the face amount to the amount of the Letter of
Credit;
WEREAS: the Custodian Contract provides for the establishment of
segregated accounts for proper Fund purposes upon Proper Instructions
(as defined in the Custodian Contract); and
<PAGE>
WHEREAS: The Fund and the Custodian desire to establish a
segregated account to hold the collateral for the Fund's obligations
to the Custodian with respect to the Letter of Credit and to amend the
Custodian Contract to provide for the establishment and maintenance
thereof;
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto hereby amend the
Custodian Contract as follows:
1. Capitalized terms used herein without definition shall have
the meanings ascribed to them in the Custodian Contract.
2. The Fund hereby instructs the Custodian to establish and
maintain a segregated account (the "Letter of Credit Custody Account")
for and in behalf of the Fund as contemplated by Section 2.13(iv) for
the purpose of collateralizing the Fund's obligations under this
Amendment to the Custodian Contract.
3. The Fund shall deposit with the Custodian and the Custodian
shall hold in the Letter of Credit Custody Account cash, U.S.
government securities and other high-grade debt securities owned by
the Fund acceptable to the Custodian (collectively "Collateral
Securities") equal to 125% of the face amount to the amount which the
Company may draw under the Letter of Credit. Upon receipt of such
Collateral Securities in the Letter of Credit Custody Account, the
Custodian shall issue the Letter of Credit to the Company.
<PAGE>
4. The Fund hereby grants to the Custodian a security interest
in the Collateral Securities from time to time in the Letter of Credit
Custody Account (the "Collateral") to secure the performance of the
Fund's obligations to the Custodian with respect to the Letter of
Credit, including, without limitation, under Section 5-114(3) of the
Uniform Commercial Code. The Fund shall register the pledge of
Collateral and execute and deliver to the Custodian such powers and
instruments of assignment as may be requested by the Custodian to
evidence and perfect the limited interest in the Collateral granted
hereby.
5. The Collateral Securities in the Letter of Credit Custody
Account may be substituted or exchanged (including substitutions or
exchanges which increase or decrease the aggregate value of the
Collateral) only pursuant to Proper Instructions from the Fund after
the Fund notifies the Custodian of the contemplated substitution or
exchange and the Custodian agrees that such substitution or exchange
is acceptable to the Custodian.
6. Upon any payment made pursuant to the Letter of Credit by the
Custodian to the Company, the Custodian may withdraw from the Letter
of Credit Custody Account Collateral Securities in an amount equal in
value to the amount actually so paid. The Custodian shall have with
respect to the Collateral so withdrawn all of the
<PAGE>
rights of a secured credit under the Uniform Commercial Code as
adopted in the Commonwealth of Massachusetts at the time of such
withdrawal and all other rights granted or permitted to it under law.
7. The Custodian will transfer upon receipt all income earned on
the Collateral to the Fund custody account unless the Custodian
receives Proper Instructions from the Fund to the contrary.
8. Upon the drawing by the Company of all amounts which may
become payable to it under the Letter of Credit and the withdrawal of
all Collateral Securities with respect thereto by the Custodian
pursuant to Section 6 hereof, or upon the termination of the Letter of
Credit by the Fund with the written consent of the Company, the
Custodian shall transfer any Collateral Securities then remaining in
the Letter of Credit Custody Account to another fund custody account.
9. Collateral held in the Letter of Credit Custody Account shall
be released only in accordance with the provisions of this Amendment
to Custodian Contract. The Collateral shall at all times until
withdrawn pursuant to Section 6 hereof remain the property of the
Fund, subject only to the extent of the interest granted herein to the
Custodian.
10. Notwithstanding any other termination of the Custodian
Contract, the Custodian Contract shall remain in full force and effect
with respect to the Letter of Credit
<PAGE>
Custody Account until transfer of all Collateral Securities pursuant
to Section 8 hereof.
11. The Custodian shall be entitled to reasonable compensation
for its issuance of the Letter of Credit and for its services in
connection with the Letter of Credit Custody Account as agreed upon
from time to time between the Fund and the Custodian.
12. The Custodian Contract as amended hereby, shall be governed
by, and construed and interpreted under, the laws of the Commonwealth
of Massachusetts.
13. The parties agree to execute and deliver all such further
documents and instruments and to take such further action as may be
required to carry out the purposes of the Custodian Contract, as
amended hereby.
14. Except as provided in this Amendment to the Custody
Contract, the Custodian Contract shall remain in full force and
effect, without amendment or modification, and all applicable
provisions of the Custodian Contract, as amended hereby, including,
without limitation, Section 8 thereof, shall govern the Letter of
Credit Custody Account and the rights and obligations of the Fund and
the Custodian under this Amendment to Custodian Contract. No
provision of this Amendment to Custodian Contract shall be deemed to
constitute a waiver of any rights of the Custodian under the Custodian
Contract or under law.
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this amendment
to the Custodian Contract to be executed in its name and behalf by its
duly authorized representatives and its seal to be hereunder affixed
as of the 31st day of January, 1990.
STEINROE INCOME TRUST
BY: LAWRENCE R. MAFFIA
Attest: Senior Vice-President
By: JILAINE HUMMEL BAUER
Secretary
STATE STREET BANK AND TRUST COMPANY
BY: E.D. HAWKINS, JR.
Attest: Vice President
By: J. FARRELL
Assistant Secretary
<PAGE>
[STATE STEET LOGO]
Stein Roe & Farnham Funds
STEINROE INCOME TRUST
SteinRoe Cash Reserves
SteinRoe Government Reserves
SteinRoe Government Income Fund
SteinRoe Intermediate Bond Fund
SteinRoe Income Fund
SteinRoe Limited Maturity Income Fund
STEINROE INVESTMENT TRUST
SteinRoe Prime Equities
SteinRoe Total Return Fund
SteinRoe Stock Fund
SteinRoe Special Fund
SteinRoe Capital Opportunities Fund
SteinRoe International Fund
SteinRoe Young Investors Fund
STEINROE MUNICIPAL TRUST
SteinRoe Municipal Money Market Fund
SteinRoe Intermediate Municipals
SteinRoe Managed Municipals
SteinRoe High-Yield Municipals
A Custody only service has been established between Stein Roe &
Farnham on behalf of the SteinRoe Funds and State Street Bank. This
fee schedule will become effective upon the change from a Full Service
to a Custody only relationship for each individual fund. The
effective dates for each fund are as follows:
March 8, 1994 SteinRoe International Fund (7123) New Fund
April 1, 1994 SteinRoe Stock Fund (7103)
SteinRoe Capital Opportunities Fund (7104)
SteinRoe Total Return Fund(7105)
SteinRoe Special Fund (7106)
SteinRoe Prime Equities (7111)
May 1, 1994 SteinRoe Cash Reserves (7102)
SteinRoe Government Reserves (7109)
SteinRoe Young Investors Fund (7124) New Fund
June 1, 1994 SteinRoe Income Fund (7118)
SteinRoe Limited Maturity Income Fund (7122)
July 1, 1994 SteinRoe Government Income Fund (7116)
The remaining five SteinRoe funds will continue to be billed under the
old fee schedule until their conversion to custody only service.
*Notes* Outgoing wires will continue to be billed at $3.50. This
will remain in effect until November, 1994.
Payments for custody services are due 15 days after receipt of
the invoices and will be charged against the fund's custodian checking
account. In the event SRF has a question on an invoice, payment is
due 5 days after inquiries are responded to.
Stein Roe & Farnham State Street Bank and Trust
GARY A. ANETSBERGER KEVIN J. MORRISSEY
Senior Vice President Vice President
8/15/94 8/4/94
<PAGE>
[STATE STREET LOGO]
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN FEE SCHEDULE
STEINROE INCOME TRUST
STEINROE INVESTMENT TRUST
STEINROE MUNICIPAL TRUST
STEINROE VARIABLE INVESTMENT TRUST
I. ADMINISTRATION
Domestic Custody Service: Maintain custody of fund assets. Settle
portfolio purchases and sales. Report buy and sell fails. Determine
and collect portfolio income. Make cash disbursements and report cash
transactions. Monitor corporate actions. Report portfolio positions.
ANNUAL FEES
Based on the Total Domestic Assets of LFC Utilities Trust, the
SteinRoe No-Load Funds and the SteinRoe Variable Investment Trust
Funds for which State Street Bank and Trust is custodian. Fees to be
pro-rated per portfolio.
First $5 Billion .75 Basis points
Next $5 Billion .65 Basis points
Excess .55 Basis points
Monthly Minimum for New Funds introduced after July 1, 1994
$750.00 per month
II. GLOBAL CUSTODY
Maintain custody of fund assets. Settle portfolio purchases and
sales. Report buy and sell fails. Determine and collect portfolio
income Make cash disbursements and report cash transactions in local
and base currency. Withhold foreign taxes. File foreign tax
reclaims. Monitor corporate actions. Report portfolio positions.
<PAGE>
Group A Group B Group C Group D Group E
------- ------- ------- ------- -------
Austria Australia Denmark Indonesia Argentina
Belgium Hong Kong Finland Philippines Bangladesh
Canada Netherlands France Portugal Brazil
Euroclear New Zealand Ireland Korea Chile
Germany Singapore Italy Spain China
Japan South Africa Luxembourg Sri-Lanka Columbia
Switzerland Malaysia Sweden Cypress
Mexico Taiwan Greece
Norway Hungary
Thailand India
U.K. Israel
Pakistan
Peru
Turkey
Uruguary
Venezuela
A. Asset Charge: (basis points) - based on market value in each
country
Group A Group B Group C Group D Group E
------- ------- ------- ------- -------
First $50 Million 5 8 12 25 40
Next $ 50 Million 4.5 6 10 22 30
Over $100 Million 4 5 8 18 25
B. Global Transaction Charges: (in dollars)
$25.00 $40.00 $55.00 $70.00 $150.00
III. PORTFOLIO TRANSACTIONS
State Street Bank Repos No charge
DTC or Fed Book Entry $9.00
New York Physical Settlements $25.00
Physical Maturities - delivery and collection fees $33.00
PTC Purchase, Sale, Deposit or Withdrawal $9.00
All Other Trades $16.00
<PAGE>
IV. OPTIONS
Option charge for each option written or
closing contract, per issue, per broker $25.00
Option expiration for each option written or
closing contract, per issues, per broker $15.00
Option exercised charge for each option written,
per issue, per broker $15.00
V. LENDING OF SECURITIES
Deliver loaned securities versus cash collateral $20.00
Deliver loaned securities versus securities collateral $30.00
Receive/deliver additional cash collateral $ 6.00
Substitutions of securities collateral $30.00
Deliver cash collateral versus receipt of loaned
securities $15.00
Deliver securities collateral versus receipt of
loaned securities $25.00
Loan administration - mark-to-market per day,
per loan $ 3.00
VI. FUTURES AND NON-EQUITY OPTIONS
Collateral Segregation $ 6.00
VII. COUPON BONDS
Monitoring for calls and processing coupons for
each coupon issue held--monthly charge $ 5.00
<PAGE>
VIII. PRINCIPAL REDUCTION PAYMENTS
Per pay down $ 7.00
IX. DIVIDEND CHARGES
For items held at the Request of Traders over
record date in Street Form $50.00
X. FDIC INSURANCE
22 basis points on average gross balances.
XI. BALANCE CREDIT
A balance credit will be applied against the fees outlines in
sections I through X above equal to 75% of the 90 Treasury Bill Rate
in effect on the last Monday of the month, adjusted to a monthly
basis, times the average daily domestic cash balance available to the
fund for investment.
XII. SPECIAL SERVICES
Fees for activities of a non-recurring nature such as fund
consolidations or reorganizations, extraordinary security shipments
and the preparation of special reports will be subject to negotiation.
Fees for automated pricing, yield calculation and other special items
will be negotiated separately.
<PAGE>
XIII. OUT-OF-POCKET EXPENSES
A billing for the recovery of applicable out-of-pocket expenses
will be made as of the end of each month. Out-of-pocket expenses
include, but are not limited to the following:
- Telephone
- Wire Charges ($5.25 in and $5 out)
- Postage and Insurance
- Courier Service
- Duplicating
- Legal Fees
- Supplies Related to Fund Records
- Rush Transfer ($8 each)
- Sub-custodian Charges
- Price Waterhouse Audit Letter
- Federal Reserve Fee for Return
Check items over $2,500 ($4.25 each)
- Securities Transfer - $15.00 Each
XIV. PAYMENT
The above fees will be charged against the fund's custodian
checking account fifteen (15) days after the invoice is mailed to the
fund's offices.
STEINROE INCOME TRUST STATE STREET BANK AND TRUST COMPANY
STEINROE INVESTMENT TRUST
STEINROE MUNICIPAL TRUST
STEINROE VARIABLE INVESTMENT TRUST
By: GARY A. ANETSBERGER BY: KEVIN J. MORRISSEY
Title: Senior Vice-President Title: Vice President
Date: 5/8/95 Date: May 4, 1995
<PAGE> 1
Exhibit 9(a)
RESTATED AGENCY AGREEMENT
This agreement, effective this 1st day of August, 1995,
amends and restates (a) the agreement dated December 31, 1987,
as amended by amendments dated May 1, 1995, July 29, 1992,
February 1, 1991, and August 1, 1988 (the "Agreement") by and
between STEINROE MUNICIPAL TRUST, a Massachusetts business
trust, and STEINROE SERVICES INC. (hereinafter referred to as
"SSI"), a Massachusetts corporation and (b) the agreement
dated February 11, 1986, as amended by amendments dated May 1,
1995, July 29, 1992, February 1, 1991, August 1, 1988, and
March 3, 1987, among STEINROE INCOME TRUST and STEINROE
INVESTMENT TRUST, each a Massachusetts business trust, and
SSI. [SteinRoe Municipal Trust, SteinRoe Income Trust, and
SteinRoe Investment Trust are referred to hereinafter
individually as a "Trust" and collectively as the "Trusts."]
WITNESSETH:
1. APPOINTMENT. Each Trust hereby appoints SSI,
effective as of the date hereof, as its agent in connection
with the issue, redemption, and transfer of shares of
beneficial interest of the Trust, including shares of each
respective series of the Trust (hereinafter called the
"Shares"), and to process investment income and capital gain
distributions with respect to such Shares, to perform certain
duties in connection with the Trust's withdrawal and other
plans, to mail proxy and other materials to the Trust's
shareholders upon the terms and conditions set forth herein,
and to perform such other and further duties as are agreed
upon between the parties from time to time.
2. ACKNOWLEDGMENT. SSI acknowledges that it has
received from each Trust the following documents:
A. A certified copy of the Agreement and Declaration of
Trust and any amendments thereto;
B. A certified copy of the By-Laws of Trust;
C. A certified copy of the resolution of its Board of
Trustees authorizing this Agreement;
D. Specimens of all forms of Share certificates as
approved by its Board of Trustees with a statement
of its Secretary certifying such approval;
E. Samples of all account application forms and other
documents relating to shareholders accounts,
including terms of its Systematic Withdrawal Plan;
F. Certified copies of any resolutions of the Board of
Trustees authorizing the issue of authorized but
unissued Shares;
G. An opinion of counsel for the Trust with respect to
the validity of the Shares, the status of
repurchased Shares and the number of Shares
<PAGE> 2
with respect to which a Registration Statement has
been filed and is in effect;
H. A certificate of incumbency bearing the signatures of
the officers of the Trust who are authorized to sign
Share certificates, to sign checks and to sign
written instructions to SSI.
3. ADDITIONAL DOCUMENTATION. Each Trust will also furnish
SSI from time to time with the following documents:
A. Certified copies of each amendment to its Agreement
and Declaration of Trust and By-Laws;
B. Each Registration Statement filed with the Securities
and Exchange Commission and amendments thereto with
respect to its Shares;
C. Certified copies of each resolution of the Board of
Trustees authorizing officers to give instructions
to SSI;
D. Specimens of all new Share certificates accompanied
by certified copies of Board of Trustees resolutions
approving such forms;
E. Forms and terms with respect to new plans that may be
instituted and such other certificates, documents or
opinions that SSI may from time to time, in its
discretion, deem necessary or appropriate in the
proper performance of its duties.
4. AUTHORIZED SHARES. Each Trust certifies to SSI that,
as of the date of this Agreement, it may issue unlimited
number of Shares of the same class in one or more series as
the Board of Trustees may authorize. The series authorized as
of the date of this Agreement are listed in Schedule B.
5. REGISTRATION OF SHARES. SSI shall record issuances
of Shares based on the information provided by each Trust.
SSI shall have no obligation to a Trust, when countersigning
and issuing Shares, whether evidenced by certificates or in
uncertificated form, to take cognizance of any law relating to
the issuance and sale of Shares, except as specifically agreed
in writing between SSI and the Trusts, and shall have no such
obligation to any shareholder except as specifically provided
in Sections 8-205, 8-208 and 8-406 of the Uniform Commercial
Code. Based on data provided by each Trust of Shares
registered or qualified for sale in various states, SSI will
advise the Trusts when any sale of Shares to a resident of a
state would result in total sales in that state in excess of
the amount registered or qualified in that state.
6. SHARE CERTIFICATES. Each Trust shall supply SSI with
a sufficient supply of serially pre-numbered blank Share
certificates, which shall contain the appropriate series
designation, if applicable. Such blank certificates shall be
properly prepared and signed by authorized officers of Trust
manually or, if authorized by Trust, by facsimile and shall
bear the seal of Trust or a facsimile thereof. Notwithstanding
the death, resignation, or removal of any officer authorized to
sign
<PAGE> 3
certificates, SSI may continue to countersign certificates
which bear the manual or facsimile signature of such officer
as directed by Trust.
7. CHECKS. Each Trust shall supply SSI with a
sufficient supply of serially pre-numbered blank checks for
the dividend bank accounts and for the principal bank accounts
of Trust. SSI shall prepare and sign by facsimile signature
plates, bearing the facsimiles of the signatures of authorized
signatories, dividend account checks for payment of ordinary
income dividends and capital gain distributions and principal
account checks for payment of redemptions of Shares, including
those in connection with the Trusts' Withdrawal Plans, refunds
on subscriptions and other capital payments on Shares, in
accordance with this Agreement. SSI shall hold signature
facsimile plates for this purpose and shall exercise
reasonable care in their transportation, storage or use. SSI
may deliver such signature facsimile plates to an agent or
contractor to perform the services described herein, but shall
not be relieved of its duties hereunder by any such delivery.
8. RECORDKEEPING. SSI shall maintain records showing
for each shareholder's account in the appropriate series of
each Trust, the following information and such other
information as may be mutually agreed to from time to time by
the Trusts and SSI:
A. To the extent such information is provided by
shareholders: name(s), address, alphabetical sort
key, client number, tax identification number,
account number, the existence of any special service
or transaction privilege offered by the Trust and
applicable to the shareholder's account including
but not limited to the telephone exchange privilege,
and other similar information;
B. Number of Shares held;
C. Amount of accrued dividends;
D. Information for the current calendar year regarding
the account of the shareholder, including
transactions to date, date of each transaction,
price per share, amount and type of each purchase
and redemption, transfers, amount of accrued
dividends, the amount and date of all distributions
paid, price per share, and amount of all
distributions reinvested;
E. Any stop order currently in effect against the
shareholder's account;
F. Information with respect to any withholding for the
calendar year as required under applicable Federal
and state laws, rules and regulations;
G. The certificate number and date of issuance of each
Share certificate outstanding, if any, representing
a shareholder's Shares in each account, the number
of Shares so represented, and any stop legend on
each certificate;
<PAGE> 4
H. Information with respect to gross proceeds of all
sales transactions as required under applicable
Federal income tax laws, rules and regulations; and
I. Such other information as may be agreed upon by the
Trusts and SSI from time to time.
SSI shall maintain for any account that is closed
("Closed Account") the aforesaid records through the June of
the calendar year following the year in which the account is
closed or such other period as may be mutually agreed to from
time to time by such Trust and SSI.
9. ADMINISTRATIVE SERVICES. SSI shall furnish the
following administrative services to each Trust:
A. Coordination of the printing and dissemination of
Prospectuses, financial reports, and other
shareholder information as are agreed to by SSI and
the Trust from time to time.
B Maintenance of data and statistics and preparation of
reports for internal use and for distribution to the
Board of Trustees concerning shareholder transaction
and service activity.
C. Handling of requests from third parties involving
shareholder records, including, but not limited to,
record subpoenas, tax levies, and orders issued by
courts or administrative or regulatory agencies.
D. Development and monitoring of shareholder service
programs that may be offered from time to time,
including, but not limited to, individual retirement
account and tax-qualified retirement plan programs,
checkwriting redemption privileges, automatic
purchase, exchange and redemption programs, audio
response services, programs involving electronic
transfer of funds, and lock box facilities.
E. Provision of facilities, hardware and software
systems, and equipment in Chicago (and other
locations mutually agreed to by SSI and the Trusts)
to meet the needs of shareholders and prospective
shareholders, including, but not limited to, walk-in
facilities, toll-free telephone numbers, electronic
audio and other communication, accounting and
recordkeeping systems to handle shareholder
transaction, inquiry and other activity, and to
provide management and other personnel required to
staff such facilities and administer such systems.
10. SHAREHOLDER SERVICES. SSI shall provide the
following services as are requested by a Trust in addition to
the transactional and recordkeeping services provided for
elsewhere herein:
A. Responding to communications from shareholders or
their representatives or agents concerning any
matters pertaining to shares
<PAGE> 5
registered in their names, including, but not
limited to, (i) net asset value and average cost
basis information; (ii) shareholder services, plans,
options, and privileges; and (ii) with respect to
the series of the Trust represented by such shares,
information concerning investment policies,
portfolio holdings, performance, and shareholder
distributions and the classification thereof for tax
purposes.
B. Handling of shareholder complaints and correspondence
directed to or brought to the attention of SSI.
C. Soliciting and tabulating proxies of shareholders and
answering questions concerning the subject matter
thereof.
D. Under the direction of the officers of the Trust,
administering a program whereby shareholders whose
mail from the Trust is returned are identified,
current address information for such shareholders is
solicited, and shares and dividend or redemption
proceeds owned by shareholders who cannot be located
are escheated to the proper authorities in
accordance with applicable laws and regulations.
E. Preparing and disseminating special data, notices,
reports, programs, and literature for certain
categories of shareholders based on account
characteristics, or for shareholders generally in
light of industry, market, product, tax, or legal
developments.
F. Assisting any institutional servicing or
recordkeeping agent engaged by SSI and approved by
the Trust in the development, implementation, and
maintenance of special programs and systems to
enhance overall shareholder servicing capability,
consisting of:
(i) Product and system training for personnel of
the institutional servicing agent.
(ii) Joint programs with the institutional servicing
agent to develop customized shareholder
software systems, account statements, and other
information and reports.
(iii) Electronic and telephonic systems and other
technological means by which shareholder
information, account data, and cost of
securities may be exchanged among SSI, the
institutional servicing agent, and their
respective agents or vendors.
G. Furnishing sub-accounting services for retirement
plan shareholders and other shareholders
representing group relationships with special
recordkeeping needs.
H. Providing and supervising the services of employees
whose principal responsibility and function will be
to preserve and strengthen the Trust's relationships
with its shareholders.
I. Such other shareholder and shareholder-related
services, whether similar to or different from those
described in this section as the parties may from
time to time agree in writing.
<PAGE> 6
11. PURCHASES. Upon receipt of a request for purchase
of Shares containing data required by a Trust for processing
of a purchase transaction, SSI will:
A. Compute the number of Shares of the appropriate
series of the Trust to which the purchaser is
entitled and the dollar value of the transaction
according to the price of such Shares as provided by
the Trust for purchases made at that time and date;
B. In the case of a new shareholder, establish an
account for the shareholder, including the
information specified in Section 8 hereof; in the
case of an Exchange as described in Section 14 below
by telephone or telegraph, the account shall have
exactly the same registration as that of the account
of the other series of the Trust or any other series
of another Trust from which the Exchange was made;
C. Transmit to the shareholder by mail or electronically
a confirmation of the purchase, as directed by the
Trust, in such format as agreed to by SSI and the
Trusts, including all information called for
thereby, and, in the case of a purchase for a new
account, shall also furnish the shareholder a
current Prospectus of the applicable series;
D. If applicable, prepare a refund check in the amount
of any overpayment of the subscription price and
deliver it to the Trust for signing; and
E. If a certificate is requested by the shareholder,
prepare, countersign, issue and mail, not earlier
than 30 days after the date of purchase, to the
shareholder at his address of record a Share
certificate for such full Shares purchased.
12. REDEMPTIONS. Instructions to redeem Shares of any
series of a Trust, including instructions for an Exchange as
described in Section 14 below, may be furnished in written
form, or by other means, including but not limited to
telephonic or electronic transmission or by writing a special
form of check, as may be mutually agreed to from time to time
by each Trust and SSI. Upon receipt by SSI of instructions to
redeem which are in "good order," as defined in the Prospectus
of the applicable series and satisfactory to SSI, SSI will:
A. Compute the amount due for the Shares and the total
number of all the Shares redeemed in accordance with
the price per Share as provided by the Trust for
redemptions of such Shares at that time and date,
and transmit to the shareholder by mail or
electronically a confirmation of the redemption, as
directed by the Trust, in such format as agreed to
by SSI and the Trust, including all information
called for thereby;
B. Confirmations of redemptions that result in the
payment of accrued dividends shall indicate the
amount of such payment and any amounts withheld;
<PAGE> 7
C. In the case of a redemption in written form other
than by Exchange, SSI shall transmit to the
shareholder by check or, as may be mutually agreed
to by the Trust and SSI and requested by the
shareholder, electronic means, an amount equal to
the redemption price and any payment of accrued
dividends occasioned by the redemption, net of any
amounts withheld under applicable Federal and state
laws, rules and regulations on or before the seventh
calendar day following the date on which
instructions to redeem in "good order" as defined in
the Prospectus of the applicable series, which
instructions are satisfactory to SSI as received by
SSI. In the case of an Exchange, SSI shall use the
proceeds of the redemption, net of any amounts
withheld under applicable Federal and state laws,
rules and regulations, to purchase Shares of any
other series of the Trust or any other series of
another Trust selected by the person requesting the
Exchange;
D. In the case of Exchanges by telephone or telegraph,
redemptions by telephone or electronic transmission
and redemptions by writing a special form of check,
SSI shall deliver to the Trust, on the business day
following the effective date of such transaction, a
listing of such transaction data in a format agreed
to by the Trusts and SSI from time to time;
E. If any Share certificate or instruction to redeem
tendered to SSI is not satisfactory to SSI, it shall
promptly notify the Trust of such fact together with
the reason therefor;
F. SSI shall cancel promptly Share certificates received
in proper form for redemption and issue, countersign
and mail new Share certificates for the Shares
represented by certificates so cancelled which are
not redeemed;
G. SSI shall advise the Trust and refuse to process any
redemption by electronic transmission or Exchange by
telephone or telegraph or redemptions by writing a
special form of check, if such transaction would
result in the redemption of Shares represented by
outstanding certificates, unless otherwise
instructed by an officer of the Trust.
13. ADMINISTRATION OF WITHDRAWAL PLANS. A redemption
made pursuant to a Withdrawal Plan offered by the Trusts shall
be effected by SSI at the net asset value per Share of the
appropriate series of the Trust on the twentieth day or the
next business day of the month in which the recipient is
scheduled to receive the withdrawal payment. SSI shall
prepare and mail to the recipient on or before the seventh
calendar day after the date of redemption a check in the
amount of each required payment, net of any amounts withheld
under applicable Federal and state laws, rules and
regulations, and also furnish the shareholder a confirmation
of the redemption as described in Section 12 above.
14. EXCHANGES. Upon receipt by SSI of a request to
exchange Shares of a series of a Trust held in a shareholder's
account for those of any other series of the
<PAGE> 8
Trust or any other series of another Trust or vice versa in
written form, by telephone or telegraph or by other electronic
means, containing data required by the Trust for processing
such a transaction, SSI will:
A. If the request is by telephone, telegraph or other
electronic means, verify that the shareholder has
furnished both the series of a Trust from and to
which the Exchange is to be made authorization, in a
form acceptable to such Trust, to accept Exchange
instructions for his account by such means.
B. Process a redemption of the Shares of the series of
the Trust to be redeemed in connection with the
Exchange and apply the proceeds thereof, net of any
amounts withheld under applicable Federal and state
laws, rules and regulations, to purchase shares of
any other series of the Trust or any other series of
another Trust being acquired in accordance with the
respective Trust's redemption and purchase policies
and Sections 11 and 12 of this Agreement.
Any redemption and purchase pursuant to an Exchange shall
be effected as of the time and prices applicable to an order
for redemption or purchase received at the time the request
for Exchange is received.
15. TRANSFER OF SHARES. Upon receipt by SSI of a
request for a transfer of Shares of any series of a Trust, and
receipt of a Share certificate for transfer or an order for
the transfer of Shares in the case of an uncertificated
account, in either case with such endorsements, instruments of
assignment or evidence of succession as may be required by SSI
and accompanied by payment of such transfer taxes, if any, as
may be applicable, and satisfaction of any other conditions
for registration of transfers contained in the Trust's By-
Laws, Prospectuses, and Statements of Additional Information,
SSI will verify the balance of Shares of such series of the
Trust in the account; record the transfer of ownership of such
Shares in its Share certificate and shareholder records for
such series; cancel Share certificates for Shares surrendered
for transfer; establish an account pursuant to Section 8 for
the transferee if a new shareholder; prepare, countersign and
mail new Share certificates for a like number of Shares in the
case of a certificated account; and transmit to the
shareholder by mail or electronically confirmation of the
transfer for each account affected, in a format agreed to by
SSI and the Trust, including all information called for
thereby. SSI shall be responsible for determining that
certificates, orders for transfer, and supporting documents,
if any, are in proper legal form for the transfer of Shares.
16. CHANGES IN SHAREHOLDER RECORDS. Changes in items of
information specified in Section 8 not relating to change in
ownership of Shares will be made by SSI upon receipt of a
request for such change in a format agreed to by SSI and the
Trusts. In the case of any change that SSI and the Trusts
agree requires confirmation, a confirmation of such change in
a format agreed to by SSI and the Trusts shall be transmitted
to the shareholder by mail or electronically.
<PAGE> 9
17. REFUSAL TO REDEEM OR TRANSFER. SSI reserves the
right to refuse to redeem or transfer Shares until reasonably
satisfied that the endorsement on the Share certificates or
written request presented is valid and genuine, and for such
purpose may require where reasonably necessary or appropriate
a guarantee of signature. SSI also reserves the right to
refuse to redeem or transfer Shares until satisfied that the
requested transfer or redemption is legally authorized, and it
shall incur no liability for the refusal in good faith to make
transfers or redemptions which it, in its judgment, deems
improper or unauthorized. Notwithstanding the foregoing, SSI
shall redeem or transfer Shares even though not satisfied as
to the endorsement or legal authority if it is first
indemnified to its reasonable satisfaction against all
expenses and liabilities to which it might, in its judgment,
be subjected by such action.
18. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. Each
Trust will promptly inform SSI of the declaration of any
dividend or other distribution with respect to Shares of any
series of the Trust, including the amount of distribution, the
amount of withholding under applicable Federal and state laws,
rules and regulations, if any, dividend number, if any, record
date, ex-dividend date, payable date and price at which
dividends or other distributions are to be reinvested.
In the case of any series of a Trust for which dividends
shall be declared daily and paid monthly or quarterly, SSI
will credit the dividend payable to each shareholder thereof
to a dividend account of the shareholder and will provide the
Trust on each business day with reports of the total amount of
dividends credited and such other data as are agreed upon by
the Trust and SSI. Promptly after the payable date for the
Trust, SSI will provide the Trust with reports showing the
accounts which have been paid a dividend or other
distribution, the amount received by each account, the amount
withheld as required under applicable Federal and state laws,
rules and regulations, if any, the amount of the dividend or
distribution paid in cash or reinvested in Shares, and the
total amount of cash and Shares required for payment of the
dividend or other distribution.
In the case of each other series of the Trust, SSI will
provide the Trust promptly following the record date therefor
with reports of the total amount of dividends payable with
respect thereto and such other data as are agreed to by the
Trusts and SSI. Promptly after the payable date therefor, SSI
will provide the Trust with reports showing the accounts which
are to be paid a dividend or other distribution, the amount to
be received by each account, the amount to be withheld as
required under applicable Federal and state laws, rules and
regulations, if any, whether such dividend or distribution is
to be paid in cash or reinvested in Shares, and the total
amount of cash and Shares required for the payment of such
dividend or distribution.
At times agreed to by the Trusts and SSI, SSI will
transmit by mail or electronically to shareholders the
proceeds of such dividend or other distribution and
confirmation thereof. Where distributions are reinvested, the
price and date of reinvestment will be those supplied by the
Trusts. Confirmations will be prepared by SSI in a format
agreed to by SSI and the Trusts.
<PAGE> 10
19. WITHHOLDING. Under applicable Federal and state
laws, rules and regulations requiring withholding from
dividends and other distributions and payments to
shareholders, SSI shall be responsible for determining the
amount to be withheld and the Trusts shall forward that amount
to SSI, which will deposit said amount with, and report said
amount to, the proper governmental agency as required
thereunder. Liability for any amounts withheld, whether or
not actually withheld, and for any penalties which may be
imposed upon the payor for failure to withhold, report, or
deposit the proper amount, and for any interest due on said
amount, shall be borne by the Trusts and SSI as provided in
Section 37 hereof.
Upon receipt of a certificate from a shareholder
pertaining to withholding (including exemptions therefrom)
containing such information as required by a Trust of the
shareholder under applicable Federal and state laws, rules and
regulations, SSI shall promptly process the certificate, which
shall become effective as soon as reasonably possible after
receipt by SSI, but no later than may be required by
applicable Federal and state laws, rules and regulations.
At the time a shareholder account is established with a
Trust, the Trust shall be responsible for (i) soliciting the
shareholder's tax identification number in the manner and form
required under applicable Federal and state laws, rules and
regulations; (ii) identifying and rejecting an obviously
incorrect number (as defined under applicable Federal and
state laws, rules and regulations) and (iii) furnishing to SSI
the number and any related information provided by or on
behalf of the shareholder. SSI shall be responsible for any
subsequent communications to the shareholder that may be
required in this regard.
In the case of withholding an amount in excess of the
proper amount from a payment made by or on behalf of a Trust
to a shareholder except as otherwise provided by applicable
Federal and state laws, rules and regulations, SSI, at the
direction of the Trust, shall immediately adjust the
shareholder's account, as well as succeeding deposits;
provided, however, that when an adjustment would result in an
adjustment across calendar years, SSI shall not be required to
make such adjustment.
In the case of (i) a failure to withhold the proper
amount from a dividend or other distribution or payment made
by or on behalf of any series of a Trust to a shareholder or
(ii) any penalties attributable to (a) a failure to withhold
the proper amount or (b) the shareholder's failure to provide
the Trust or SSI with correct information requested in order
to comply with withholding requirements under applicable
Federal and state laws, rules and regulations, SSI, at the
direction of the Trust, shall immediately cause the redemption
of Shares from the shareholder's account with such series
having a value not exceeding the sum of such deficit amount
and applicable penalties and apply the proceeds to reimburse
whomever has borne the expense resulting from the
shareholder's failure. If the value of the Shares in the
shareholder's account with the series is less than the sum of
the deficit amount and applicable penalties, SSI may cause the
redemption of Shares having a value not exceeding such
difference from any account, including a joint
<PAGE> 11
account, of the shareholder with any other series of the Trust
or any other series of another Trust, subject to the consent
of the other Trust, and apply the proceeds to reimburse
whoever has borne the expense resulting from the shareholder's
failure.
20. MAILINGS. SSI shall take all steps required,
including the addressing of envelopes, to make the following
additional mailings to shareholders:
A. SSI shall mail financial reports furnished by each
series of a Trust to shareholders as requested and
will mail the current Prospectus for each series of
the Trust to shareholders of such series once each
year;
B. SSI shall mail to shareholders of each series of a
Trust proxy material for each duly scheduled meeting
of shareholders of that series;
C. SSI shall include in any of the above mailings such
other enclosures as are compatible for mailing
purposes as reasonably requested by the Trusts;
D. SSI shall make such other mailings upon such terms
and conditions and for such fees as are agreed to by
SSI and each Trust from time to time.
The Trusts shall deliver all material required to be
furnished to SSI for any scheduled mailing sufficiently in
advance of the date for such mailing, so that SSI may effect
the scheduled mailing.
21. TAX INFORMATION RETURNS AND REPORTS. SSI will
prepare and file with the appropriate governmental agencies,
such information, returns and reports as are required to be so
filed for reporting (i) dividends and other distributions
made, (ii) amounts withheld on dividends and other
distributions and payments under applicable Federal and state
laws, rules and regulations, and (iii) gross proceeds of sales
transactions as required and as the Trusts shall direct SSI.
Further, SSI shall prepare and deliver to the Trusts reports
showing amounts withheld from dividends and other
distributions and payments made for each series of the Trusts.
22. INFORMATION TO BE FURNISHED TO SHAREHOLDERS. SSI
will prepare and transmit to each shareholder of each Trust
annually in such format as is reasonably requested by the
Trust, and as agreed to by SSI, information returns and
reports for reporting dividends and other distribution and
payments, amounts withheld, if any, and gross proceeds of
sales transactions as required under applicable Federal and
state laws, rules and regulations.
23. STOP ORDERS. Upon receipt of a request from a Trust
or a shareholder that a "stop" should be placed on the
shareholder's account, SSI will maintain a record of such
"stop" and notify the Trust if any transaction request is
received from a shareholder which would reduce the number of
Shares in an account on which a "stop" has been placed. SSI
will inform the Trusts of any information SSI receives
relating to a "stop." SSI shall also maintain for the Trusts
the record of share certificates on which a "stop" has been
placed, it being understood that a
<PAGE> 12
certificate "stop" does not mean a "stop" on the shareholder's
entire account to which a certificate may relate.
24. SHARE SPLITS AND SHARE DIVIDENDS. If a Trust elects
to declare a Share dividend or split for any series, the
services and fees with respect thereto will be negotiated by
the Trust and SSI.
25. REPLACEMENT OF SHARE CERTIFICATES. SSI may issue a
new Share certificate in place of a Share certificate
represented as not having been received or as having been
lost, stolen, seized or destroyed, upon receiving instructions
from a Trust and indemnity satisfactory to SSI, and may issue
a new Share certificate in exchange for, and upon surrender
of, an identifiable mutilated Share certificate. Such
instructions from the Trust shall be in such form as has been
approved by its Board of Trustees and shall be in accordance
with the provisions of its By-Laws governing such matters.
26. UNCLAIMED AND UNDELIVERED SHARE CERTIFICATES. Where
a Share certificate is in the possession of SSI for any
reason, and has not been claimed by the record holder or
cannot be delivered to the record holder, SSI shall cancel
said certificate and reflect as uncertificated Shares on the
shareholder's account record the Shares represented by said
cancelled certificate.
27. REPORTS AND FILES. SSI shall maintain the files and
furnish the statistical and other information listed on
Schedule C. However, SSI reserves the right to delete, change
or add to the files maintained and information provided so
long as such deletions, additions or changes do not impair the
receipt of services described elsewhere in this Agreement.
SSI shall also use its best efforts to obtain such additional
statistical and other information as the Trusts may reasonably
request within the capabilities of SSI, for such additional
consideration as may be agreed to by SSI and the Trusts.
28. EXAMINATION OF DAILY TRANSACTIONS. The Trusts will
examine reports reflecting each day's transactions and other
data delivered to it for the accuracy of the transactions
reflected therein and failure to reflect transactions that
should have been reflected therein. If SSI has not received
from a Trust, within five (5) business days after delivery of
such reports to the Trust, written notice, which may be in the
form of an appropriate transaction instruction submitted by
the Trust for the purpose of correcting the error or omission,
as to any errors or omissions which a reasonable inspection
and normal audit and control procedure would reveal, then all
transactions reflected in such reports shall be deemed to be
correct and accepted by the Trust, and SSI shall have no
further responsibility for the omission from or correction,
deletion, or inclusion of any transaction reflected or which
should have been reflected therein, or any liability to the
Trust or any third person on account of such error or
omission.
29. DISPOSITION OF BOOKS, RECORDS, AND CANCELLED SHARE
CERTIFICATES. SSI will periodically send to each Trust all
books, documents, and records of the Trust no longer needed
for current purposes and Share certificates which have been
<PAGE> 13
cancelled in transfer or in redemption; such books, documents,
records, and Share certificates shall be safely stored by the
Trusts for future reference for such period as is required and
by any means permitted by the Investment Company Act of 1940,
or the rules and regulations issued thereunder, or other
relevant statutes. SSI shall have no liability for loss or
destruction of said books, documents, records, or Share
certificates after they are returned to the Trusts.
30. INSPECTION OF SHARE BOOKS. In case of any request
or demand for inspection of the books of a Trust reflecting
ownership of the Shares therein ("Share books"), SSI will make
a reasonable effort to notify the Trust and to secure
instructions as to permitting or refusing such inspection.
SSI reserves the right, however, to exhibit the Share books to
any person in case it is advised by its counsel that it may be
held liable for the failure to exhibit the Share books to such
person.
31. FEES. Each Trust shall pay to SSI for its services
hereunder fees computed as set forth in Schedule A hereto.
32. OUT-OF-POCKET EXPENSES. Each Trust shall reimburse
SSI for any and all out-of-pocket expenses and charges in
performing services under this Agreement (other than charges
for normal data processing services and related software,
equipment and facilities) including, but not limited to,
mailing service, postage, printing of shareholder statements,
the cost of any and all forms of the Trust and other materials
used by SSI in communicating with shareholders of the Trust,
the cost of any equipment or service used for communicating
with the Trust's custodian bank or other agent of the Trust,
and all costs of telephone communication with or on behalf of
shareholders allocated in a manner mutually acceptable to the
Trust and SSI.
33. INSTRUCTIONS, OPINION OF COUNSEL, AND SIGNATURES.
At any time SSI may apply to a duly authorized agent of a
Trust for instructions regarding the Trust, and may consult
counsel for the Trust 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. SSI shall be protected in acting
upon any such instruction, advice, or opinion and upon any
other paper or document delivered by the Trust or such counsel
believed by SSI 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
Trust, until receipt of written notice thereof from the Trust.
34. TRUSTS' LEGAL RESPONSIBILITY. Each Trust assumes
full responsibility for the preparation, contents, and
distribution of each Prospectus and Statement of Additional
Information of the Trust, and for complying with all
applicable requirements of the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, and
any laws, rules, and regulations of government authorities
having jurisdiction over the Trust except that SSI shall be
responsible for all laws, rules and regulations of government
authorities having jurisdiction over transfer agents and their
activities. SSI assumes full responsibility for complying
<PAGE> 14
with due diligence requirements of payors of reportable
dividends and of brokers under the Internal Revenue Code with
respect to shareholder accounts.
35. REGISTRATION OF SSI AS TRANSFER AGENT. SSI
represents that it is registered with the Securities and
Exchange Commission as a transfer agent under Section 17A of
the Securities Exchange Act of 1934 and will notify the Trusts
promptly if such registration is revoked or if any proceeding
is commenced before the Securities and Exchange Commission
which may lead to such revocation.
36. CONFIDENTIALITY OF RECORDS. SSI agrees not to
disclose any information received from the Trusts to any other
customer of SSI or to any other person except SSI's employees
and agents, and shall use its best efforts to maintain such
information as confidential. Upon termination of this
Agreement, SSI shall return to the Trusts all records in the
possession and control of SSI related to the Trusts'
activities, other than SSI's own business records, it being
also understood that any programs and systems used by SSI to
provide the services rendered hereunder will not be given to
the Trusts.
Notwithstanding the foregoing, it is understood and
agreed that SSI may maintain with the Trusts' records
information and data to be utilized by SSI in providing
services to entities serving as trustees and/or custodians of
prototype Tax-Qualified Retirement Plans, IRA Plans, plans for
employees of public schools or tax-exempt organizations, or
other plans which invest in the Shares. In the event that
this Agreement is terminated, SSI may transfer and retain from
the records maintained for the Trusts such information and
data relating to participants in such aforementioned plans as
may be required for SSI to continue providing its services to
such trustees and/or custodians.
37. LIABILITY AND INDEMNIFICATION. SSI shall not be
liable to the Trusts for any action taken or thing done by it
or its agents or contractors on behalf of a Trust in carrying
out the terms and provisions of this Agreement if done in good
faith and without negligence or misconduct on the part of SSI,
its agents or contractors.
Each Trust shall indemnify and hold SSI, 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
contractors in the performance of its duties hereunder to the
Trusts, or as a result of acting upon any instruction believed
by it to have been executed by a duly authorized agent of a
Trust or as a result of acting upon information provided by a
Trust in form and under policies agreed to by SSI and the
Trusts provided that: (i) to the extent such claims, actions,
suits, losses, costs, damages, or expenses relate solely to a
particular series or group of series of Shares, such
indemnification shall be only out of the assets of that series
or group of series; (ii) this indemnification shall not apply
to actions or omissions constituting negligence or misconduct
of SSI or its agents or contractors, 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;
<PAGE> 15
and (iii) SSI shall give a Trust prompt notice and reasonable
opportunity to defend against any such claim or action in its
own name or in the name of SSI.
SSI shall indemnify and hold harmless each Trust from and
against any and all claims, demands, expenses and liabilities
which the Trust may sustain or incur arising out of, or
incurred because of, the negligence or misconduct of SSI or
its agents or contractors, provided that: (i) this
indemnification shall not apply to actions or omissions
constituting negligence or misconduct of the Trust or its
other agents or contractors and (ii) the Trust shall give SSI
prompt notice and reasonable opportunity to defend against any
such claim or action in its own name or in the name of the
Trust.
38. INSURANCE. SSI represents that it has available to
it the insurance coverage set forth on Schedule D hereto, and
agrees to notify the Trusts in advance of any proposed
deletion or reduction in said insurance.
39. FURTHER ASSURANCES. Each party agrees to perform
such further acts and execute such further documents as are
necessary to effectuate the purposes hereof.
40. DUAL INTERESTS. It is understood that some person
or persons may be trustees, directors, officers, or
shareholders of both the Trusts and SSI, 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.
41. AMENDMENT AND TERMINATION. This Agreement may be
modified or amended from time to time 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, each Trust shall
pay to SSI such compensation as may be due as of the date of
such termination and shall reimburse SSI 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 SSI
hereunder is designated by the Trust by written notice to SSI,
it shall promptly upon such termination and at the expense of
the Trust, transfer to such successor a certified list of
shareholders of each series of the Trust (with name, address,
and tax identification number), a record of the account of
each shareholder and status thereof, and all other relevant
books, records, and data established or maintained by SSI
under this Agreement and shall cooperate in the transfer of
such duties and responsibilities, including provision, at the
expense of the Trust, for assistance from SSI personnel in the
establishment of books, records, and other data by such
successor.
42. ASSIGNMENT.
A. Except as provided below, neither this Agreement nor
any rights or obligations hereunder may be assigned
by either party without the written consent of the
other party.
<PAGE> 16
B. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective
permitted successors and assigns.
C. SSI may subcontract for the performance of any of its
duties or obligations under this Agreement with any
person if such subcontract is approved by the Board
of Trustees of a Trust provided, however, that SSI
shall be as fully responsible to the Trust for the
acts and omissions of any subcontractor as it is for
its own acts and omissions.
43. 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 Trusts is One South Wacker Drive, Chicago,
Illinois 60606, Attention: Secretary, and that of SSI for this
purpose is One South Wacker Drive, Chicago, Illinois 60606,
Attention: Secretary.
44. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any
obligation of a Trust hereunder shall be binding only upon the
assets of that Trust (or the applicable series thereof), as
provided in its Agreement and Declaration of Trust, and shall
not be binding upon any Trustee, officer, employee, agent or
shareholder of the Trust or upon any other Trust. Neither the
authorization of any action by the Trustees or the
shareholders of a Trust, nor the execution of this Agreement
on behalf of the Trust 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.
45. 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.
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed as of the day and year first above
written.
STEINROE MUNICIPAL TRUST
STEINROE INCOME TRUST
STEINROE INVESTMENT TRUST
ATTEST: By: TIMOTHY K. ARMOUR
President
JILAINE HUMMEL BAUER
Secretary
STEINROE SERVICES INC.
ATTEST: By: STEPHEN P. LAUTZ
Vice President
JILAINE HUMMEL BAUER
Secretary
<PAGE> 18
Schedule A
Agency Agreement
(August 1, 1995)
Fees pursuant to Section 31 of the Agency Agreement shall
be calculated in accordance with the following schedule. For
each series, the 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 fee and multiplying
this product by the net assets of the series, determined in
the manner established by the Board of Trustees of the
applicable Trust, as of the close of business on the last
preceding business day on which the series' net asset value
was determined.
Type of Series Annual Fee
-------------------------------- ---------------------------
Fixed Income (non-money fund) 0.140% of average daily net
assets
Fixed Income (money market fund) 0.150% of average daily net
assets
Equity 0.220% of average daily net
assets
Dated: August 1, 1995
<PAGE> 19
Schedule B
Agency Agreement
The Series of the Trusts covered by this agreement are as
follows:
STEINROE INVESTMENT TRUST
SteinRoe Prime Equities
SteinRoe International Fund
SteinRoe Young Investor Fund
SteinRoe Special Venture Fund
SteinRoe Total Return Fund
SteinRoe Growth Stock Fund
SteinRoe Capital Opportunities Fund
SteinRoe Special Fund
STEINROE INCOME TRUST
SteinRoe Income Fund
SteinRoe Government Income Fund
SteinRoe Intermediate Bond Fund
SteinRoe Cash Reserves
SteinRoe Government Reserves
SteinRoe Limited Maturity Income Fund
STEINROE MUNICIPAL TRUST
SteinRoe Intermediate Municipals
SteinRoe High-Yield Municipals
SteinRoe Municipal Money Market Fund
SteinRoe Managed Municipals
Dated: August 1, 1995
<PAGE> 20
SCHEDULE C
SYSTEM DESCRIPTION
TRANSACTION PROCESSING LOG - PROCESSING SPAN IN DAYS
EXPEDITED REDEMPTION FILE - BATCH MAINTENANCE JOURNAL
DAILY CRT OPERATOR STATISTICS
DAILY BATCH MONITORING REPORT
ONLINE NEW ACCOUNT REPORT
DETAIL DAILY "AS OF" REPORT - BY ACCOUNTABILITY
SPECIAL HANDLING - DAILY CONFIRMATIONS
BANK ACCOUNT OUTSTANDING BALANCE VERIFICATION
MISCELLANEOUS FEE JOURNAL
BATCH ENTRY SUMMARY REPORT
ACCOUNT CLOSEOUT ADJUSTMENTS - SUMMARY REPORT
REDEMPTION CHECK REGISTER
WIRE INSTRUCTION REPORT FOR EXPEDITED REDEMPTIONS
DST INC. - DDPS DAILY CASH RECAP REPORT
DAILY UPDATE (MU100) ERROR LISTING
EXCHANGE DISTRIBUTION SUMMARY REPORT
BATCH TRANSMISSION ERRORS - TRANSACTION ID: DFUNP
DAILY CHECK RECONCILIATION UPDATE REGISTER UCHECK UPDATES
WIRE INSTRUCTION REPORT FOR EXPEDITED REDEMPTIONS
WIRE INSTRUCTION REPORT FOR DIRECT REDEMPTIONS
TRANSFER RECORD DAILY DVND INCREASE JOURNAL
RECORD DATE JOURNAL
DAILY RECAP & SHARE CONTROL SHEET - SHARE AMOUNT
EXCHANGE CLOSE-OUT AUTOMATIC REINVESTMENT REPORT BY EXCHANGE (FROM) FUND
DETAIL DAILY "AS OF" REPORT - BY REASON CODE
SHAREOWNER CHECK-CONFIRM RECONCILIATION
<PAGE> 21
DAILY/FREE DAILY BALANCE LISTING - ALPHA CODE SEQUENCE
CONSOLIDATED ERROR REPORTING
DAILY CONFIRMED UNPAID PURCHASE JOURNAL - NO LOAD
REQUESTS FOR DUPLICATE CONFIRMS
CALCULATED DAILY DIVIDEND RATE
EXTERNAL CHECK/INVESTMENT ISSUANCE REPORT
IN-HOUSE CHECK ISSUANCE REPORT
AUTOMATED CLEARING HOUSE REDEMPTION TRANSACTIONS STEINROE FUNDS
ACH PURCHASE TRANSACTIONS REPORT
ACH MONTHLY REDEMPTION/PURCHASE - TRANSACTION REPORT
STEIN ROE & FARNHAM TRANSFER RECORD FOR DIRECT PAYMENTS
REDEMPTION CHECK REGISTER
DAILY DIVIDEND ACCRUAL CLOSEOUTS COMBINED WITH CLOSEOUT REDEMPTION WIRES
DAILY DIVIDEND ACCRUAL CLOSEOUTS UNMATCHED CLOSEOUT ACCRUAL ERROR REPORT
AVERAGE COST ACCOUNT CALCULATION EXCEPTION REPORT FOR DAILY AVERAGE COST
FORMS REQUEST
NEW FOREIGN ACCOUNT REPORT
BATCH BALANCE LISTING
TRANSACTION TRACER REPORT
BATCH BALANCE LISTING - ACCOUNT DETAIL
TIMER - SWITCH UPDATE VERIFICATION
REDEMPTION & ADDRESS CHANGE PROCESSED SAME DAY WARNING REPORT
AUTOMATE CLEARING HOUSE PRENOTE TRANSACTIONS STEINROE FUNDS
EXRED WARNING REPORT
EXCHANGE WARNING REPORT UNLIKE TAX ID NUMBERS
INVESTOR TRANSFER TRANSACTIONS LISTING INVESTOR DISTRIBUTOR CODE: STR
<PAGE> 22
DETAIL DAILY "AS OF" REPORT BY TRANSACTION CODE
DAILY "AS OF" REPORT
DAILY FUND SHARE BALANCE ERROR LIST
DAILY BATCH BALANCE
DAILY SHAREOWNER MAINTENANCE ERROR LISTING
EXPEDITED REDEMPTION FILE STATUS JOURNAL
NEW ACCOUNT VERIFICATION QUALITY REPORT
SYSTEMATIC EXCHANGE DAILY MAINTENANCE ACTIVITY
ADDITIONAL MAIL MAINTENANCE JOURNAL
BATCH TRANSMISSION ERRORS TRANSACTION ID: ATRANS
DEALER FILE MAINTENANCE REPORT
CHECK-WRITING REDEMPTION REPORT
ASSET ALLOCATION - REALLOCATION
NEW ACCOUNT REPORT
<PAGE> 23
SCHEDULE D
<TABLE>
SCHEDULE OF INSURANCE
STEIN ROE & FARNHAM INCORPORATED
ONE SOUTH WACKER DRIVE
CHICAGO, IL 60606-4685
<CAPTION>
CARRIER POLICY NO. TERM COVERAGE EXPOSURE/RATE LIMITS PREMIUM
--------- ------------ -------- --------- ---------------------------- -------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Federal (96)7626-89 01/01/95 Workers' FL-8810 $213,000 .71 Workers' Compensation: Statutory $61,612
Insurance. -79 -96 Compensation NY-8810 $660,000 .57
Co sation Experience Mod. .97 Employers Liability:
Premium Disc. 10.1% Bodily Injury by Accident:
$100,000 each accident
IL-8810 $18,900,000 .42
IL-8742 $ 710,000 .92 Bodily Injury by Disease:
Experience Mod. .97 $500,000 policy limit
IL Schedule Credit 25%
Premium Discount 10.1% Bodily Injury by Disease:
$100,000 each employee
Flat Coverage Monopolistic
Fund States 50. x 6
Expense Constant 160
----------------------------------------------------------------------------------------------------------------------------------
Federal 681-26-32 01/01/95 Financial Blanket Personal $2,000,000 General Aggregate $21,686.92
Insurance -96 Package Property Limit $11,070,000 (other than Products Completed
Co. Policy Operations)
Two Scheduled Locations: $1,000,000 Products Completed
Puerto Rico $30,300 Operations Aggregate Limit
1510 Skokie Blvd. $600,000
$1,000,000 Personal & Advertising
Library Values: $80,000 Injury Limit
Fine Arts: $399,387 $1,000,000 Each Occurrence Limit
Inland Marine - Valuable $10,000 Medical Expense Limit
Papers
General Liability based on $100,000 Personal Property Damage
square feet to Rented Premises Limit
-----------------------------------------------------------------------------------------------------------------------------------
Vigilant 7312-72-46 01/01/95 Foreign Liability & N.O. Auto $1,765 General Liability: $3,100
Insurance -96 Package Policy Workers' Compensation 1,335 $1,000,000 Commercial Liability
Co. for Bodily Injury or Property
General Damage Liability per occurrence
Liability $50 Per Person, per trip- & Personal Injury or Advertising
Flat. Based on: Injury caused by an offense
Automobile Total Employees - 20 $1,000,000 Annual Aggregate -
Liability-DIC/ No. of Trips 49 Products/Completed Operations
Excess Auto Total No. of Days 104
$250,000 Fire Legal Liability
Foreign Volun- $10,000 Medical Expense Per person
ary Workers'
Compensation $30,000 Medical Expense per accident
Automobile Liability - DIC/Excess Auto
$1,000,000 Bodily Injury per person
$1,000,000 Bodily Injury per occurrence
$1,000,000 Property damage per occurrence
$10,000 Medial Expense per person
$30,000 Medical Per Accident
Foreign Voluntary Workers'
Compensation - Statutory
$100,000 Employers Liability Limit
$20,000 Repatriation Expense for
any one Employee
---------------------------------------------------------------------------------------------------------------------------------
St. Paul IM01200804 01/01/95 Electronic Data/Media Flat $400 for Computer Equipment $4,132,731 $6,987
Insurance -96 Data $500,000 limit
Co. Processing
Business Interruption -
1,000,000 limit Valuable Papers & Records 600,000
Contingent Business Interrup-
tion: 1,000,000 - Kansas City Business Interruption 1,000,000
100,000 - Downers Grove
Deductible Contingent Business
Computer Equipment, Data and Interruption 1,100,000
Media and Extra Expense
Combined $1,000
Special Breakdown Deductible Extra Expense 500,000
$5,000
Transit
Computer Equipment $50,000
Data & Media $50,000
Valuable Papers $5,000
----------------------------------------------------------------------------------------------------------------------------------
Gulf GA5743948P 02/15/96 Excess Mutual $15,000,000 excess of $5,000,000 $540,935
Insurance -96 Fund D&O/E&O excess of underlying deductible
Company
---------------------------------------------------------------------------------------------------------------------------------
Federal 81391969-A 02/15/95 Investment Limits of Liability $25,000,000 $211,312
Insurance -96 Company Assets Extended Forgery 10,000,000
Co. Protection Bond Threats to Persons 5,000,000
Uncollectible items of Deposit 500,000
Audit Expense 100,000
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit 11(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions
"Financial Highlights" and "Independent Auditors" and to the
incorporation by reference of our reports dated August 1,
1995 with respect to SteinRoe Government Reserves and
SteinRoe Cash Reserves and August 9, 1995 with respect to
SteinRoe Government Income Fund, SteinRoe Intermediate Bond
Fund, SteinRoe Income Fund and SteinRoe Limited Maturity Fund
in the Registration Statement (Form N-1A) and related
Prospectuses of SteinRoe Income Trust, filed with the
Securities and Exchange Commission in this Post-Effective
Amendment No. 27 to the Registration Statement under the
Securities Act of 1933 (Registration No. 33-02633) and in
this Amendment No. 28 to the Registration Statement under the
Investment Company Act of l940 (Registration No. 811-4552).
ERNST & YOUNG LLP
Chicago, Illinois
August 25, 1995
SteinRoe Individual Retirement Account
How to Establish an IRA
IRA Disclosure Statement
SteinRoe IRA Plan
<PAGE> 1
Table of Contents
Page
IRA Disclosure Statement......................1
Revocation Rights ............................1
Eligibility ..................................2
Contributions ................................2
Contribution Corrections .....................5
Rollover Contributions and Asset Transfers ...5
Spousal IRA Contributions ....................7
Distribution of Benefits .....................7
Taxation of Distributions ....................9
Reporting to the Internal Revenue Service ...10
Prohibited Transactions......................10
The Custodian and the Plan Sponsor...........10
Investment of Contributions .................11
Charges and Fees ............................11
Simplified Employee Pension Plans............12
SteinRoe Funds Individual Retirement
Account Plan .............................15
IRA DISCLOSURE STATEMENT
We are required to give you this Disclosure Statement in order
to assure that you are informed and understand the nature of an
Individual Retirement Account ("IRA"). The Individual Retirement
Account Plan and the Application Form contained in this booklet
are considered a single document which, in a substantially similar
form, was approved by the Internal Revenue Service as a tax-
qualified Individual Retirement Account Plan ("IRA") and received
Internal Revenue Service Prototype Plan No. D100035c dated March
21, 1990. We intend to apply to the Service for approval of the
Plan as amended and restated in this booklet and will advise Plan
Participants when the Service responds to our application.
Internal Revenue Service approval is a determination only as to
the form of the documents and does not mean that the Service
approves the merits of the Plan.
By adopting the Plan, your IRA is qualified under the Internal
Revenue Code. Use of the Plan also simplifies and minimizes the
administration and investment of your IRA assets. WE URGE YOU TO
READ THIS BOOKLET CAREFULLY BEFORE ADOPTING THE PLAN.
REVOCATION RIGHTS
If you establish an IRA under the SteinRoe Funds Individual
Retirement Account Plan and you receive this booklet less than
seven days preceding the date on which you established your IRA,
you have the right to revoke your IRA. (If you receive this
booklet at least seven days prior to the date on which you
establish your IRA, you do not have this right.) If you revoke
your IRA, the full amount of your contributions will be refunded
without reduction for fees, expenses or market fluctuations. In
order to avoid possible losses in market values of contributions
during the seven-day revocation period, the Custodian reserves the
right not to invest your contributions in excess of $2,000 until
the end of the revocation period unless you invest them in
SteinRoe Government Reserves. For your convenience, initial
contributions of $2,000 or less generally will be invested as soon
as possible.
<PAGE> 2
Should you decide to revoke your IRA as described above, you
may do so and will receive a full refund only if you call SteinRoe
Services Inc. ("SSI"), agent of the Custodian, toll free (800)
338-2550, during normal business hours within seven days from the
date on which your IRA is established. Your telephone IRA
revocation instructions will be tape-recorded. If you fail to
properly revoke your IRA within seven days after it is
established, you may not revoke your IRA at a later date.
The rest of this Disclosure Statement is a general outline of
the provisions of the Plan and certain important considerations
involved in a decision to adopt the Plan for retirement savings.
ELIGIBILITY
If you are employed (or self-employed) and under age 70 1/2 at
the end of a taxable year, you may establish an IRA. A Spousal IRA
may be established for your non-working spouse if he or she is
under age 70 1/2 at the end of a taxable year. For federal income
tax purposes, your IRA contributions may be treated as deductible
or non-deductible. (See: "Contributions") You may establish an IRA
for the purpose of making a rollover contribution, regardless of
your age or employment status.
CONTRIBUTIONS
In General
As long as you are eligible, you may make annual contributions
to an IRA in an amount of up to the lesser of 100% of compensation
or $2,000. Compensation includes salary, bonuses, wages, overtime
pay, tips, professional fees, earned income from self-employment,
and taxable alimony or separate maintenance payments. It does not
include rental income, dividends or interest, or amounts received
as pension, annuity or deferred compensation income.
Your IRA contributions are held in a Custodial Account
exclusively for your benefit and the benefit of any beneficiaries
you may designate on a Beneficiary Form delivered to the
Custodian. The assets in your IRA generally may not be combined
with those of another individual, and your right to the entire
balance in your IRA is nonforfeitable.
IRA contributions for a given year may be made until the due
date for filing your federal income tax return for that year
(generally April 15th) but not including extensions. You must
designate the tax year for which each contribution is made. If you
do not designate the appropriate year for a contribution, your
contribution will be applied for the current year.
Under the Plan, the minimum annual contribution is $500 per
Fund account. This minimum amount must be contributed in a single
payment when you establish your IRA. Thereafter, you may
contribute as little as $50 each calendar month. These minimums do
not apply to IRAs established as part of a Simplified Employee
Pension Plan ("SEP") in which there is more than one participant.
Stein Roe & Farnham also may waive or reduce these minimums.
Deductible Contribution Limit
General - If neither you nor your spouse, if married, is an
active participant in an employer-maintained retirement plan
during the year for which your contribution is made, you may make
a deductible contribution of up to the lesser of $2,000 or 100% of
your individual compensation. If, however, either you or your
spouse, if married, is an active participant in an employer-
maintained retirement plan, the deductibility of your contribution
depends upon your adjusted gross income ("AGI") for the years for
which your contribution is made.
<PAGE> 3
If you or your spouse, if married, is an active participant in
an employer-maintained retirement plan, your contribution is fully
deductible if your AGI is less than $40,000 if you are married, or
$25,000 if you are unmarried. Your deduction is eliminated when
your AGI reaches $50,000 if you are married or $35,000 if you are
unmarried. Your deduction is phased out if your AGI is between
these amounts as explained below. If you are married but do not
live with your spouse for any part of the year and file a separate
return, the deductibility of your contribution is determined as if
you were unmarried.
Active Participant - Your annual IRS Form W-2 from your
employer should indicate whether you are an active participant for
purposes of your IRA deduction. In general, you (or your spouse)
are considered an active participant in an employer-maintained
retirement plan for any year if you participate in a qualified
defined benefit plan, a defined contribution plan (such as a money
purchase pension, profit-sharing, 401(k), stock bonus or annuity
plan), a SEP, or a government plan (excluding unfunded deferred
compensation plans under section 457 of the Internal Revenue Code)
during any part of the plan year ending with or within the year
for which you make an IRA contribution. You are treated as an
active participant even if your plan benefits are not yet fully
vested and nonforfeitable, but you are not treated as an active
participant if you have not yet satisfied the plan's minimum age
or service eligibility requirements. You also are treated as an
active participant for any year in which you make a voluntary or
mandatory contribution to an employer-maintained retirement plan,
even if your employer makes no contribution to the plan on your
behalf.
Adjusted Gross Income ("AGI") - For purposes of your IRA
deduction limit, your AGI includes any taxable social security
benefits you receive for the year. If you are married and file a
joint return, your deductible contribution limit is determined on
the basis of the combined AGI of you and your spouse.
Nondeductible Contribution Limit
To the extent you are not eligible to make a deductible
contribution, you may make a nondeductible contribution up to the
excess of (i) your aggregate contribution limit (100% of
compensation up to $2,000) over (ii) your deductible contribution
limit. If you make a contribution in excess of your deductible
contribution limit, you may correct the excess by designating it
as a nondeductible contribution to the extent it does not exceed
your nondeductible contribution limit.
You must designate your nondeductible contributions for a
given year on IRS Form 8606 which must be filed with your federal
income tax return for that year. You should retain a copy of your
return and IRS Form 8606 for your reference in determining the
amount of your cumulative deductible and nondeductible
contributions. Your return and IRS Form 8606 will be needed to
determine the taxable portion of any withdrawals you make. The
Custodian of your IRA does not differentiate between deductible
and nondeductible contributions on its own records.
Determining Your Deductible and Nondeductible Contribution Limits
Your deductible and nondeductible contribution limits are
determined as follows:
1. Determine Excess AGI by subtracting the applicable threshold
AGI (i.e., $40,000, if filing jointly; $25,000 or $0 if not)
from your actual AGI; if the difference is $10,000 or more,
stop because your deduction is zero.
2. Subtract the Excess AGI determined in (1) from $10,000.
3. Divide the amount determined in (2) by $10,000.
4. Multiply $2,000 ($2,250 for a Spousal IRA; see "Spousal IRA
Contributions") by the amount (fraction)
<PAGE> 4
determined in (3). If the product is not a multiple of $10,
round the product down to the next lowest $10. This is your
deductible contribution limit. If, however, the product is
less than $200, but greater than $0, your deductible
contribution limit is $200.
5. Subtract your deductible contribution limit from your
aggregate contribution limit (100% of compensation up to
$2,000). This is your nondeductible contribution limit.
If your deductible contribution limit is less than $200 (and
your AGI is less than $50,000 or $35,000, respectively), you may
increase your limit to the minimum floor of $200. If you are
married and file a joint return, your deductible contribution
limit applies separately to each spouse.
Example: A working couple filing a joint return has combined
AGI of $47,000 and one spouse is an active participant in an
employer-maintained retirement plan.
Applicable threshold AGI: $40,000
Excess AGI: $47,000 - 40,000 = 7,000
Combined Aggregate Contribution Limit ($2,000
per working spouse): 4,000
Reduction in IRA Contribution Limit:
$4,000 x ($7,000/10,000) = 2,800
Combined Deductible Contribution Limit:
$4,000 - 2,800 = 1,200
Deductible Contribution Limit for each spouse:
$1,200/2 = 600
Nondeductible Contribution Limit for each spouse:
$2,000 - $600 = 1,400
CONTRIBUTION CORRECTIONS
Contributions in excess of your maximum allowable annual
contribution limit are treated as excess contributions whether or
not you deduct them. You will be liable for a nondeductible excise
tax of 6% on the amount of the excess for the year the excess
contribution is made unless (i) you withdraw the excess and the
income earned on the excess prior to the due date for filing your
federal income tax return (including extensions) and (ii) you do
not deduct the excess on your federal income tax return.
Alternatively, you may direct the Custodian to apply the excess as
a contribution for a subsequent year. The Custodian will
automatically treat a contribution in excess of the maximum dollar
contribution limits as a contribution for the subsequent year
unless you direct the Custodian in writing to distribute to you
such excess and the income earned on the excess prior to the
deadline for filing your federal income tax return for the year
for which the excess contribution was made.
If the excess contribution remains in your IRA after the due
date for filing your tax return, you will be subject to the 6%
excise tax for each year the excess remains uncorrected. If you
withdraw the excess after the date for filing your federal income
tax return for the year in which the excess contribution was made
and the total contribution for that year exceeded $2,250, the
amount withdrawn may be taxed as ordinary income and also may be
subject to a nondeductible excise tax on premature distributions
equal to 10% of the amount withdrawn. The withdrawal penalty (but
not the 6% excise tax) may be avoided if you correct your excess
contribution by applying the excess as a contribution for a later
year.
Contributions you deduct in excess of your deductible
contribution limit are also treated as excess contributions to the
extent you do not designate them as nondeductible contributions
or, if permitted, correct them by withdrawal or reallocation to a
subsequent year as described above.
<PAGE> 5
ROLLOVER CONTRIBUTIONS AND ASSET TRANSFERS
Eligible Rollover Distributions
You may defer taxation on an eligible rollover distribution
from your employer's tax-qualified plan or 403(b) plan by making a
rollover contribution of the distribution to an IRA within 60 days
of the date of the distribution. In addition, if you are a spouse
or former spouse who is receiving an eligible rollover
distribution paid by reason of your spouse's death or pursuant to
a qualified domestic relations order (within the meaning of
section 414(p) of the Internal Revenue Code) issued in a divorce
or similar proceeding you may make a rollover contribution of that
distribution. An "eligible rollover distribution" is all or any
part of the taxable portion of the balance to your credit in your
employer's tax-qualified plan except (i) any distribution that is
required to be made because you are over age 70 1/2; (ii) any
distribution made over your life or life expectancy (or the lives
or life expectancies of you and a designated beneficiary); and
(iii) any distribution which is part of a series of substantially
equal payments over a period of ten or more years.
You may roll over all or any portion of an eligible rollover
distribution, but only that portion which is properly rolled over
into an IRA will be eligible for the tax deferral. The remainder
will generally be included in your gross income as ordinary income
subject to federal income tax in the year in which you receive it.
If your qualifying distribution includes property other than cash,
you may sell the property and roll over cash equal to the fair
market value of the property or, with the consent of the
Custodian, you may roll over the property.
ELIGIBLE ROLLOVER DISTRIBUTIONS ARE SUBJECT TO MANDATORY 20%
FEDERAL INCOME TAX WITHHOLDING UNLESS YOU ELECT A DIRECT ROLLOVER
TO AN IRA OR TAX-QUALIFIED PLAN. If you elect a direct rollover,
your distribution proceeds must be made payable to the trustee or
custodian of the IRA or tax-qualified plan to which the rollover
is made. If the proceeds are made payable to you, mandatory
withholding will apply but you still may roll over all or any
portion of your eligible rollover distribution. However, if you
wish to roll over more than the 80% of your distribution which you
directly receive, you must use other money to make up for the
amount withheld which you elect to roll over.
IRA Rollover Contributions and Asset Transfers
You also may make an IRA-to-IRA rollover contribution, but you
are limited to one IRA-to-IRA rollover every twelve months
(beginning on the date you receive your IRA distribution, and not
on the date you make your rollover contribution). However, a tax-
free IRA asset transfer from one custodian to another is not
treated as a rollover and, therefore, is not subject to the
twelve-month limitation. You may make an IRA asset transfer to a
SteinRoe IRA by completing the Asset Transfer section of the
Application Form. An asset transfer from your SteinRoe IRA to
another custodian will be made upon receipt by SSI of a written
request signed by both you and your successor custodian in a form
acceptable to SSI. If you make an asset transfer from your
SteinRoe IRA in the year you reach age 70 1/2 or any subsequent
year, the amount transferred will be reduced by any amount
required to satisfy the minimum distribution requirement for the
year of transfer as provided in Section 4 of the Plan. The amount
by which the transfer is reduced shall be distributed to you.
In general, asset transfers and rollover contributions may be
invested in the same IRA as regular contributions. However, if
assets are transferred or rolled over from a plan ("transferor
plan") after distribution from the transferor plan required by
Sections 401(a)(9), 408(a)(6) or 408(b)(3) of the Code has
commenced ("required distribution"), the assets must be placed in
a separate IRA if you are receiving required distributions from
your pre-existing IRA over a period longer than the period over
which you were receiving required distributions from the
transferor plan. (The assets from the transferor plan must be
distributed over a period no longer than the period established
under the transferor plan.) In addition, an eligible rollover
distribution must
<PAGE> 6
be rolled over into a separate IRA if you wish to preserve the
ability to later roll over those assets to another qualified plan.
If you wish to make a rollover contribution to the Plan, you
must complete the appropriate sections of the Application Form. If
you decide to make a rollover from your SteinRoe IRA to another
IRA, you must complete and return a Distribution Request Form to
SSI. In order to avoid income and premature distribution taxes, a
rollover must be made within 60 days of the date of the
distribution.
SPOUSAL IRA CONTRIBUTIONS
If you are employed (or self-employed), you may elect the
alternative Spousal IRA arrangement for any taxable year in which
your spouse has not more than $250 in compensation and elects to
be treated as having no compensation (for IRA purposes) on your
joint federal income tax return for that year. Under this
arrangement, each of you must sign a separate Application Form to
establish separate IRAs. Because a separate IRA is established for
each of you, you may make regular IRA contributions to a Spousal
IRA which was established in a previous year. Conversely, Spousal
IRA contributions may be made to an IRA established in a prior
year for the purpose of making regular contributions. Except for
the limitations discussed below, a Spousal IRA is identical to a
regular IRA.
The deductibility of contributions under a spousal arrangement
is determined by the same rules as those applicable to regular
contributions, except that the contribution limit is 100% of your
compensation up to $2,250. If you reach age 70 1/2 before your
spouse does and you are still employed, you may no longer make
contributions to your IRA but you may continue to make spousal
contributions to your spouse's account until your spouse reaches
age 70 1/2. Your spousal contribution may be divided between your
IRAs in any way you decide so long as at least $250 (but not more
than $2,000) is contributed to either IRA for a single year.
Contributions which exceed the maximum limits are excess
contributions subject to penalties described earlier in this
booklet.
DISTRIBUTION OF BENEFITS
General
You may request a distribution from your IRA by completing and
returning to SSI a Distribution Request Form acceptable to the
Custodian. Distributions must begin no later than the April 1
following the year in which you attain age 70 1/2. (If you and
your spouse maintain IRAs under a spousal arrangement, then your
age is the relevant age in applying these requirements to
distributions from your IRA and your spouse's age is the relevant
age for your spouse's IRA.)
You may elect to receive your distribution in cash or in Fund
shares by either one or a combination of the following methods:
- In a lump sum; or-
- In installment payments payable over a period of time not
greater than your life expectancy or the joint and last
survivor life expectancy of you and your designated
beneficiary.-
Minimum Distribution Requirements
Beginning with the year in which you reach age 70 1/2, you
must begin to receive a minimum distribution amount each year.
Your initial minimum distribution must be made no later than the
April 1 following the year you reach age 70 1/2; thereafter your
minimum distribution must be made no later than December 31 of
each
<PAGE> 7
year. Thus, if you defer your first minimum distribution until the
year following the year you reach age 70 1/2, you will be required
to withdraw a minimum distribution amount for both the prior and
current year.
In general, the minimum distribution amount you are required
to withdraw each year is equal to the balance in your SteinRoe IRA
(aggregating all Fund accounts maintained under your IRA) on
December 31st of the prior year divided by the applicable life
expectancy. Your aggregate account balance, however, is increased
by any rollover contributions to your SteinRoe IRA received after
December 31 that were distributed from another IRA or tax-
qualified plan before December 31. If you establish an installment
plan, you are responsible for verifying that you have withdrawn
the requisite minimum distribution amount each year and making
additional withdrawals, if necessary. If you maintain more than
one IRA, your minimum distribution amount must be determined
separately for each IRA.
The applicable life expectancy used to determine your minimum
distribution amount each year is either your life expectancy or
the joint and last survivor life expectancies of you and your
designated beneficiary (who is either an individual, or a trust
meeting certain requirements) determined in the year you reach age
70 1/2 by using Internal Revenue Service life expectancy tables,
reduced by one for each year elapsed since that year unless you
elect to recalculate life expectancy. You may recalculate your
life expectancy or, if your spouse is your designated beneficiary,
your spouse's life expectancy, or the joint and last survivor life
expectancies of you and your spouse each year. Your election to
recalculate or not recalculate life expectancy becomes irrevocable
on the April 1 following the year you reach age 70 1/2 If you
elect to recalculate life expectancy, you are responsible for
advising the Custodian of the recalculated life expectancy each
year. In addition, if you elect to recalculate life expectancy and
you (or your spouse, if applicable) die after payments have
commenced, the life expectancy of the deceased will be reduced to
zero and the maximum period over which the remaining benefits may
be paid to your beneficiaries will be correspondingly reduced. If
your method of distribution is based on the joint and last
survivor life expectancies of you and a non-spouse beneficiary,
the method must comply with regulations designed to assure at
least 50% of the present value of the amount available for
distribution is paid within your life expectancy. These
regulations require certain minimum distributions based on a
table.
Additional Taxes on Distributions
If you receive a distribution prior to age 59 1/2, the taxable
portion of your distribution generally will be treated as a
premature distribution subject to a 10% additional tax. This
additional tax does not apply, however, to distributions by reason
of your death or permanent disability, or to distributions payable
in substantially equal installments over a period no greater than
your life expectancy or the joint and last survivor life
expectancies of you and your designated beneficiary. If you fail
to withdraw the minimum distribution amount for any year after
reaching age 70 1/2, you will be subject to a 50% additional tax
on the taxable portion of the amount by which the minimum
distribution amount exceeds the amount withdrawn. In addition, if
the aggregate distributions from all of your IRAs and any tax-
qualified retirement plans exceed $150,000 for any year, you may
be subject to a 15% additional tax on the excess amount.
Each of these taxes is nondeductible and is in addition to the
ordinary income tax applicable to the taxable portion of a
distribution.
Distribution of Death Benefits
You may designate one or more beneficiaries to receive the
benefits in your IRA upon your death by filing a properly executed
Beneficiary Form with the Custodian. If you do not designate a
beneficiary, your death benefits will be distributed to your
surviving spouse if you are married or, if you have no surviving
spouse, to your estate. If your beneficiary fails to elect a
method of distribution, your death benefits will be distributed in
a lump sum.
<PAGE> 8
If distributions to you have commenced before your death, and
you die on or after April 1 of the year following the year you
reach age 70 1/2, your death benefits must be distributed at least
as rapidly as under the method by which you were receiving
distributions. If you die before April 1 of the year following the
year you reach age 70 1/2, regardless of whether or not
distributions to you have commenced, your death benefits must be
distributed no later than five years after the last day of the
year in which you die unless your designated beneficiary (who is
either an individual or a trust meeting certain requirements)
elects the alternative distribution method described in the next
paragraph.
If he or she qualifies to elect the alternative distribution
method, your designated beneficiary may elect to receive your
death benefits in installments over a period of as long as his or
her life expectancy provided such installments commence no later
than the last day of the year following the year in which you die.
If your sole beneficiary is your surviving spouse, commencement of
such payments may be further delayed until the date on which you
would have reached age 70 1/2. Under this alternative method, your
designated beneficiary's life expectancy is determined as of his
or her birthdate in the year payments commence. In addition, if
your designated beneficiary is your surviving spouse, your spouse
may elect to treat his or her share of your death benefits as his
or her own IRA subject to the distribution requirements applicable
to a Participant.
For more complete information on the distribution of death
benefits, please refer to Sections 4.4 and 4.5 of the Plan and the
Beneficiary Form.
TAXATION OF DISTRIBUTIONS
In general, distributions from your IRA are taxed to the
recipient as ordinary income in the year of receipt and do not
receive the more favorable federal income tax treatment afforded
recipients of distributions from certain kinds of tax-qualified
retirement plans such as special income averaging. However,
recipients are eligible to utilize the general income averaging
provisions of the Internal Revenue Code. In some instances,
installment payments may reduce the total tax paid by the
recipient by extending taxation over a number of years. If,
however, the aggregate value of your aggregate interest in all of
your IRA's and tax-qualified retirement plans that remains
undistributed on your death exceeds the present value of a life
annuity with annual payments of a specified amount, your federal
estate tax on the excess will be increased by 15%. The specified
amount is indexed for inflation. In 1994, it is $150,000.
If you have made nondeductible contributions to any IRA, a
portion of your distribution will be nontaxable. The nontaxable
amount is the portion of your distribution that bears the same
ratio tothe distribution as (i) your aggregate nondeductible
contributions to all of your IRAs bear to (ii) the aggregate
balance in all of your IRAs on the last day of the year in which
you received your distribution plus the amount of your
distribution. For this purpose, the balances in all IRAs that you
maintain (including rollovers and SEPs) and all distributions you
receive during the year must be aggregated.
Distributions are subject to withholding of federal income tax
at a rate of 10% unless you elect not to have withholding apply.
REPORTING TO THE INTERNAL REVENUE SERVICE
Each year the Custodian will send you IRS Form 5498 reporting
contributions made to your IRA for the prior year. The Custodian
also will report to you your prior year distributions on IRS Form
1099-R. Copies of these reports are also filed with the Internal
Revenue Service ("IRS")
<PAGE> 9
If you make a nondeductible contribution to your IRA, you must
report it to the IRS on IRS Form 8606 which must be filed with
your federal income tax return for the year for which the
contribution is made. If you owe additional taxes on excess
contributions, premature distributions or for insufficient or
excessive distributions, you must file IRS Form 5329 with the IRS.
IRS Form 5330 must be filed in connection with a prohibited
transaction.
PROHIBITED TRANSACTIONS
If you engage in a "prohibited transaction" with your IRA,
your IRA will lose its tax exemption and you will be treated as
having received a distribution of your IRA as of the first day of
the year in which you engaged in the prohibited transaction.
Therefore, you would be subject to income taxation and, if you are
under age 59 1/2, to the additional 10% tax on premature
distributions on the balance in your IRA. You may also be subject
to the additional 15% tax on excess distributions. Prohibited
transactions include such transactions as the selling to, buying
from, leasing any property to or from, lending to or borrowing
from, furnishing goods or services to or receiving goods or
services from, or using the income or assets of your IRA, or
allowing certain other "disqualified persons" to do so. However, a
transfer of all or a portion of your IRA pursuant to a "qualified
domestic relations order" such as a property settlement agreement
under a divorce decree is not considered a prohibited transaction.
Further, your IRA may not be invested in life insurance nor
may any part of your IRA be pledged as security for a loan. If you
do pledge your IRA, you will be treated as if you received a
taxable distribution of the portion of your IRA assets used as
security for the loan. This portion of your IRA would be subject
to income taxation and, if you are under age 59 1/2, the
additional 10% tax on premature distributions. It would also be
subject to the additional 15% tax on excess distributions.
THE CUSTODIAN AND THE PLAN SPONSOR
The Custodian is named in the Application Form and is
responsible for the administration of the Plan in accordance with
the terms of the Application Form and Plan. The Custodian has
engaged SteinRoe Services Inc. ("SSI"), the parent of the Plan
Sponsor, Stein Roe & Farnham Incorporated, to perform most of the
ministerial functions in connection with the maintenance of
SteinRoe Fund accounts established under the Plan. SSI also serves
as transfer agent for each of the SteinRoe Funds. Stein Roe &
Farnham, as Plan Sponsor, has the authority to amend the Plan on
behalf of all participants.
INVESTMENT OF CONTRIBUTIONS
The Plan provides a wide range of investment alternatives from
which you may construct a portfolio to suit your own retirement
planning needs. You may invest your IRA in shares of one or any
combination of the no-load SteinRoe Funds listed on the
Application Form. If you have at least $250,000 in your IRA, you
also may invest your IRA in other investments in addition to (or
in lieu of) the SteinRoe Funds. However, at least 50% of your IRA
must be invested in the SteinRoe Funds and/or be subject to an
investment advisory agreement with Stein Roe & Farnham. Stein Roe
& Farnham may elect to reduce or waive these minimums.
The investment minimum required to establish an account with
any of the Funds is that which is specified in the Application
Form, unless Stein Roe & Farnham waives or reduces this minimum.
If your retirement investment objectives change, you may change
your portfolio by exchanging shares of one Fund for those of
another. This may be done by instructing SSI in writing or, if you
elect the Telephone Exchange Privilege on the Application Form and
the exchange is for $1,000 or more, by calling SSI. The SteinRoe
Funds levy no sales commissions or 12b-1 charges.
<PAGE> 10
In selecting a SteinRoe Fund for investment, it is important
that the investment objective of the Fund selected be consistent
with your retirement and investment objectives. Important
information concerning the SteinRoe Funds and their investment
objectives, policies and restrictions is contained in their
prospectuses and financial reports. Growth in value is not
guaranteed or projected. All income dividends and capital gain
distributions paid on Fund shares are reinvested in accordance
with the Fund's prospectus. For more complete information on the
Funds, including management fees and expenses, obtain the Funds'
prospectuses by calling toll free 1-800-338-2550. Read the
prospectuses carefully before you invest or send money.
CHARGES AND FEES
Custodial Fees - There are no fees charged when you make a
contribution. The only fees charged directly to your IRA are
Custodial fees, which are described below. These fees are
automatically paid by redemption of Fund shares except for the
Fund Account Annual Maintenance Fee which may be paid by separate
check made payable to SSI. Because SSI performs most of the
ministerial functions in maintaining Fund accounts, it receives a
substantial portion of these fees. These fees may be changed upon
45 days' written notice to you. The Custodian also reserves the
right to waive or reduce any of its charges or fees.
1. Fund Account Annual Maintenance Fee $12.00
Charged each calendar year for each Fund account
maintained for you during any part of such year
having a value of less than $5,000, including
accounts from which periodic distributions are
being made. No annual maintenance fee is charged
for a Fund account having a value of $5,000 or more.
2. Termination Fee $5.00
Charged for each Fund account liquidated in
connection with the termination or transfer of
your IRA
3. Distribution Fee $5.00
Charged for each distribution from a Fund account;
provided, however, in the case of installment
payments, this fee is charged only at the time
the installment plan is established or if there
is a change in the amount or frequency of the
payments.
4. Excess Contribution Fee $5.00
Charged for any refund or other correction of an
excess contribution from a Fund account.
5. Other Services
In the event that the Custodian is required to perform
services not ordinarily provided with respect to the Plan,
including making participant-directed investments of large
Custodial Accounts pursuant to Section 7.3 of the Plan, or you
make investments other than in the SteinRoe Funds, the
Custodian may charge such additional fees as are appropriate.
The Custodian also reserves the right to waive or reduce any
of its charges or fees.
SteinRoe Fund Fees - All of the SteinRoe Funds are pure no-
load investments. You pay no sales commissions or 12b-1 charges
for purchasing, redeeming or exchanging Fund shares. Each Fund
does, however, pay certain operational expenses, including
advisory fees. For complete information about Fund expenses and
the method of calculating each Fund's net asset value per share,
please read the Fund prospectuses.
<PAGE> 11
SIMPLIFIED EMPLOYEE PENSION PLANS
The Internal Revenue Code permits certain employers to
establish Simplified Employee Pension Plans ("SEPs") to which
contributions may be made on behalf of all employees meeting
certain eligibility requirements. Contributions may be made by
either the employer ("non-elective contributions") or at the
election of the employee through "pre-tax" salary reduction
contributions ("elective deferrals"). However, elective deferrals
may be made to a SEP only if you had no more than 25 employees
eligible to participate during the prior calendar year and
provided at least 50% of eligible employees actually make elective
deferrals.
You may establish a SEP either by designing your own SEP or by
executing IRS Form 5305-SEP (non-elective contributions) or IRS
Form 5305A-SEP (elective deferrals). Copies of these forms are
available directly from the Internal Revenue Service or from the
office of the SteinRoe Funds. Before establishing a SEP, however,
we suggest you consult with your tax and legal advisers to
determine whether it is appropriate for your circumstances.
In general, except as otherwise specifically stated in the
Plan, the provisions of the Plan apply to IRAs to which SEP
contributions are made and each participant in the SEP has all the
rights described herein with respect to an ordinary IRA including,
for example, the right to select the Funds in which contributions
shall be invested.
Who May Establish a SEP
If you do not presently maintain any other qualified plan
(except another SEP) and you have never maintained a defined
benefit plan, you may establish a SEP by using either IRS Form
5305-SEP or IRS Form 5305A-SEP. Neither of these forms, however,
may be used if you are a member of an affiliated service group, or
a controlled group of corporations, trades or business (described
in Internal Revenue Code sections 414 (m), (b) and (c),
respectively) unless all eligible employees of the member
employers participate. In addition, you may not use IRS Form
5305A-SEP if you only have "highly compensated" employees
(described in Internal Revenue Code section 414(q) ) or you are a
state or local government or tax-exempt employer. You also may not
use IRS Form 5305-SEP if you have any leased employees (described
in Internal Revenue Code section 414(n). You may establish a SEP
up until your tax return due date (including extensions) for the
year for which contributions are first made.
If you decide to adopt a SEP, you must cover all employees who
have attained a minimum age requirement (which cannot be more than
21 years) and performed services for you for a minimum period
(which cannot be more than any part of 3 of the preceding 5
calendar years). Except as described below, for any year in which
you make a non-elective employer contribution, contributions must
be made for each employee who was eligible for any part of the
year, including those who are no longer employed by you as of the
SEP contribution date. In the case of elective deferrals, an
elective deferral is permitted in a given year only if at least
50% of all eligible employees elect to make them. In addition, the
elective deferrals of certain highly compensated employees, as a
percentage of each employee's compensation, may not exceed 125% of
the average amount deferred as a percentage of compensation by all
other eligible employees.
Under a SEP, each eligible employee must establish an IRA. If
an eligible employee does not establish an IRA, you must establish
one for him. Otherwise, your other employees may not participate
and other adverse tax consequences may result.
Excluded Employees
A contribution need not be made on behalf of any eligible
employee whose compensation is less than a
<PAGE> 12
specified amount indexed for inflation for the calendar year. (For
1994, you need not make a contribution on behalf or an individual
whose compensation is less than $396.) The following groups of
persons may also be excluded:
1. Employees who are members of a collective bargaining unit,
represented by a collective bargaining agent, and covered by a
collective bargaining agreement where retirement benefits were the
subject of good faith bargaining; and
2. Employees who are non-resident aliens who receive no earned
income from the employer which constitutes income from sources in
the United States as defined by the Internal Revenue Code.
SEP Contributions
Each year you may make deductible non-elective contributions
of up to the lesser of 15% of an employee's compensation up to
$150,000 (for 1994), or $30,000. Your eligible employees may make
elective deferrals of up to $9,240 (for 1994), which reduce gross
income but are included in the overall $30,000 and 15% limits. All
three of these dollar limits are subject to adjustment each year
for cost-of-living increases.
Deductible non-elective contributions in excess of the maximum
allowable annual contribution limit are excess contributions and
are subject to the regular IRA excess contribution rules. Elective
deferrals in excess of the maximum allowable annual deferral limit
are excess elective deferrals subject to special rules. For more
information on the treatment of excess elective deferrals, please
refer to Section 3.5 of the Plan. SEP contributions are in
addition to any regular IRA contributions your employees make as
individuals. Although you are not required to make non-elective
contributions each year nor make them at the same percentage rate
each year, for each year in which you make a non-elective
contribution, it must be made on behalf of each eligible employee
who has met the age and service requirement of your SEP and you
are responsible for allocating your contributions among all
eligible employees in proportion to their respective compensation.
Your non-elective contributions may be made up to 3 1/2 months
after the end of the calendar year to which such contribution
applies.
Miscellaneous
As employer, you are responsible for all aspects of the
interpretation, operation and administration of your SEP,
including the determination of contributions and their allocation.
If in any year an employee's account does not qualify as an
IRA or the SEP contribution is not properly made, contributions to
that employee's account may be treated as compensation and any
deduction for the contribution (plus any regular IRA contributions
the employee makes) may be subject to the regular IRA contribution
limitations and the regular IRA excess contribution and premature
distribution rules.
_____________________
This Disclosure Statement is not intended as a complete or
definitive explanation or interpretation of the laws and
regulations applicable to IRAs or the SteinRoe Funds Individual
Retirement Account Plan. Establishing an IRA for retirement
savings represents a decision which has significant legal,
financial and tax implications. If you are considering adopting an
IRA, we suggest that you consult with counsel regarding the legal,
financial and tax consequences of doing so. Further information
also can be obtained from any district office of the Internal
Revenue Service.
<PAGE> 13
STEINROE FUNDS
INDIVIDUAL RETIREMENT ACCOUNT PLAN
SECTION 1 - INTRODUCTION
The Custodian designated in the Application Form, by separate
agreement and by facsimile signature of its authorized officer
thereon, agrees that an individual retirement account is
established under section 408(a) of the Code and the terms of this
Plan pursuant to which it agrees to serve as Custodian when it is
appointed under a properly executed Application Form sent to the
custodian in accordance with the terms of the Application Form and
the Plan.
SECTION 2 - DEFINITIONS
As used herein:
2.1 "Beneficiary" means any person designated by a Participant in
accordance with Section 4.5 hereof to receive any death
benefits which shall be payable under the Plan.
2.2 "Code" means the Internal Revenue Code of 1986, as from time
to time amended, any regulations issued thereunder and any
subsequent Internal Revenue Code.
2.3 "Compensation" means the total compensation received by a
Participant for each Plan Year during which he is a
Participant, including wages, salary, professional fees, or
other amounts derived from or received for personal service
actually rendered (including, but not limited to, salesmen's
commissions, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums,
tips and bonuses) and Earned Income (reduced by the
deduction, if any, taken for contributions by a self-employed
individual to a tax-qualified retirement plan covering such
self-employed individual). Compensation also includes any
amount includible in a Participant's gross income under
section 71 of the Code with respect to a divorce or
separation instrument described in section 71(b)(2)(A).
Compensation does not include amounts derived from or
received as earnings or profits from property (including, but
not limited to, interest and dividends) or amounts not
includible in gross income. Compensation also does not
include any amount received as a pension or annuity or as
deferred compensation.
2.4 "Custodial Account" means the individual retirement account
established for the Participant under the Plan.
2.5 "Custodian" means the financial institution named in the
Application Form and any successor thereto.
2.6 "Disabled" or "Disability" means the inability to engage in
any substantial gainful activity because of a medically
determinable physical or mental impairment which can be
expected to result in death or be of a long, continued and
indefinite duration.
2.7 "Earned Income" means Earned Income of a Participant after
deductions under section 404 of the Code but before federal
income taxes for each taxable year for which a contribution
is made to his Custodial Account by him or on his behalf.
Earned Income shall equal his net earnings from self-
employment to the extent that such net earnings constitute
compensation for personal services actually rendered by him
for such year; provided, however, that his personal services
must be a material income-producing factor in his profession,
trade or business. If a Participant derives income from
services as an author or inventor, the term Earned Income
includes gain (other than any gain from the sale or exchange
of a capital asset) and net earnings derived from the sale or
other disposition of, the transfer of any interest in, or the
<PAGE> 14
licensing of the use of property (other than goodwill) by the
Participant if personal efforts created such property.
2.8 "Excess Deferral" means, for any taxable year, the amount of
any excess contribution made under a cash or deferral
arrangement to an annuity plan described in section 403(a) of
the Code, an annuity contract described in section 403(b) of
the Code, a SEP, or a plan described in section 501(c)(18) of
the Code.
2.9 "Mutual Fund" or "Mutual Funds" means the Mutual Fund(s)
specified in the Application Form in which assets of the
Custodial Account may be invested. No Mutual Fund shall be
available for investment under the Plan (i) prior to the date
the prospectus for such Mutual Fund discloses its
availability or (ii) with respect to any Participant who
resides in any state in which shares of the Mutual Fund are
not available for sale.
2.10 "Nonworking Spouse" means a Participant's spouse who has no
Compensation for a taxable year, or who has Compensation of
not more than $250 for the taxable year and elects to be
treated as having no Compensation for such year.
2.11 "Participant" means the person who executes the Application
Form effective on the date of execution.
2.12 "Plan" means the Individual Retirement Account Plan as
provided in this document and the Application Form (the
provisions of which are incorporated herein by reference) and
any amendments thereof.
2.13 "Rollover Contribution" means a rollover contribution as
described in section 402(a)(5), section 402(a)(6)(F), section
402(a)(7), section 403(a)(4), section 403(b)(8), section
408(d)(3), or, prior to their repeal, sections 405(d)(3),
409(b)(3)(C) or 409(b)(D) of the Code.
2.14 "SEP Contribution" means a contribution made by the employer
of a Participant pursuant to section 408(k) of the Code under
a Simplified Employee Pension Plan ("SEP") established by the
use of Internal Revenue Service Form 5305-SEP or Internal
Revenue Service Form 5305A-SEP.
2.15 "Sponsor" means Stein Roe & Farnham Incorporated ("Stein Roe
& Farnham"), or such other person qualified to act as sponsor
as from time to time designated by Stein Roe & Farnham.
Section 3 - Contributions
3.1 Restriction on Contributions. Except for Rollover
Contributions under Section 5.2 hereof, all contributions
shall be made in cash. Each contribution must be accompanied
by written instructions on a form provided or permitted by
the Custodian specifying the Participant's Custodial Account
to which they are to be credited and the manner in which they
are to be invested. Except for Rollover Contributions and SEP
Contributions, no contributions may be made by or on behalf
of any Participant for any taxable year beginning in the year
the Participant attains age 70 1/2. The Custodian may accept
such contributions by or on behalf of the Participant as it
may receive from time to time, provided, however, that except
in the case of Rollover Contributions, the Custodian shall
not accept contributions made by or on behalf of a
Participant for any taxable year in excess of the maximum
dollar amount specified in Section 3.3 hereof (or such other
maximum dollar amount as may from time to time be permitted
under the Code).
3.2 Minimum Contribution Amounts. For each taxable year for which
a contribution is made, other than a SEP Contribution, not
less than $500 shall be contributed by or on behalf of a
Participant. Annual contributions may be made in one or more
payments provided that payments may not be made more
frequently than once each calendar month and the amount of
each such payment shall be not less than $50. These minimums
may be waived or reduced by Stein Roe & Farnham.
<PAGE> 15
3.3 Maximum Contribution Amounts.
(a) Regular Contributions. Except as otherwise expressly
provided in this Section and Section 5 hereof, the
aggregate amount of contributions by or on behalf of a
Participant for the taxable year shall be not more than an
amount equal to or the lesser of one hundred percent
(100%) of the Compensation of the Participant within the
taxable year or $2,000.
(b) SEP Contributions. For any taxable year, the aggregate
amount of SEP Contributions made by an employer on behalf
of a Participant may not exceed the lesser of $30,000 (or
such other amount as may from time to time be permitted
under the Code or regulations thereunder) or 15% of the
Participant's Compensation paid by the employer determined
without regard to such contribution or Compensation in
excess of the annual compensation limit set forth by the
Omnibus Budget Reconciliation Act of 1993 (OBRA'93). The
OBRA'93 annual compensation limit is $150,000, as adjusted
by the Internal Revenue Commission for increases in the
cost of living in accordance with Section 401(a) - (17)(b)
of the Code. The cost-of-living adjustment in effect for a
calendar year applies to any period, not exceeding 12
months, over which compensation is determined
(determination period) beginning in such calendar year. If
a determination period consists of fewer than 12 months,
the OBRA'93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of
months in the determination period, and the denominator of
which is 12. SEP Contributions made on behalf of a
Participant pursuant to an elective salary reduction
arrangement shall not exceed $9,240 for 1994 (or such
other amount as may from time to time be permitted under
the Code). SEP Contributions may be made in addition to
any other contributions made by or on behalf of the
Participant as described herein.
(c) Spousal Contributions. For any taxable year in which a
Participant is married (as described in section 143(a) of
the Code) to a Nonworking Spouse with whom a joint tax
return is filed, the Participant may elect to make
contributions on behalf of the Nonworking Spouse to a
Custodial Account which the Nonworking Spouse has
established by executing an Application Form. Under this
arrangement, the aggregate contributions made to the
Custodial Accounts of both the Participant and his
Nonworking Spouse for any taxable year may not exceed the
lesser of $2,250 or 100% of the Participant's
Compensation; provided, however, that the contributions to
either Custodial Account may not exceed $2,000.
A Nonworking Spouse who establishes a Custodial Account
under this Subsection shall be treated as a Participant
under the Plan for all purposes and, for any taxable year
in which the Nonworking Spouse has Compensation, the
Participant and the Nonworking Spouse may make
contributions to their respective Custodial Accounts as
provided in Section 3.3(a).
3.4 Contribution Corrections. If, for any taxable year, aggregate
contributions of a type specified in Section 3.3 hereof made
by or on behalf of a Participant exceed the maximum
permissible amount, and provided no deduction is allowed for
the excess amount, then no later than April 15 of the
following year, the Custodian shall eliminate the excess by
(a) treating it as a contribution for the following year to
the maximum extent allowable an amount equal to the lesser of
(i) the balance in the Custodial Account of the Participant
or (ii) the excess amount (together with an amount equal to
the net income earned on the excess amount), and (b)
distributing the remainder, if any, to the Participant. If a
contribution (a) exceeds the maximum permissible percentage
amounts set forth in Section 3.3 hereof, (b) exceeds the
amount permitted after application of the special
discrimination tests under section 408(k)(6) of the Code or,
in the case of a contribution intended to be a Rollover
Contribution, exceeds the amount qualifying as such or (c) is
an excess contribution within the meaning of Section 4973 of
the Code, the Participant must direct the Custodian in
writing to either return the excess amount or apply it as a
contribution for the following year, and in the absence of
such direction, the Custodian shall take no action.
<PAGE> 16
3.5 Treatment of Excess Deferrals. If the Participant directs the
Custodian in writing, not later than the first March 1
following the end of the year for which an Excess Deferral
was made, to distribute the amount of the Excess Deferral
contributed to the Plan and any earnings thereon, then the
Custodian shall distribute such amount and any earnings
thereon to the Participant no later than the first April 15
following the end of the year for which the Excess Deferral
was made. In the absence of such notification and direction,
the Custodian shall take no action.
Section 4 - Distributions
4.1 General. The Custodian shall distribute the amount credited
to the Custodial Account of a Participant at such times and
in such amounts as the Participant shall direct on a form
provided or permitted by the Custodian and in a manner
consistent with the prospectus(es) of the Mutual Fund(s) in
which the Custodial Account is invested. Such distributions
to a Participant shall commence no later than April 1
following the close of the calendar year in which he attains
age 70 1/2. Distributions of Excess Contributions and Excess
Deferrals and returns of nondeductible contributions shall be
made in accordance with Sections 3.4, 3.5 and 3.6 hereof,
respectively. Except as provided above, if a distribution is
made from the Participant's Custodial Account prior to the
date the Participant attains age 59 1/2 for reasons other
than (i) Disability or death, (ii) as part of a series of
substantially equal periodic payments made over the life
expectancy of the Participant or the joint and last survivor
life expectancies of the Participant and the Participant's
Beneficiary, (iii) as a distribution to an alternate payee
under a qualified domestic relations order (within the
meaning of section 414(p) of the Code), or (iv) as a
distribution of the principal amount of an Excess Deferral
pursuant to Section 3.5 hereof, then the tax on such
distribution shall be increased by an amount equal to 10% of
the taxable portion thereof. The Participant may direct an
immediate distribution which shall be made or commence on the
date (or as near thereto as is practicable) the Custodian
receives the Participant's written request in proper form, or
a future distribution which shall commence on a date
specified in such request which shall be within a reasonable
time after the filing of such form. The Participant
represents and warrants that all distribution instructions
provided to the Custodian shall be in accordance with the
terms of the Plan.
If the Custodian does not receive instructions to effect
distribution to a Participant by the first business day of
the month preceding the month in which distribution is
required to commence, the Custodian shall distribute the
benefits in cash or kind, in the sole discretion of the
Custodian, in a lump sum.
If any installment payment to a Participant or Beneficiary is
less than a minimum amount that may be established from time
to time by Stein Roe & Farnham or the Custodian then, at the
option of either of them, one or more payments under such
method may be paid less frequently or the value of the
Custodial Account may be paid in one sum to the person then
entitled to receive such payments, the contingent interest of
any Beneficiary notwithstanding.
4.2 Payment on Disability. If a Participant becomes Disabled, the
amount credited to the Custodial Account may be distributed,
in accordance with the distribution provision of Sections 4.1
and 4.3 hereof, commencing on the date the Custodian receives
notification from the Participant of Disability in a form
acceptable to the Custodian. Before making any distribution
in the case of the Disability of a Participant prior to the
date the Participant attains age 59 1/2, the Custodian shall
be furnished with proof of such Disability. Proof of
Disability shall mean either (1) proof that such
Participant's application for disability benefits under the
federal Social Security Act has been approved, or (2)
submission of a Certificate of Disability form provided or
permitted by the Custodian showing the same degree of proof
as would be required by such Participant in applying for
disability benefits under the federal Social Security Act.
<PAGE> 17
4.3 Method of Distribution.
(a) Distributions to a Participant made for any reason other
than the death of the Participant may be paid in cash or in
kind in one or a combination of the following ways:
(i) in a lump sum; or
(ii) in annual or more frequent installments over a
period certain not to exceed the life expectancy of the
Participant, or the joint and last survivor life
expectancies, determined as provided in Section 4.6
hereof, of the Participant and the Participant's
individual Beneficiary. Even if installment payments
have commenced pursuant to this option, the Participant
may receive a distribution of the balance in his
Custodial Account, or any part thereof, upon written
request as described in Section 4.1 hereof to the
Custodian.
(b) If the Participant elects to receive installment payments
then (except as otherwise permitted under regulations for
distributions required to commence prior to January 1, 1988),
beginning with the year the Participant reaches age 70 1/2,
the minimum distribution required for that year shall be at
least equal to the lesser of the balance in the Participant's
Custodial Account or the quotient obtained by dividing (i)
the balance in the Custodial Account as of the close of
business on December 31 of the prior year [reduced, in the
case of the year ("Second Distribution Year") following the
year in which the Participant reached age 70 1/2, by any
distribution made during the Second Distribution Year on or
prior to April 1 to satisfy the minimum distribution
requirement for the year the Participant reached age 70 1/2
by (ii) the life expectancy of the Participant (or, if
applicable, the joint and last survivor life expectancies of
the Participant and the Participant's Beneficiary, determined
as provided in Section 4.6 hereof. Distributions for the year
in which a Participant reaches age 70 1/2 will be deemed
timely made if made on or prior to April 1 of the succeeding
calendar year.
(c) For purposes of determining the minimum amount required
to be distributed under Section 4.3 (b) hereof, the balance
in the Custodial Account as of December 31 of any year shall
be increased by the amount of any Rollover Contribution from
another individual retirement account or tax-qualified
retirement plan received after December 31 which was
distributed from such other individual retirement account or
a tax-qualified retirement plan on or prior to December 31.
(d) If the case of a Rollover Contribution or an amount
transferred to the Plan pursuant to Section 5 hereof that was
distributed (or transferred) from an individual retirement
account or tax-qualified retirement plan ("transferor plan")
after the April 1 of the year following the year in which the
Participant reached age 70 1/2, such assets must be held in a
Custodial Account separate from any other Custodial Account
from which the Participant is receiving installment payments
in accordance with Section 4.3 (b) hereof, which payments are
being made over a period longer than the period over which
the Participant was receiving installment payments from the
transferor plan. Distribution from such separate Custodial
Account shall begin no later than the year following the year
of the rollover or transfer with payments over a period
established under the transferor plan. The designated
beneficiary under the transferor plan shall be substituted
for the Beneficiary designated hereunder if the distribution
period for such separate Custodial Account period is
determined based on the joint and last survivor life
expectancies of the Participant and designated Beneficiary.
(e) Notwithstanding any other provisions in this Plan,
effective for distributions made before the Participant's
death, where the distribution period is longer than the
Participant's life expectancy and the Participant's spouse is
not the Beneficiary, the minimum amount required to be
distributed each year, beginning with the year the
Participant reaches age 70 1/2, shall be at least the
quotient obtained
<PAGE> 18
by dividing the balance in the Custodial Account as of the
close of business on December 31 of the prior year [reduced,
in the case of the year ("Second Distribution Year")
following the year in which the Participant reached age 70
1/2, by any distribution made during the Second Distribution
Year on or prior to April 1 to satisfy the minimum
distribution requirement for the year the Participant reached
age 70 1/2] by the lesser of (i) the joint and last survivor
life expectancies of the Participant and the Participant's
Beneficiary determined as provided in Section 4.6 hereof or
(ii) the applicable divisor determined from the table set
forth in Q&A-4 of Prop. Treas. Reg. Section 1.401(a)-2.
4.4 Distribution on Death of Participant.
(a) If the Participant dies after payment has commenced under
Section 4.3 hereof, and on or after the April 1
following the year in which the Participant reached age
70 1/2, the balance in his or her Custodial Account
shall be distributed to the Participant's Beneficiary,
designated in accordance with Section 4.5 hereof, at
least as rapidly as under the method of distribution by
which payments were being made to the Participant prior
to death.
(b) If a Participant dies before the April 1 following the
year in which the Participant reaches age 70 1/2, the
balance in his or her Custodial Account shall be
distributed to the Participant's Beneficiary, designated
in accordance with Section 4.5 hereof, as the
Beneficiary shall elect:
(i) in a lump sum no later than December 31 of the year
that contains the fifth anniversary of the Participant's
death or, if later, if the Participant's sole
Beneficiary is the Participant's surviving spouse,
December 31 of the calendar year in which the
Participant would have attained age 70 1/2; or
(ii) in annual or more frequent installment payments
over a period certain not to exceed the life expectancy,
determined in accordance with Section 4.6 hereof, of the
Beneficiary. If the Participant's sole Beneficiary is
the Participant's surviving spouse, payments shall
commence no later than the later of December 31 of the
year following the year in which the Participant died,
or December 31 of the calendar year in which the
Participant would have attained age 70 1/2. In all other
cases, payments shall commence no later than December 31
of the calendar year immediately following the year in
which the Participant died.
(c) If a Participant's spouse is named as Beneficiary in
accordance with Section 4.5 hereof, then notwithstanding
the provisions of Sections 4.4(a) and (b) hereof, the
Participant's spouse may elect to treat the interest in
the Participant's Custodial Account to which the spouse
becomes entitled upon the Participant's death as the
spouse's own individual retirement account subject to
the distribution provisions of Section 4.3 hereof by
execution of a new Application Form establishing the
spouse's own Custodial Account not later than the date
of filing the Participant's federal estate tax return
or, if earlier, the due date (including any extensions)
for such return. The determination of whether an
election has been made by a Participant's spouse to
treat the spouse's portion of death benefits as his or
her own individual retirement account will be made in
accordance with applicable rulings and regulations.
(d) Before making any distribution in the case of death of a
Participant, the Custodian shall be furnished with such
certified death certificates, inheritance tax releases,
indemnity agreements and other documents as may be
required by the Custodian.
(e) If a Participant dies before the total amount in the
Custodial Account has been distributed, and the
Participant's Beneficiary is other than the
Participant's spouse, no additional cash contributions
or Rollover Contributions may be accepted by the
Custodian.
<PAGE> 19
(f) To the extent prescribed by regulation under the Code,
for purposes of this Section 4.4, any amount paid to a
child of the Participant will be treated as if it had
been paid to the surviving spouse provided the balance
in the Participant's Custodial Account when the child
reaches the age of majority (or when any other
designated event permitted under regulations occurs)
will become payable to the surviving spouse.
4.5 Beneficiary Designation. A Participant shall have the right
to designate, or to change, the Beneficiary to receive the
balance in the Custodial Account at the time of the
Participant's death. Such designation may include contingent
or successive Beneficiaries. A Beneficiary designated by a
Participant shall select the method by which benefits payable
to him or her shall be paid. Designations by a Participant
and selection of a distribution method by a Beneficiary shall
be subject to the provisions of Section 4.4 hereof and shall
be made on a form provided or permitted by the Custodian. A
designation properly completed by a Participant shall be
effective upon receipt by the Custodian no later than 30 days
after the death of the Participant. If no properly completed
Beneficiary designation is received by the Custodian within
30 days after the Participant's death, the Custodial Account
shall be distributed in cash or kind as the Custodian directs
in a lump sum to the Participant's surviving spouse or, if
there is no surviving spouse, to the Participant's estate. A
selection of distribution method properly completed by a
Beneficiary shall be effective upon receipt by the Custodian
no later than the earliest of (i) the date the Custodian
receives instructions to distribute the Custodial Account of
the deceased Participant, which instructions it determines to
be in good order, or (ii) December 1 of the year that
contains the fifth anniversary of the Participant's death. If
the Custodian fails to receive from a Beneficiary a properly
completed designation of distribution method within the time
prescribed above, the Participant's Custodial Account shall
be distributed in a lump sum to the Beneficiary in cash or
kind as the Custodian directs.
The Custodian shall be responsible for determining the
identity of persons who qualify as the Beneficiaries entitled
to receive distributions upon the death of a Participant and
the identity of the person who qualifies as the executor or
administrator of the Participant's estate in accordance with
applicable regulations. If any person to whom all or a
portion of the Participant's interest is payable is a minor,
payment of such minor's interest shall be made on behalf of
such minor to the person designated by the Participant in his
Beneficiary Designation to receive such minor's interest as a
custodian under the Illinois Uniform Transfers Act or similar
statute. If the Participant does not designate a custodian to
receive the minor's interest on behalf of such minor or if
the person designated refuses or is unable to act, the
Custodian may in his sole discretion:
(a) distribute the interest to the legal guardian of such minor;
or
(b) designate an adult member of the minor's family, a guardian or
a trust company (including the Custodian), as those terms are
defined in the Illinois Uniform Transfers Act, as custodian
for such minor under the Illinois Uniform Transfers Act or
similar statute and distribute such minor's interest to the
person so designated. The person designated as custodian
under the Illinois Uniform Transfers Act, or similar statute,
shall hold, manage and distribute such property in accordance
with the provisions of such statute.
The Participant shall be responsible for determining the
Beneficiary whose life expectancy is to be used in
determining the maximum period of time over which the
Custodian Account may be distributed under Section 4.3 or 4.4
hereof. The designation of such Beneficiary shall be
irrevocable as of April 1 of the year following the year in
which the Participant attains age 70 1/2. If a Participant
designates more than one individual Beneficiary, the
Beneficiary (other than a Beneficiary whose receipt of
benefits is contingent
<PAGE> 20
on the death of a prior Beneficiary) with the shortest life
expectancy shall be the Beneficiary whose life expectancy is
used to determine the maximum period over which installment
distributions may be made from the Custodial Account. If a
Participant has a Beneficiary (other than a trust described
in the next sentence) that is not an individual, then
distributions from the Custodial Account shall not be made
under a method that takes into account the life expectancy of
a Beneficiary. If a Participant designates a trust as a
Beneficiary, and as of the later of the date on which the
trust is named as a beneficiary or April 1 of the year
following the year in which the Participants attains age 70
1/2, and as of all subsequent times, the following
requirements are met, the individual beneficiary of the trust
having the shortest life expectancy shall be the Beneficiary
considered in determining the appropriate Beneficiary life
expectancy to be used hereunder:
(a) There are no beneficiaries of the trust (other than
beneficiaries whose receipt of benefits is contingent on
the death of a prior beneficiary) who are not
individuals.
(b) The trust is a valid trust under state law, or would be
but for the fact that there is no corpus.
(c) The trust is irrevocable.
(d) The beneficiaries of the trust who are Beneficiaries with
respect to the Custodial Account are identifiable from
the trust instrument.
(e) A copy of the trust is provided to the Custodian.
The Custodian and its officers, employees, attorneys and
agents shall be fully discharged from all liability to any
and all persons making a claim to the Participant's Custodial
Account under the Plan in relying on evidence by affidavit or
otherwise as shall be satisfactory to the Custodian in
determining any questions of fact relative to payments under
the Plan, including the existence or identity of any
Beneficiary or trustee designated by the Participant, the
administrator or executor of the Participant's estate or any
person authorized to act on behalf of any such person.
Further, any amount paid to any such person in accordance
with the terms of the Plan shall fully discharge the
Custodian for the amount so paid.
4.6 Determination of Life Expectancies.
(a) General Rule. For purposes of this Section 4, life
expectancy and joint and last survivor life expectancies
shall be computed by the Participant (and, if applicable
after the Participant's death, by the Beneficiary) by
using the life return multiples in Regulation 1.72-9
under the Code. The life expectancy of the Participant
and a spouse Beneficiary may be redetermined, but not
more frequently than annually. The Participant's
election to determine life expectancy will become
irrevocable on April 1 of the year following the year in
which the Participant reaches age 70 1/2. In the case of
distributions pursuant to Section 4.4(b) (ii) hereof, a
spousal Beneficiary election to redetermine life
expectancy will become irrevocable on the date
distributions are required to commence thereunder. If no
election concerning redetermination of life expectancy
is made by the date such election would be irrevocable,
life expectancy will not be redetermined.
(b) Life Expectancy Not Recalculated. If the life expectancy
of the Participant and the Beneficiary are not
recalculated, then the following provisions apply to
determination of life expectancy. If distribution is
being made under Section 4.3(b) hereof, the life
expectancy of the Participant and the Beneficiary shall
be determined as of their respective attained ages as of
their respective birthdays in the calendar year in which
the Participant attained age 70 1/2, reduced by one for
each year that has elapsed since the year the
Participant attained age 70 1/2. If distribution is
being made under Section 4.4(b)(ii) hereof,
<PAGE> 21
the life expectancy of the Beneficiary shall be
determined as of the Beneficiary's attained age as of
his birthday in the calender year in which distributions
are required to commence thereunder, reduced by one for
each year that has elapsed since such calendar year.
(c) If the life expectancy of the Participant and/or a spouse
Beneficiary is to be recalculated, then the following
provisions shall apply to determine life expectancy, and
the Participant (or, if applicable, the spouse
Beneficiary) shall be solely responsible for advising
the Custodian of the redetermined life expectancy
annually, no later than 30 days prior to the beginning
of each calendar year in which an installment payment is
to be made.
If distribution is being made under Section 4.3(b) hereof,
the Participant's life expectancy (or the joint and last
survivor life expectancies of the Participant and his spouse
Beneficiary) each year beginning with the year in which the
Participant reached age 70 1/2, using the Participant's (and,
if applicable, the spouse Beneficiary's) attained age as of
the Participant's birthday (and, if applicable, the spouse
Beneficiary's birthday) in each such year.
If distribution is being made under Section 4.3(b) hereof and
the life expectancy of the Participant but not his
Beneficiary is being recalculated, the applicable joint and
last survivor life expectancies shall be recalculated by
using an adjusted age of the Beneficiary. The adjusted age of
the Beneficiary shall be determined by reducing the life
expectancy of the Beneficiary (determined as of his attained
age on his birthday in the calendar year in which the
Participant reached age 70 1/2) by one for each year that has
elapsed since the calendar year in which the Participant
reached age 70 1/2, and locating the age that corresponds to
that life expectancy (rounded to the next highest integer, if
not a whole number of years) in Table V of Regulation 1.72-9
under the Code.
If distribution is being made pursuant to Section 4.4(b)(ii)
hereof and the life expectancy of the Participant's spouse
Beneficiary is being recalculated, the life expectancy of the
spouse Beneficiary will be determined based on her attained
age as of her birthday in the calendar year in which
distributions are required to commence to her under Section
4.4(b)(ii) hereof.
Upon the death of the Participant or the Beneficiary, the
recalculated life expectancy of the decedent will be reduced
to zero in the calendar year of death. The balance in the
Custodial Account must be distributed prior to the last day
of the calendar year in which the last applicable life
expectancy is reduced to zero.
4.7 Distributions in Accordance with Regulations. In all
cases, distributions hereunder are not permitted except
in accordance with applicable regulations promulgated by
the Secretary of the Treasury.
Section 5 - Transfers and Rollover Contributions
5.1 Transfers. Any person may adopt the Plan for the sole purpose
of transferring to the Custodian in cash, or with the consent
of the Custodian, in kind any part of the assets of an
individual retirement account held for the person's benefit
by another custodian, trustee or insurance company, provided
however, that the Custodian may elect not to accept a
transfer unless it is preceded by asset transfer instructions
satisfactory to the Custodian. In case of assets transferred
to the Plan and held in a separate Custodial Account in the
year the Participant reaches age 70 1/2 or in any subsequent
year as provided in Section 4.3(d) hereof, the asset transfer
instructions must be accompanied by a Distribution Request
Form and a Beneficiary Form applicable to the transferred
assets computed in accordance with the distribution method in
effect under the transferor individual retirement account.
Transfers from the Custodian to a successor custodian or
trustee shall be made in accordance with Section 6.4 hereof.
<PAGE> 22
5.2 Rollover Contributions to the Plan. Any person may adopt the
Plan for the sole purpose of making a Rollover Contribution
in cash, or with the consent of the Custodian, in kind in an
amount of not less than $500 (unless waived or reduced by
Stein Roe & Farnham); provided, however, that the Custodian
may elect not to accept a Rollover Contribution unless
rollover contribution instructions satisfactory to the
Custodian are provided at the time the Rollover Contribution
is made or at such later date as the Custodian may permit. A
person adopting the Plan for the sole purpose of making a
Rollover Contribution shall be treated as a Participant under
the Plan for all purposes. If the Rollover Contribution was
distributed from the distribution plan after April 1 of the
year following the year in which the Participant reaches ages
70 1/2 and the Rollover Contribution is held in a separate
Custodial Account as provided in Section 4.3(d) hereof, the
Rollover Contribution instructions must be accompanied by a
Distribution Request Form and a Beneficiary Form applicable
to the amount rolled over computed in accordance with the
distribution method in effect under the distribution plan.
5.3 Rollover Contributions from the Plan. On, or as soon as
reasonably possible after, the date the Custodian receives
from a Participant a Distribution Request Form provided or
permitted by the Custodian, or at a future date specified in
the Form which shall be within a reasonable time after the
date the Custodian receives it, stating that the Participant
wishes to make a Rollover Contribution from the Plan, the
Custodian shall distribute such amount from the Participant's
Custodial Account as the Participant shall direct in a manner
consistent with the prospectus(es) of the Mutual Fund(s) in
which the Custodial Account is invested. The Custodian may
make such distribution to the Participant without inquiry as
to whether the statements made by the Participant in the
Distribution Request Form are correct, and in no event shall
the Custodian or any officers, employees, attorneys or agents
of the Custodian be liable for any costs, expenses, or income
or excise taxes which might arise by virtue of the
Custodian's making such distribution. The Participant
represents and warrants that all directions contained within
the Distribution Request Form shall be and are in accordance
with the terms of the Plan.
Section 6 - Administration
6.1 General. Except as provided herein, the Plan shall be
administered by the Participant, who shall have sole
responsibility for the operation of the Plan in accordance
with its terms and shall determine all questions arising out
of the administration, interpretation, and application of the
Plan (which determination shall be conclusive and binding on
all persons). The Participant also shall have sole authority
on behalf of any and all persons having or claiming any
interest in the Participant's Custodial Account. The
Participant shall have the sole authority and responsibility
to determine the amount of the contributions (except for SEP
Contributions which shall be the responsibility of both the
Participant and the Participant's employer) and distributions
to be made under the Plan and neither the Custodian nor any
other person shall be responsible therefor, or for any
consequences to the Participant resulting from making of
contributions which are in excess of those permitted or the
failure to make distributions required, under the Plan or
Code. In no event shall the Custodian, or any of its
officers, employees, attorneys or agents be liable for any
such costs, expenses, income taxes or excise taxes which
might accrue by virtue of a failure to comply with the
requirements of the Plan or the Code.
The Participant intends that the Custodial Account under the
Plan shall qualify and be tax-exempt under section 408 of the
Code, but if it should ever not so qualify, all assets held
in the Custodial Account shall be distributed to the
Participant in accordance with the termination provisions of
Section 8 hereof. Until advised to the contrary, the
Custodian may assume the Custodial Account is so qualified
and tax-exempt.
6.2 Establishment of Custodial Account. The Custodian shall
establish and maintain a Custodial Account for the
Participant whose interest therein shall immediately become,
and at all times shall remain, nonforfeitable.
<PAGE> 23
The Participant shall promptly notify the Custodian in
writing of any changes in the Participant's name or address.
The Participant warrants that at no time shall any part of
the assets of the Custodial Account, after deducting any
expenses properly chargeable to the Custodial Account, be
used for or diverted to purposes other than for the exclusive
benefit of the Participant and his or her Beneficiaries.
6.3 Reports of Custodian. The Custodian shall keep accurate and
detailed records of all receipts, disbursements and other
transactions relating to the Custodial Account. As soon as
practicable after the close of each taxable year (or after
the Custodian's resignation or removal pursuant to Section
6.4 hereof) and whenever required by the Code, the Custodian
shall deliver to the Participant a written report reflecting
receipts, disbursements and other transactions effected in
the Custodial Account during such period and fair market
value of the assets and liabilities of the Custodial Account
as of the close of such period.
The Custodian shall keep such records, make such
identifications and file with the Internal Revenue Service
such returns and other information concerning the Custodial
Account as may be required of it under the Code or forms
adopted by the Treasury Department thereunder. Further, the
Participant and the Custodian shall furnish to each other
such information relevant to the Plan and Custodial Account
as may be required by the Code or such forms.
Unless the Participant sends the Custodian written objection
to a report within 60 days of delivery, the Participant shall
be deemed to have approved such report and the Custodian and
its officers, employees, attorneys and agents shall be
forever released and discharged from all liability and
accountability to anyone with respect to their acts,
transactions, duties and obligations or responsibilities as
shown on, or reflected by, such report. Nothing in the Plan
shall prevent the Custodian from having its accounts
judicially settled by a court of competent jurisdiction.
6.4 Registration or Removal of Custodian. The Custodian may
resign at any time upon 30 days' notice in writing to the
Participant and to Stein Roe & Farnham and may be removed by
the Participant (or Stein Roe & Farnham as agent for the
Participant) at any time upon notice in writing to the
Custodian. Upon such resignation or removal, the Participant
(or Stein Roe & Farnham as agent for the Participant) shall
appoint a successor custodian, which successor shall be a
"bank" as defined in section 401(d) of the Code or such other
person who demonstrates to the satisfaction of the Secretary
of the Treasury or his delegate that the manner in which such
other person will administer the Custodial Account will be
consistent with the requirements of section 408 of the Code.
Upon receipt by the Custodian of written acceptance of such
appointment by the successor custodian, the Custodian shall
transfer and pay over to such successor the assets of the
Custodial Account and all records pertaining thereto.
However, the Custodian shall, if the transfer occurs in the
year the Participant reaches age 70 1/2 or any subsequent
year, distribute to the Participant any amount required to
satisfy the minimum distribution requirements for the year of
transfer, as provided in Section 4. Further, the Custodian is
authorized to reserve such sum of money as it may deem
advisable for payment of all its fees, compensation, costs
and expenses, or for payment of any other liabilities
constituting a charge on or against the assets of the
Custodial Account or on or against the Custodian, with any
balance of such reserve remaining after the payment of such
items to be paid over to the successor custodian. The
successor custodian shall hold the assets paid over to it
under terms similar to those of the Agreement that qualify
the Custodial Account under section 408(h) of the Code.
If, within 30 days after the Custodian's resignation or
removal the Participant (or Stein Roe & Farnham as agent for
the Participant) has not appointed a successor custodian
which has accepted the appointment, the Custodian shall,
unless it elects to terminate the Custodial Account pursuant
to Section 6.5, appoint such successor itself. The Custodian
shall not be liable for the acts or omissions of any
successor custodian whether or not the Custodian makes such
appointment itself.
<PAGE> 24
6.5 Termination of Account. The Custodian may elect to terminate
the Custodial Account if, within 30 days after its
resignation or removal pursuant to Section 6.4, the
Participant (or Stein Roe & Farnham as agent for the
Participant) has not appointed a successor custodian which
has accepted such appointment. Termination of the Custodial
Account shall be effected by distributing all assets thereof
to the Participant pursuant to the written direction of the
Participant (who represents and warrants that such directions
shall be in accordance with the provisions of the Plan) or,
if the Participant fails or is unable to give such
directions, such distribution shall be effected in such
manner as is determined by the Custodian, in each instance in
accordance with and subject to the provisions and limitations
of the Plan. Upon the completion of such distribution, the
Custodian shall be relieved from all further liability with
respect to all amounts so paid.
6.6 Other Matters Concerning the Custodian. To the extent
permitted by federal law, the Custodian shall not be
responsible in any way for the collection of contributions
provided for under the Plan, the purpose or propriety of any
distribution made pursuant to Section 4 hereof, or any other
action taken at the Participant's direction. The Custodian
shall also not have any duty or responsibility to determine
whether information furnished to it by the Participant is
correct or whether amounts contributed to the Custodial
Account are tax-deductible or whether amounts distributed
from the Custodial Account are subject to income or excise
tax or any other tax whatsoever. To the extent permitted by
federal law, nothing contained in the Plan, either expressly
or by implication, shall be deemed to impose any powers,
duties or responsibilities on the Custodian other than those
set forth herein. The Custodian and its officers, employees,
attorneys and agents shall be indemnified and saved harmless
by the Participant (and the legal representatives, heirs,
successors or agents) and from the Custodial Account from and
against any and all personal liability arising from actions
taken at the Participant's direction, and from any and all
other liability whatsoever which may arise in connection with
the administration of the Plan, except the obligation of the
Custodian to perform in accordance with the provisions of the
Plan and with respect to the Custodial Account unless the
Participant shall furnish the Custodian with instruction in
proper form and such instruction shall have been specifically
agreed to by the Custodian. The Custodian shall be under no
duty to defend or engage in any suit with respect to the
Custodial Account unless the Custodian shall have first
agreed in writing to do so and shall have been fully
indemnified to the satisfaction of the Custodian. The
Custodian shall be protected in acting upon any order or
direction from a Participant (including any order or
direction permitted by and in accordance with and subject to
the terms and conditions of the Telephone Exchange Privilege,
if applicable) or any other notice, request, consent,
certificate, or other instrument on paper believed by it to
be genuine and to have been properly executed (including
Beneficiary Designations received from a Participant) and, so
long as it acts in good faith, in taking or omitting to take
any other action.
The Custodian is authorized to allocate fiduciary
responsibilities and duties between or among itself and any
other fiduciary or fiduciaries, if any, and to delegate any
of its ministerial, clerical or administrative functions to
or among such persons as it shall deem appropriate; provided
however, that in no event shall the Custodian either allocate
or delegate its responsibilities and duties for the
management of assets held in the Custodial Account except for
Participant-directed investments of large Custodial Accounts
under Section 7.3 hereof.
The Custodian may allocate or delegate any of its
responsibilities and duties hereunder by following a
procedure pursuant to which it shall (1) allocate or delegate
its responsibilities and duties in a written agreement
between it and each person to whom such responsibilities and
duties are allocated or delegated (which agreement shall
describe the nature and the extent of such allocation or
delegation), and (2) specify in writing to the Participant
the name of the person or persons to whom such
responsibilities and duties are allocated or delegated, the
nature and extent of the responsibilities and duties which
are allocated or delegated
<PAGE> 25
and the terms and conditions of such allocation or
delegation, including compensation therefor (if any). The
Custodian shall not be liable for any act or omission of the
person or persons to whom such responsibilities and duties
are allocated or delegated.
Section 7 - Investment of Plan Assets
7.1 General. Except as otherwise permitted under Section 7.3
hereof, contributions by or on behalf of a Participant shall
be invested by the Custodian solely in the Mutual Funds the
Participant or the Beneficiary (or the duly authorized agent
of either of them) shall elect on a form provided or
permitted by the Custodian. At such times as the Participant
or the Beneficiary (or the duly authorized agent of either of
them) shall deem appropriate, changes of investment may be
made by written instruction to the Custodian on such form as
is provided or permitted by the Custodian. If the Telephone
Exchange Privilege has been elected on the Application Form,
such changes may be made by telephone or such other means of
communication permitted by, and in accordance with, the terms
and conditions of the Telephone Exchange Privilege. No change
shall be effective until received by the Custodian and, once
effective, shall remain in effect until properly changed. If
a Participant or a Beneficiary (or duly authorized agent of
either of them) fails to properly direct the investment of
the Custodial Account, such Participant's Custodial Account
shall be invested in shares of the Mutual Fund specified in
the Application Form for such circumstances. Instructions
concerning the investment of the assets held in a Custodial
Account shall be executed by the Custodian on, or as soon as
reasonably practicable after, the date the Custodian receives
instructions in proper form.
The Participant warrants that no investment made pursuant to
his or her direction under this Section shall cause the
Custodial Account to lose its exemption as provided in
section 408(e)(2) of the Code.
The assets of a Custodial Account shall not be commingled
with other property except in a common trust fund or a common
investment fund and shall not be invested in life insurance
contracts or in "collectibles" as defined in section 408(m)
of the Code.
7.2 Mutual Fund Investments. Plan assets invested in shares of
the Mutual Fund(s) shall be made in accordance with, and
shall be subject to, the provisions of the prospectus(es) of
such Mutual Funds(s) and such shares shall be registered in
the name of the Custodian or its nominee until distributed.
The Participant for whom such shares are acquired shall be
beneficial owner of such shares.
Except as otherwise provided, herein, all income dividends
and capital gain distributions paid on Mutual Fund shares
held in a Custodial Account shall be reinvested in accordance
with the Mutual Funds' prospectuses. If any distribution may
be received in shares, cash or other property at the election
of the shareholder, the Custodian shall elect to make such
distribution in shares in accordance with the Mutual Funds'
prospectuses. A Participant may elect to receive income
dividends and capital gain distributions in cash as part of a
distribution from the Custodial Account.
The Mutual Funds in which the assets held in the Custodial
Account are invested shall furnish to the Custodian, and the
Custodian shall promptly deliver to the Participant,
confirmation of all investments, changes of investment and
investments of distributions paid with respect to Mutual Fund
shares held in the Participant's Custodial Account and all
notices, prospectuses, financial statements, proxies, and
proxy soliciting materials relating to such shares. To the
extent required, the Custodian or its nominee shall sign such
proxies as record owner of such shares, but shall not
otherwise vote them except in accordance with the written
instructions of the Participant. Delivery by the Custodian of
any of these items to the Participant shall be deemed to be
on the date such items are mailed by the Custodian to the
Participant at
<PAGE> 26
the Participant's last address of record (or to such other
address as the Participant shall direct); provided, however,
that anything herein to the contrary notwithstanding, such
delivery by the Custodian shall be in compliance with the
minimum requirements of applicable securities laws.
7.3 Investment of Large Custodial Accounts.
(a) Notwithstanding the provisions of the Plan to the contrary, a
Participant who has a Custodial Account with a balance of not
less than $250,000 (unless waived or reduced by Stein Roe &
Farnham) may, if so elected a form acceptable to the
Custodian, direct the Custodian in writing to invest such
Custodial Account and income therefrom in such stocks, bonds,
notes, shares of other mutual funds registered under the
Investment Company Act of 1940, as amended, or other
property, real or personal, as the Participant deems
appropriate. However, if the value of the Custodial Account
shall at any time be less than $100,000 (unless waived or
reduced by Stein Roe & Farnham), the investment of the
Custodial Account shall be limited to the Mutual Funds.
Further, any amount invested pursuant to this Section in an
investment, other than securities traded on a national stock
exchange or in the over-the-counter market, shall be subject
to the prior written agreement of the Custodian, and not less
than 50% (unless waived or reduced by Stein Roe & Farnham) of
the Participant's Custodial Account shall be invested in the
Mutual Funds and/or be subject to an Investment Advisory
Agreement between the Participant and Stein Roe & Farnham.
(b) The Custodian may charge the Custodial Account of the
Participant who elects to invest the Custodial Account
pursuant to this Section such fees in addition to the fees
set forth in the Application Form as the Custodian and the
Participant may from time to time agree in writing.
(c) Subject to the direction of the Participant, the Custodian
shall have the following powers with respect to a Custodial
Account invested pursuant to this Section:
(i) to invest all or any portion of the Custodial
Account in investment contracts issued by an insurance
company, including, but not limited to, guaranteed
income contracts, immediate participation guarantee
contracts, group annuity contracts and deposit
administration contracts, and to excise all rights under
such contracts in the manner directed by the
Participant; provided that, notwithstanding the
foregoing, no such investment shall be made in life
insurance contracts or in any other investment which
would cause the Participant's Custodial Account to lose
its exemption as provided in section 408(e)(2) of the
Code;
(ii) to keep, in its sole discretion, such portion of
the Custodial Account in cash balances (regardless of
whether interest is paid on such balances) with a bank
or trust company (including the Custodian) as the
Custodian may from time to time deem to be in the best
interest of the Participant, and the Custodian shall not
be liable for any loss of interest on cash so held;
provided, however, that any cash balances held by the
Custodian shall bear a reasonable rate of interest;
(iii) to sell, exchange, convey, transfer or otherwise
dispose of any property held by it by private sale or
contract or by public auction, and no person dealing
with the Custodian shall be bound to see to the
application of the purchase money or to inquire into the
validity, expediency or propriety of any such sale or
other disposition;
(iv) to vote (or refrain from voting), either in person
or by general or limited proxy, any securities; to
exercise any conversion privileges, subscription rights
or other options and to make any payments incidental
thereto; to consent to or otherwise participate in
reorganizations or other
<PAGE> 27
changes affecting corporate securities and delegate
discretionary power and to pay any assessments or
charges in connection therewith; and to generally
exercise any powers of any owner with respect to stocks,
bonds, securities or other property (other than shares
of Mutual Funds) held in the account;
(v) to make, execute, acknowledge, and deliver any and
all documents of transfer and conveyance and any and all
other instruments that may be necessary or appropriate
to carry out the powers herein granted;
(vi) to register any investments made pursuant to this
Section in its own name or in the name of a nominee and
to hold any investment in bearer form, but the books and
records of the Custodian shall at all times show that
all such investments are part of the Participant's
Custodial Account;
(vii) to employ, and pay compensation to, suitable
agents, custodians, counsel and accountants as the
Custodian deems necessary or desirable to manage or
protect the Custodial Account, and if the Custodian
shall employ counsel, the Custodian shall be fully
protected in acting on the advice of such counsel; and
(viii) to do all acts, whether or not expressly
authorized, which the Custodian may deem necessary or
proper for the protection of the property held
hereunder.
Section 8 - Amendment and Termination
The Participant may amend the Application Form or terminate
the Custodial Account and Stein Roe & Farnham may, as agent
for the Participant, amend the Plan (including retroactive
amendment of the Plan), by delivering to the Custodian a
signed copy of such amendment or a notice of termination;
provided that the Custodian's duties may not be increased
without its written consent. By mutual agreement, Stein Roe &
Farnham and the Custodian may change the Custodial Fees set
forth in the Application Form upon 45 days' written notice to
the Participant.
In the event that the Participant amends the Plan, other than
by amending the Application Form, the Participant's Plan
shall no longer be considered as approved by the Internal
Revenue Service as adoption of this prototype IRA Plan.
No amendment or termination shall be effective if it would
cause or permit any part of the Custodial Account to be
diverted to purposes other than for the exclusive benefit of
the Participant (and the Participant's Beneficiaries) and no
retroactive amendment shall be effective if it deprives any
Participant of any benefit to which the Participant was
entitled under the Plan by reason of contributions made
before the amendment, unless such amendment is necessary to
conform the Plan to, or satisfy the requirements of, the
Code.
Section 9 - Miscellaneous
9.1 Status of Participants. Neither the Participant nor any other
person shall have any legal or equitable right against the
Custodian or Stein Roe & Farnham, except as provided herein.
9.2 Loss of Exemption of Custodial Account. If the Custodian
receives notice that the Participant's Custodial Account has
lost its tax-exempt status under section 408(e)(2) of the
Code for any reason, including by reason of a transaction
prohibited by section 4975 of the Code, the Custodian shall
distribute to the Participant the entire balance in the
Custodial Account, in cash or in kind, in the sole discretion
of the Custodian no later than 90 days after the date the
Custodian receives such notice.
<PAGE> 28
9.3 Payment of Taxes, Expenses and Custodial Fees. The Custodian
shall pay out of the Custodial Account any income, gift,
estate or inheritance taxes or other tax of any kind
whatsoever that may be levied upon or assessed against or in
respect of the Custodial Account (other than transfer taxes),
and any expenses of investment management or investment
advisory services rendered to the Custodial Account, and at
its option, collect any amounts so charged from the amount of
any contribution or distribution to be credited to the
Custodial Account or by sale or liquidation of the assets
credited to such account. If the assets of the Custodial
Account are insufficient to satisfy such charges, the
Participant shall pay any deficit therein to the Custodian.
Any transfer taxes incurred by the Custodian in connection
with the investment and reinvestment or transfer of the
assets of the Custodial Account and all other administrative
expenses incurred by the Custodian in the performance of its
duties, including fees for legal service rendered to the
Custodian and such compensation to the Custodian as may be
established from time to time by the Custodian, shall be
collected by the Custodian from the amount of any
contribution credited to or distribution to be made from the
Custodial Account or by sale or liquidation of the assets
credited thereto.
Until otherwise changed in accordance with the terms of
Section 8 hereof, the Custodian shall receive fees for its
services with respect to a Participant's Custodial Account as
set forth in the Application Form and shall receive such
additional fees as my be agreed upon by it and the
Participant from time to time for its services in connection
with investments made pursuant to Section 7.3 hereof.
Payment of any taxes, expenses or Custodial fees described in
this Section may also be paid directly by, or on behalf of,
the Participant subject to agreement by the Custodian.
9.4 Gender and Number. Except where the context indicates to the
contrary, when used herein, masculine terms shall be deemed
to include the feminine, and singular the plural. In section
3.3(c) and 4.4 hereof, feminine terms shall be deemed to
include the masculine.
9.5 Other Conditions. A Participant, by participating in the
Plan, expressly agrees that he shall look solely to the
assets of the Custodial Account for the payment of any
benefits to which he or she is entitled under the Plan. The
benefits provided under the Plan shall not be subject to
alienation, assignment, garnishment, attachment, execution or
levy of any kind, and any attempt to do so shall not be
recognized, except by the Custodian for the taxes, expenses
and Custodial fees described in Section 9.3 hereof and except
to such extent as may be required by law. The Plan and any
forms provide by the Custodian, including the Beneficiary
Designation filed pursuant to Section 4.5 and all property
rights of the Participant under the Plan, shall be construed,
administered, and enforced according to the laws of the State
of Illinois, other than its laws with respect to choice of
laws, except to the extent preempted by the Employee
Retirement Income Security Act of 1974, as amended.
_________________________
<PAGE> 29
RECEIVED MAR 22 1990
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Plan Name: IRA Custodial Account
FFN: 50153960000-001 Case: 8970313 EIN: 36-3447638
Letter Serial No. D100035c Person to Contact: Mr. Westry
Stein Roe & Farnham Inc Telephone Number (202) 535-4972
One South Wacker Street Refer Reply to E:EP:Q:4
Chicago, IL 60606 Date 03/21/90
Dear Applicant:
In our opinion, the amendment to the form of the prototype trust,
custodial account or annuity contract identified above does not
adversely affect its acceptability under section 408 of the Internal
Revenue Code, as amended by the Tax Reform Act of 1986.
Each individual who adopts this approved plan will be considered to
have a retirement savings program that satisfies the requirements of
Code section 408, provided they follow the terms of the program and
do not engage in certain transactions specified in Code section
408(e). Please provide a copy of this letter to each person
affected.
The Internal Revenue Service has not evaluated the merits of this
savings program and does not guarantee contributions or investments
made under the savings program. Furthermore, this letter does not
express any opinion as to the applicability of the Code section
4975, regarding prohibited transactions.
Code section 408(i) and related regulations require that the
trustee, custodian or issuer of a contract provide a disclosure
statement to each participant in this program as specified in the
regulations Publication 590, Tax Information on Individual
Retirement Arrangements, gives information about the items to be
disclosed.
The trustee, custodian or issuer of a contract is also required to
provide each adopting individual with annual reports of savings
program transactions.
Your program may have to be amended to include or revise provisions
in order to comply with future changes in the law or regulations.
If you have any questions concerning IRS processing of this case,
call us at the above telephone number Please refer to the Letter
Serial Number and File Folder Number shown in the heading of this
letter. Please provide those adopting this plan with your phone
number, and advise them to contact your office if they have any
questions about the operation of this plan.
You should keep this letter as a permanent record. Please notify us
if you terminate the form of this plan.
Sincerely yours,
JOHN SWIECA
Chief, Employee Plans
Qualifications Branch
<PAGE>
Stein Roe & Farnham
Mutual Funds
SteinRoe Mutual Funds
SteinRoe Mutual Fund Center
300 West Adams Street
Chicago, IL 60606
Or Call
Toll Free 1-800-338-2550
Liberty Securities Corporation, Distributor
08623 2/94. Printed on recycled paper.
<PAGE>
STEIN ROE & FARNHAM FUNDS
INDIVIDUAL RETIREMENT ACCOUNT PLAN
SUPPLEMENT TO BOOKLET DATED FEBRUARY, 1994
Effective July 17, 1995, the Stein Roe & Farnham Funds Individual
Retirement Account Disclosure Statement and Plan are amended as
follows:
DISCLOSURE STATEMENT
1. TAXATION OF DISTRIBUTIONS (PAGE 8). The 1995 aggregate dollar
limit in the last sentence of the first paragraph remains
unchanged at $150,000.
2. INVESTMENT OF CONTRIBUTIONS (PAGE 10). The fourth sentence of
the third paragraph of this section is restated as follows:
"All income dividends and capital gain distributions paid on
Fund shares are invested in accordance with the Fund's
prospectus."
3. CHARGES AND FEES--CUSTODIAL FEES (PAGE 10). Custodial fees
are no longer charged for your Stein Roe & Farnham Funds IRA
unless you require special services. Accordingly, the
subsection on Custodial Fees is restated as follows:
"Custodial Fees--Currently, there are no Custodial fees
charged for your IRA assets invested in the SteinRoe Funds.
In the event that the Custodian is required to perform
services not ordinarily provided with respect to the Plan,
including making participant-directed investments of large
Custodial Accounts pursuant to Section 7.3 of the Plan, or
you make investments other than in the SteinRoe Funds, the
Custodian may charge such fees as are appropriate. The
Custodian reserves the right to charge additional fees for
assets invested in the SteinRoe Funds upon 45 days' written
notice to you, and to waive or reduce any of its charges or
fees as to any single IRA or group of IRAs."
4. SIMPLIFIED EMPLOYEE PENSION PLANS--EXCLUDED EMPLOYEES (PAGE
12). The annual compensation level below which an employee may
be excluded from SEP-IRA contribution eligibility is increased
and the second sentence of the first paragraph of this
subsection is revised as follows:
"(For 1995, you need not make a contribution on behalf of an
individual whose compensation is less than $400.)"
5. SIMPLIFIED EMPLOYEE PENSION PLANS--SEP CONTRIBUTIONS (PAGE
12). The 1995 aggregate dollar limit for contributions remains
unchanged at 15% of an employee's compensation up to $150,000
for non-elective contributions and $9,240 for elective
contributions.
INDIVIDUAL RETIREMENT ACCOUNT PLAN
1. SECTION 3--CONTRIBUTIONS, SUBSECTION 3.3(B) (PAGE 15). The
annual dollar limit for 1995 contributions remains unchanged at
$9,240.
2. SUBSECTION 4.1--GENERAL (PAGE 16). The distribution method
used by the Custodian to pay required distributions when no
instructions are furnished by a Participant has been changed
and the second paragraph restated as follows:
"If the Custodian does not receive instructions to effect
distribution to a Participant by the first business day of
the month preceding the month in which distribution is
required to commence, the Custodian shall distribute the
benefits in cash or kind, in the sole discretion of the
Custodian, in the amount of the minimum distribution required
as provided under Section 4.3(b) using the life expectancy of
the Participant by using the birthdate indicated on the
Custodian's records; provided, however, if the Participant's
birthdate is unknown to the Custodian, the amount distributed
shall be a lump sum."
3. SUBSECTION 4.4(B)(II) (PAGE 18). The following sentence is
added at the end of this subsection to clarify that a
Beneficiary may accelerate the distribution of death benefits:
"Even if installment payments have commenced pursuant to this
option, the Beneficiary may receive a distribution of the
balance in his Custodial Account, or any part thereof, upon
written request as described in Section 4.1 hereof to the
Custodian."
4. SUBSECTION 4.5--BENEFICIARY DESIGNATION (PAGE 19). The
distribution method used by the Custodian to pay death benefits
when no instructions are furnished by a Beneficiary has been
changed, and the following sentence replaces the last sentence
of the first full paragraph of this subsection:
"If the Custodian fails to receive from a Beneficiary a
properly completed designation of distributions method within
the time prescribed above, the Participant's Custodial Account
shall be distributed over the course of five (5) years in
substantially equal installments commencing no later than
December 31 of the year of the Participant's death."
5. SUBSECTION 7.2--MUTUAL FUND INVESTMENTS (PAGE 25).
Participants may now elect to have dividend distributions
invested in either the SteinRoe Fund paying the dividend or
another SteinRoe Fund offered under the Stein Roe & Farnham
Funds IRA. Accordingly, the second paragraph is amended and
restated as follows:
"Except as otherwise provided herein, all income dividends and
capital gain distributions paid on Mutual Fund shares held in
a Custodial Account shall be invested in accordance with the
Mutual Funds' prospectuses unless the Participant instructs
the Custodian to invest the income dividends and capital
gains distributions in another Mutual Fund within the
Participant's IRA. If any distribution may be received in
shares, cash or other property at the election of the
shareholder, the Custodian shall elect to make such
distribution in shares in accordance with the Mutual Funds'
prospectuses. If over age 59 1/2, a Participant may elect to
receive income dividends and capital gain distributions in
cash as part of a distribution from the Custodial Account."
6. SUBSECTION 7.3(B) (PAGE 26). Because Custodial fees are
currently charged only for special services, this subsection is
restated as follows:
"The Custodian may charge the Custodial Account of the
Participant who elects to invest the Custodial account
pursuant to this Section such fees as the Custodian and the
Participant may from time to time agree in writing."
____________________
<PAGE>
IRA
APPLICATION
Prototype Plan No. D100035C dated March 21, 1990
Use this application to establish an Individual Retirement Account
in a SteinRoe Mutual Fund or as a part of a SteinRoe Counselor
[SERVICE MARK] or SteinRoe Counselor Preferred [SERVICE MARK]
portfolio.
1 PARTICIPANT
Please complete a separate form for each type of IRA you wish to
establish.
_________________________________________________________
First Name Middle Initial Last Name
_________________________________________________________
Street Address
_________________________________________________________
City State Zip Code
_________________________________________________________
Daytime Telephone Evening Telephone
_________________________________________________________
Social Security Number Date of Birth
2 STEINROE COUNSELOR [SERVICE MARK] AND STEINROE
COUNSELOR PREFERRED [SERVICE MARK] PORTFOLIOS ONLY
If you are enrolled in one of these programs and want your IRA
invested as part of your Portfolio, check the appropriate box. If
you require assistance from your account executive please call 1
800 322-8222.
A. SteinRoe Counselor [SERVICE MARK]
Please check one of the following:
____ 1. Please include my IRA in my Portfolio according to
my most recent Portfolio recommendation.
____ 2. I would like you to invest my IRA assets
differently than my Portfolio recommendation as
indicated in Section 4.
B. SteinRoe Counselor Preferred [SERVICE MARK]
____ 1. Please include my IRA in my Portfolio according to
my most recent Portfolio recommendation.
3 CONTRIBUTION TYPE
Please select your contribution type. The initial investment
minimum is $500 per fund account, except for a SEP-IRA. Please
refer to the Plan booklet for an explanation of each contribution
type. Enclose a check payable to SteinRoe Services Inc. for at
least $500, unless you are making an IRA transfer.
A. Contribution
Contribution is for current year unless you
specify different year: 19_
B. SEP
C. Asset Transfer
Complete Asset Transfer Form on back page
D. Rollover
I have enclosed a check payable to SteinRoe
Services Inc. in the amount of $_____
This represents a rollover from:
IRA
SEP
Spousal IRA
403(b) Plan
Transfer Incident to Divorce from IRA/
Tax-qualified Plan
Spousal Death Benefit
Distribution from Tax-qualified Plan
Direct Rollover
Other
Date qualifying distribution was made*: ____
Check this box if you would like to establish a Conduit/Segregated
IRA Rollover account.
*This may not be more than 60 days prior to date SteinRoe
Services Inc. receives your Rollover Contribution.
SteinRoe account representatives are available
Monday thru Friday from 7 a.m. to 8 p.m. and
Saturday and Sunday from 8 a.m. to 5 p.m.
(Central Time)
If you have any questions, please call us toll free at
1 800 338-2550
Please return this completed form to:
SteinRoe Services Inc.
SteinRoe Mutual Funds
P.O. Box 804058
Chicago, IL 60680-4058
4 INVESTMENT OF CONTRIBUTIONS
Please select your investments. If you do not choose a Fund, all
of your contributions will be invested in SteinRoe Government
Reserves, a money market fund.
SteinRoe SteinRoe
SteinRoe Fund IRA Counselor [SERVICE MARK]
Government Reserves $______ ______
Cash Reserves ______ ______
Limited Maturity Income Fund ______ ______
Government Income Fund ______ ______
Intermediate Bond Fund ______ ______
Income Fund ______ ______
Total Return Fund ______ ______
Prime Equities ______ ______
Special Fund ______ ______
Growth Stock Fund ______ ______
Young Investor Fund ______ ______
International Fund ______ ______
Special Venture Fund ______ ______
Capital Opportunities Fund ______ ______
Total Contributions $______ ______
5 AUTOMATIC INVESTMENT PLAN
This option allows you to make current year contributions to your
IRA directly from your bank checking or savings account by
electronic transfer. Please be sure the amount you specify does
not exceed your maximum permissible annual contribution amount.
Please allow three weeks to establish your Automatic Investment
Plan.
_________________________________________________________
Fund Name Account Number Amount
(leave blank if new) ($50 minimum)
_________________________________________________________
Fund Name Account Number Amount
(leave blank if new) ($50 minimum)
I authorize SteinRoe Mutual Funds to draw on my bank account to
purchase shares for the account(s) listed above (check one period
only):
Monthly Every 6 months Quarterly Annually
These purchases should be made on or about the:
5th or 20th day of the month
Please begin: Immediately or
IRA contributions made through the Automatic Investment Plan will
be credited as a contribution for the year in which the shares are
purchased. You are solely responsible for adhering to applicable
contribution limitations.
Bank Information
Name of Bank
Street Address of Bank
City State Zip Code
Name(s) on Checking Account
Checking Account Number______ ACH Routing Number
(Attach a voided check to this form and verify the above
information with your bank.)
6 AUTOMATIC EXCHANGE PLAN
With this option you can authorize SteinRoe to regularly exchange
shares from one SteinRoe Fund to another with the same account
registration. A $500 minimum applies to each new account (the
minimum for Limited Maturity
Income Fund is $5,000).
_________________________________________________________
Redeem Shares from (Fund Name) Account Number
(or "new" if a new account)
_________________________________________________________
Amount ($50 minimum)
_________________________________________________________
Purchase Shares in (Fund Name) Account Number
(or "new" if a new account)
Check one period below and fill in dates between the 1st and 28th
of the month:
Twice monthly on the ___ and ___ beginning _______________
specify month
Monthly on the _____ beginning _________________
specify month
Quarterly on the ________ of ___________________
list four months
Twice yearly on the ______ of ___________________
list two months
Annually on the _________ of ___________________
list one month
7 TELEPHONE EXCHANGE
Unless you check the box below, you automatically have the
privilege to exchange shares between your IRA accounts.
_____ I do NOT want the telephone exchange privilege.
Anyone who is supplied with the proper account information can
make telephone exchanges on your behalf. You may make up to four
round trip telephone exchanges every 12 months. A round trip is
the exchange from one Fund to another, and back again. SteinRoe
reserves the right to discontinue or modify the exchange
privilege, and certain restrictions apply.
8 DIVIDEND DISTRIBUTION OPTION
Dividends and capital gains will automatically be reinvested into
your IRA fund account. If you would like to have your income
dividends and capital gains distributions invested in a different
SteinRoe Mutual Fund within your IRA, please
complete this section.
Note: The Fund into which you direct your dividends or capital
gains must be registered exactly the same as your current account
registration.
Reinvest my ___ dividends ___ capital gains ___ both into:
Fund name: ____________________________
Account number:________________________
9 CUSTODIAL ACCOUNTS OF $250,000 OR MORE
If you are establishing an IRA by transfer or rollover of an
amount of at least $250,000, you may select investments other than
the Funds in accordance with the terms of the Plan by checking the
following box and attaching a separate letter of investment
instructions.
10 SIGNATURE
Sign exactly as your name is printed in Section 1.
I hereby adopt the SteinRoe Funds Individual Retirement Account
Plan and appoint First Bank, N.A.to serve as Custodian as provided
therein. I have read the Plan documents, including the General
Provisions on the reverse side of this form, and agree to be bound
by their terms. I have received the current prospectus(es) of the
Fund(s) in which my initial contribution is to be invested and
agree to be bound by their terms.
(Signature continued)
Unless I have declined the Telephone Exchange Privilege in Section
7, I have authorized any Fund the shares of which are purchased
for my IRA, and SteinRoe Services Inc., transfer agent for the
fund and agent for my IRA Custodian (the "SteinRoe Parties") to
act upon instructions received by telephone to exchange them for
shares of any other SteinRoe Fund. I agree that no SteinRoe
Parties will be liable for any loss, injury, damage or expense as
a result of action upon, and will not be responsible for the
authenticity of any telephone instructions, and will hold the
SteinRoe Parties harmless from any loss, claims or liability
arising from its or their compliance with these instructions.
Accordingly, I understand that I will bear any risk of loss
resulting from unauthorized instructions. I understand that the
SteinRoe Parties employ reasonable procedures to confirm that
telephone instructions are genuine.
Signature:___________
Date:________________
11 CUSTODIAN ACCEPTANCE
The undersigned, First Bank, N.A., by separate agreement and the
below signature, offers to serve as Custodian in accordance with
the SteinRoe Funds Individual Retirement Account Plan once this
Application form has been properly completed and delivered (or
mailed) to the Custodian. If relating to an asset transfer, the
undersigned accepts the appointment as successor Custodian of the
above referenced account(s) and directs the resigning custodian to
liquidate the assets and remit as described above.
OFFER TO SERVE AS CUSTODIAN:
First Bank National Association
By: TERRY S. RICHTER
If you have any questions, please call us toll free at
1 800 338-2550
SteinRoe account representatives are available
Monday thru Friday from 7 a.m. to 8 p.m. and
Saturday and Sunday from 8 a.m. to 5 p.m.
(Central Time)
Asset Transfer Form
Please complete this section only if you are making an asset
transfer. Please consult the resigning custodian to determine
if there are any special requirements (eg: signature guarantee)
you must meet before making an asset transfer.
A. Resigning Custodian Information
_________________________________________________________
Resigning Custodian
_________________________________________________________
Street Address or P.O. Box
_________________________________________________________
City State Zip Code
_________________________________________________________
Account Representative
_________________________________________________________
Daytime Telephone
_________________________________________________________
Account Name and Number to be Transferred
Type of IRA
Regular ____ Rollover ____ SEP ____
B. Transfer Instructions
If your IRA C.D. investment matures in less than 15 days, please
notify your custodian that we will be sending asset transfer
instructions. If your IRA C.D. investment matures in more than 30
days, please check with your custodian to determine if a penalty
will apply for early liquidation.
Please liquidate all assets (or $ ___________) in the above-
referenced account on ____________ (if no date, liquidate
immediately) and remit proceeds payable to SteinRoe Services Inc.
for the IRA of the individual listed in Section 1 to the following
address:
SteinRoe Mutual Funds
P.O. Box 804058
Chicago, IL 60680-4058
Attention: SteinRoe Services Inc.
Your signature:_____________________________
(Sign here and in Section 10)
Signature Guarantee
(If required by resigning custodian)
Signature Guaranteed by:
_________________________________________________________
Name of Institution
_________________________________________________________
Name of Authorized Officer
_________________________________________________________
Signature of Authorized Officer
_________________________________________________________
Guarantor's Stamp:
General Provisions
1. Plan Establishment.
Your IRA will be established when SteinRoe Services Inc.
receives your properly completed form. If you fail to complete
this form properly, the establishment of your IRA may be delayed.
2. Custodial Fees.
Currently, there are no Custodial fees charged for your IRA
assets invested in the SteinRoe Funds. In the event the Custodian
is required to perform services not ordinarily provided with
respect to the Plan, including making participant-directed
investments of large Custodial Accounts pursuant to Section 7.3 of
the Plan, or you make investments other than in the SteinRoe
Funds, the Custodian may charge such fees as are appropriate. The
Custodian reserves the right to charge additional fees for assets
invested in the SteinRoe Funds upon 45 days' written notice to
you, and to waive or reduce any of its charges or fees as to any
single IRA or group of IRAs.
3. Telephone Inquiry Responses.
The Funds in which contributions by you or on your behalf are
invested and SteinRoe Services Inc., as transfer agent for the
Funds and as agent for the Custodian of the Plan, are authorized
to respond to any written inquiries from you and any telephonic
inquiries (WHETHER FROM YOU OR ANY PERSON) relating to the status
of your IRA and none of the Funds, SteinRoe Services Inc., or the
Custodian shall be held liable for any action taken or information
communicated pursuant to any such communication.
4. Terms of Privileges.
The following terms and conditions and those stated in the
prospectus as in effect from time to time apply to the Fund
Privileges you elect:
a. None of the Funds, the Funds' transfer agent, your IRA
Custodian nor their respective officers, trustees nor directors,
agents nor employees shall be liable for any loss, liability, cost
or expense for acting upon instructions furnished under a
Privilege.
b. You agree that any Privilege you elect shall continue until
five business days after any Fund, shares of which are held in
your IRA or its transfer agent, receive notice from you of any
change thereof. You also agree that any Fund offering a Privilege,
its transfer agent or your IRA Custodian may suspend, limit or
terminate any Privilege or its use at any time without prior
notice to you. You agree that none of the Funds, their transfer
agent, or your IRA Custodian shall be held liable for any action
taken or information communicated pursuant to this authorization.
c. You authorize the Fund(s) and its transfer agent to initiate
any and all credit or debit entries (and reversals thereof) to
effect electronic transfers under any Privilege and redeem shares
of any Funds(s) you own equal to the amount of any loss incurred
by any of them in effecting any electronic transfer and retain the
proceeds.
d. You understand that the Funds or their transfer agent will
generally record (by electronic means or otherwise) any telephonic
instruction given pursuant to a Privilege and you expressly
authorize such recording. You also understand and agree that the
Funds and your transfer agent reserve the right to refuse any
telephonic instruction.
5. Transfers/Rollovers by Persons over age 70 1/2.
If you are making an asset transfer/rollover contribution
after the April 1 of the year following the year you reach age 70
1/2 or a subsequent year, your assets transferred/rolled over must
be distributed over a period no longer than the period over which
they were scheduled to be distributed from your
transferor/distributing plan. If you already have a SteinRoe IRA
and are scheduled to receive distributions from that IRA over a
period longer than the period over which you were scheduled to
receive distributions from the transferor/distributing plan, you
must establish a new SteinRoe IRA for your transfer/rollover. In
addition, you must complete and return with this form a
Distribution Request Form requesting that your transferred/rolled
over assets be distributed at least as rapidly as under the
distribution method in effect under your transferor/distributing
plan. If the distribution period for your transferor/distributing
plan is based on the joint and last survivor life expectancies of
you and a designated beneficiary, you cannot extend the payment
period under the SteinRoe IRA into which your assets are
transferred/rolled over by naming a younger Beneficiary. You may
designate a different Beneficiary than under your
transferor/distributing plan, but if that Beneficiary has a
shorter life expectancy than the beneficiary designated under your
transferor plan, your maximum IRA payment period must be
correspondingly reduced. If that Beneficiary has a life expectancy
longer than the beneficiary designated under your
transferor/distributing plan, your maximum IRA payment period
still must be the same as under the transferor/distributing plan.
In either event, you must designate a Beneficiary for the SteinRoe
IRA into which your assets are transferred/rolled over by
completing and returning an IRA Beneficiary Form with your
Distribution Request Form. For other rollover provisions, see Plan
Booklet.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> STEINROE CASH RESERVES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 510,300
<INVESTMENTS-AT-VALUE> 510,300
<RECEIVABLES> 1,227
<ASSETS-OTHER> 3,820
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 515,347
<PAYABLE-FOR-SECURITIES> 15,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,184
<TOTAL-LIABILITIES> 17,184
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 498,027
<SHARES-COMMON-STOCK> 498,080
<SHARES-COMMON-PRIOR> 554,545
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 136
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 498,163
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29,632
<OTHER-INCOME> 0
<EXPENSES-NET> 4,020
<NET-INVESTMENT-INCOME> 25,612
<REALIZED-GAINS-CURRENT> (86)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 25,527
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (25,612)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 746,505
<NUMBER-OF-SHARES-REDEEMED> (826,225)
<SHARES-REINVESTED> 23,255
<NET-CHANGE-IN-ASSETS> (56,550)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 222
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,649
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,020
<AVERAGE-NET-ASSETS> 529,763
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .048
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.048)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> STEINROE GOVERNMENT RESERVES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 103,210
<INVESTMENTS-AT-VALUE> 103,210
<RECEIVABLES> 8
<ASSETS-OTHER> 473
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 103,691
<PAYABLE-FOR-SECURITIES> 10,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 373
<TOTAL-LIABILITIES> 10,373
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 93,360
<SHARES-COMMON-STOCK> 93,360
<SHARES-COMMON-PRIOR> 105,523
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (42)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 93,318
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,495
<OTHER-INCOME> 0
<EXPENSES-NET> 720
<NET-INVESTMENT-INCOME> 4,775
<REALIZED-GAINS-CURRENT> (7)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,768
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,775)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 69,532
<NUMBER-OF-SHARES-REDEEMED> (85,663)
<SHARES-REINVESTED> 3,968
<NET-CHANGE-IN-ASSETS> (12,170)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (35)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 514
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 771
<AVERAGE-NET-ASSETS> 102,759
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .047
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.047)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STEINROE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 167,596
<INVESTMENTS-AT-VALUE> 174,486
<RECEIVABLES> 5,834
<ASSETS-OTHER> 111
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 180,431
<PAYABLE-FOR-SECURITIES> 5,487
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 617
<TOTAL-LIABILITIES> 6,104
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 175,478
<SHARES-COMMON-STOCK> 17,807
<SHARES-COMMON-PRIOR> 16,971
<ACCUMULATED-NII-CURRENT> 6
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,047)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,890
<NET-ASSETS> 174,327
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,400
<OTHER-INCOME> 0
<EXPENSES-NET> 1,313
<NET-INVESTMENT-INCOME> 12,087
<REALIZED-GAINS-CURRENT> (2,294)
<APPREC-INCREASE-CURRENT> 10,187
<NET-CHANGE-FROM-OPS> 19,980
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,126)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,703
<NUMBER-OF-SHARES-REDEEMED> (6,720)
<SHARES-REINVESTED> 853
<NET-CHANGE-IN-ASSETS> 7,587
<ACCUMULATED-NII-PRIOR> 44
<ACCUMULATED-GAINS-PRIOR> (5,753)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,011
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,361
<AVERAGE-NET-ASSETS> 160,186
<PER-SHARE-NAV-BEGIN> 9.36
<PER-SHARE-NII> .71
<PER-SHARE-GAIN-APPREC> .43
<PER-SHARE-DIVIDEND> (.71)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.79
<EXPENSE-RATIO> .82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> STEINROE GOVERNMENT INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 36,905
<INVESTMENTS-AT-VALUE> 38,298
<RECEIVABLES> 1,004
<ASSETS-OTHER> 104
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,406
<PAYABLE-FOR-SECURITIES> 1,534
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 592
<TOTAL-LIABILITIES> 2,126
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,147
<SHARES-COMMON-STOCK> 3,786
<SHARES-COMMON-PRIOR> 4,834
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,260)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,393
<NET-ASSETS> 37,280
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,192
<OTHER-INCOME> 0
<EXPENSES-NET> 422
<NET-INVESTMENT-INCOME> 2,770
<REALIZED-GAINS-CURRENT> (1,162)
<APPREC-INCREASE-CURRENT> 2,629
<NET-CHANGE-FROM-OPS> 4,237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,770
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,606
<NUMBER-OF-SHARES-REDEEMED> (2,877)
<SHARES-REINVESTED> 223
<NET-CHANGE-IN-ASSETS> (8,556)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (1,097)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 253
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 460
<AVERAGE-NET-ASSETS> 42,245
<PER-SHARE-NAV-BEGIN> 9.48
<PER-SHARE-NII> .62
<PER-SHARE-GAIN-APPREC> .37
<PER-SHARE-DIVIDEND> (.62)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> STEINROE INTERMEDIATE BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 303,223
<INVESTMENTS-AT-VALUE> 307,877
<RECEIVABLES> 9,036
<ASSETS-OTHER> 166
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 317,079
<PAYABLE-FOR-SECURITIES> 12,956
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,390
<TOTAL-LIABILITIES> 15,346
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 314,227
<SHARES-COMMON-STOCK> 34,787
<SHARES-COMMON-PRIOR> 35,839
<ACCUMULATED-NII-CURRENT> 28
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (17,176)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,654
<NET-ASSETS> 301,733
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,790
<OTHER-INCOME> 0
<EXPENSES-NET> 2,087
<NET-INVESTMENT-INCOME> 20,703
<REALIZED-GAINS-CURRENT> (11,716)
<APPREC-INCREASE-CURRENT> 18,957
<NET-CHANGE-FROM-OPS> 27,944
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,726)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,047
<NUMBER-OF-SHARES-REDEEMED> (16,019)
<SHARES-REINVESTED> 1,920
<NET-CHANGE-IN-ASSETS> (774)
<ACCUMULATED-NII-PRIOR> 51
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (5,460)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,491
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,113
<AVERAGE-NET-ASSETS> 298,207
<PER-SHARE-NAV-BEGIN> 8.44
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> .23
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.67
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> STEINROE LIMITED MATURITY INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 27,904
<INVESTMENTS-AT-VALUE> 27,638
<RECEIVABLES> 277
<ASSETS-OTHER> 152
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 28,067
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 160
<TOTAL-LIABILITIES> 160
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,913
<SHARES-COMMON-STOCK> 2,877
<SHARES-COMMON-PRIOR> 3,681
<ACCUMULATED-NII-CURRENT> 11
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (751)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (266)
<NET-ASSETS> 27,907
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,803
<OTHER-INCOME> 0
<EXPENSES-NET> 130
<NET-INVESTMENT-INCOME> 1,673
<REALIZED-GAINS-CURRENT> (548)
<APPREC-INCREASE-CURRENT> 736
<NET-CHANGE-FROM-OPS> 1,861
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,664)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,814
<NUMBER-OF-SHARES-REDEEMED> (2,739)
<SHARES-REINVESTED> 121
<NET-CHANGE-IN-ASSETS> (7,476)
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> (203)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 172
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 365
<AVERAGE-NET-ASSETS> 28,717
<PER-SHARE-NAV-BEGIN> 9.61
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> .09
<PER-SHARE-DIVIDEND> (.56)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.70
<EXPENSE-RATIO> .45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
EXHIBIT 18(a)
FUND APPLICATION Please do not remove label
[SteinRoe Mutual Funds logo]
02100 295
Mail to: P.O. Box 804058, Chicago, IL 60680-4058
This application is: [ ] New account [ ] Change to current account
(See Section 12)
_________________________
Account number
If you have questions, please call us toll-free (7 a.m. to 7 p.m. Central
Time) 1-800-338-2550
Liberty Securities Corporation, Distributor
Member SIPC
For office use only ______________________
1 YOUR ACCOUNT REGISTRATION
[ ] INDIVIDUAL OR JOINT* ACCOUNT
_______________________________________________
Owner's name (First, middle initial, last)
_______________________________________________
Joint owner's name (First, middle initial, last)
______________________________ ____________________________________
Owner's Social Security number Joint owner's Social Security number
*Joint tenants with right of survivorship, unless indicated otherwise.
[ ] GIFTS (TRANSEFRS) TO MINORS ACCOUNT
_________________________________________ as custodian for:
Name of one custodian only
_________________________________________ under the
Name of one minor only
__________________ Uniform Gifts (Transfers) to Minors Act.
State of residence
_______________________________ ___________________
Minor's Social Security Number Minor's birth date
[ ] TRUST OR RETIREMENT ACCOUNT
(For SteinRoe IRA or other Defined Contribution plan, please call us
for a separate application.)
_________________________________________
Name of trustee(s)
_________________________________________
_________________________________________
Name of trust
______________ _____________________
Date of trust Trust's tax ID number
_________________________________________
Trust beneficiary
[ ] ORGANIZATION OR OTHER ACCOUNT
Please complete and return the Certificate of Authorization on the
last page of the prospectus.
_______________________________________________
Name of corporation, partnership, estate, etc.
_________________________________________
Tax identification number
2 YOUR ADDRESS
_________________________________________
Street or P.O. box
_________________________________________
_________________________________________
City State Zip code
_________________________________________
Daytime telephone Evening telephone
_____________________________ _________________________
Owner's citizenship Joint owner's citizenship
3 YOUR FUND SELECTION
The initial minimum is $2,500; for UGMAs the minimum is $1,000. If you
elect an automatic investment option, the minimum is $1,000 ($500 for
UGMAs). If you do not specify a Fund, your investment will be in
SteinRoe Cash Reserves, a money market fund.
Money Market Funds Growth and Income Funds
------------------ ------------------------
Government Reserves _____ Total Return Fund _____
Cash Reserves _____ Prime Equities _____
Tax-Exempt Funds Growth Funds
---------------- -------------
Municipal Money Fund _____ Special Fund _____
Intermediate Municipals _____ Growth Stock Fund _____
Managed Municipals _____ Young Investor Fund _____
High-Yield Municipals _____ Special Venture Fund _____
Capital Opportunities _____
Bond Funds International Fund _____
----------
Government Income _____
Intermediate Bond _____
Income Fund _____
Limited Maturity Income _____
4 INVESTMENT METHOD
[ ] BY CHECK: Payable to SteinRoe Funds
[ ] BY EXCHANGE FROM:
__________________________
Name of SteinRoe Fund
___________________________ ____________________________
Account number Number of shares or $ amount
[ ] BY WIRE: Call us for instructions at 1-800-338-2550
5 DISTRIBUTION OPTIONS
We will automatically reinvest all distributions for you. If you want
this option, you do not need to fill out this section. Please check
below if you prefer another option. Distributions may be (A) invested in
shares of another SteinRoe Fund with the same account registration (a
$1,000 minimum applies to the account in which you are investing), (B)
deposited into your checking account or (C) sent by check to your
address.
Dividends Capital gains
(check one or both)
[ ] (A) Distribution Purchase
Invest into _______________ [ ] [ ]
Fund name
___________________________
Account number
from: _____________________
Fund name
___________________________
Account number
[ ] (B) Automatic Deposit direct to my [ ] [ ]
checking account (Also complete
Section 9)
[ ] (C) Send check to my address [ ] [ ]
6 MONEY MARKET FUND OPTIONS
These options are only available for Government Reserves, Cash Reserves
and Municipal Money Market Fund.
[ ] A. TELEPHONE REDEMPTION BY WIRE
Check this box if you wish to redeem shares in your account and
wire the proceeds to your bank account designated in Section 9.
[ ] B. FREE CHECK WRITING
Check this box and complete the signature card below if you wish
to write checks ($50 minimum) on your Money Market Fund account
You must also complete Section 11.
------------------------------------------------------------------
*DO NOT DETACH*
State Street Bank and Trust Company Check Writing Signature Card
Check Fund: [ ] Cash Reserves [ ] Government [ ] Municipal Money
Reserves Market Fund
Account name(s) as registered: ____________________________
By signing this card, I authorize State Street Bank and Trust Company to
honor any check drawn by me on an account with the bank and to redeem
and pay to bank shares in my Fund account having a redemption price equal
to the amount of such check. I agree to be subject to the rules
governing the Check Writing Redemption option as in effect from time to
time.
Signature (Sign as you will on checks) Signature guarantee*
_____________________________________ ________________________________
_____________________________________ ________________________________
Number of signatures on each check**: __________
(Office use only) Account no. _________________ Date: ______________
*Required if you are adding these options to an existing account; or if
you are requesting checkwriting for a Trust, Corporation or other
Organization account, guarantee required for any person signing these
cards who has not signed in Section 11. Otherwise a signature guarantee
is not required.
**If left blank, only one signature is required for joint tenant
accounts, but all signatures are required for all other types of
accounts.
(OVER)
*DO NOT DETACH*
You are subject to the Fund and bank rules pertaining to checking
accounts under the privilege as in effect from time to time. For a
joint tenancy with rights of survivorship, each owner appoints each other
owner as attorney-in-fact with power to authorize redemptions on his
behalf by signing checks under the privilege unless the reverse side
indicates all owners must sign checks.
You agree to hold Fund and its transfer agent free from any liability
resulting from payment of any forged, altered, lost or stolen check
unless you notify Fund and bank of such misappropriation no later than 14
days after the earliest of the date on which you (a) discover the
misappropriation or (b) receive a copy of the check cancelled by bank. A
copy of a cancelled check paid during a calendar month is deemed
received 6 days after posting in the U.S. mail to your registered address
with Fund unless you notify Fund of non-receipt by certified mail within
20 days after the close of such month.
You agree to hold Fund and its transfer agent free from any liability for
any other check misappropriated by the same wrongdoer and paid from
proceeds of a redemption made in good faith on or after the date you
notify Fund of the first misappropriated check.
-----------------------------------------------------------------------
7 TELEPHONE REDEMPTION OPTIONS
A. Telephone Redemption Options. You can redeem shares two ways: with
Telephone Redemption, a check is mailed to your address; with Telephone
Exchange, redemption proceeds are used to purchase shares in another
SteinRoe Fund. Most shareholders prefer these conveniences. They apply
unless you check the boxes below:
I DO NOT WANT:
[ ] Telephone Redemption [ ] Telephone Exchange
[ ] B. Special Redemption Option. This allows you to redeem shares at
any time and have the proceeds sent to your bank checking account.
Check the box and complete Section 9 for this option.
If you decide to add these options at a later date, you will be required
to obtain a signature guarantee.
8 AUTOMATIC INVESTMENT PLAN
A. Regular Investments. This option allows you to make scheduled
investments into your accent(s) directly from your bank checking account
by electronic transfer. To establish a new account with this service, a
$1,000 minimum applies to each account except for a $500 minimum which
applies to a Uniform Gift to Minors account. Please also complete
Section 9.
________________________________________________________________
Fund name Account number Amount ($50 minimum)
________________________________________________________________
Fund name Account number Amount ($50 minimum)
I authorize SteinRoe Mutual Funds to draw on my bank account to purchase
shares for the account(s) listed above: (check one period)
[ ] Monthly [ ] Quarterly [ ] Every 6 months [ ] Annually
These purchases should be made on or about the:
[ ] 5th or [ ] 20th day of the month
Please begin: Immediately or _______ (specify month)
[ ] B. Special Investments. You can also purchase shares by telephone
and pay for them by electronic transfer from your bank checking account
on request. Check the box above for this option, which saves you the
trouble and expense of arranging for a wire transfer or writing a check.
(Also complete Section 9.)
9 BANK INFORMATION
Complete this section if you have selected options from Sections 5B, 6A,
7B, 8A or 8B. You must use the same bank checking account for these
options.
________________________________________________________________
Name of bank
________________________________________________________________
Street address of bank
________________________________________________________________
City State Zip code
________________________________________________________________
Name(s) on checking account
______________________________ ________________________________
Checking account number ACH Routing number
(Attach a voided check to this form and verify the above information with
your bank.)
Attach voided check here.
10 AUTOMATIC EXCHANGE PLAN
With this option you can authorize SteinRoe to regularly exchange shares
from one SteinRoe Fund account to another with the same account
registration. A $1,000 minimum applies to each new account.
________________________________________________________________
Redeem shares from (fund name) Account number (or "new" if a
new account
________________________________________________________________
Amount ($50 minimum)
________________________________________________________________
Purchase shares from (fund name) Account number (or "new" if a
new account
Check one period below and fill in dates between the 1st and 28th of the
month:
[ ] Twice monthly on the ___ and ___ beginning ______ (specify month)
[ ] Monthly on the ______ beginning __________ (specify month)
[ ] Quarterly on the ______ of _______________ (list four months)
[ ] Twice yearly on the _____ of _____________ (list two months)
[ ] Annually on the _____ of _________________ (list one month)
11 YOUR SIGNATURES
By signing this form, I certify that:
-I have received the current Fund prospectus and SteinRoe Services
brochure and agree to be bound by their terms as governed by Illinois
law. I have full authority and legal capacity to purchase Fund shares
and establish and use any related privileges.
-By signing below, I certify under penalties or perjury that:
-All information and certifications on this application are true and
correct including the Social Security or other tax identification
number (TIN) in Section 1.
-If I have not provided a TIN, I have not been issued a number but have
applied (or will apply) for one and understand that if I do not
provide the Fund(s) a TIN within 60 days, the Fund(s) will withhold
31% from all my dividend, capital gain and redemption payments until I
provide one.
-Check one of the following only if applicable:
[ ] The IRS has informed me that I am subject to backup withholding as a
result of a failure to report all interest or dividend income.
[ ] I am a trust or organization that qualifies for the IRS backup
withholding exemption.
-Unless I have declined the Telephone Redemption and Telephone Exchange
privileges in Section 7A, I have authorized the Fund and its agents to
act upon instructions received by telephone to redeem my shares of the
Fund or to exchange them for shares of another SteinRoe Fund, and I
agree that, subject to the Funds employing reasonable procedures to
confirm that such telephone instructions are genuine, neither the Fund,
nor any of its agents will be liable for any loss, injury, damage, or
expense as a result of acting upon, and will not be responsible for the
authenticity of, any telephone instructions, and will hold the Fund and
its agents harmless from any loss, claims or liability arising from its
or their compliance with these instructions. Accordingly, I understand
that I will bear any risk of loss resulting from unauthorized
instructions.
Sign below exactly as your name(s) appears in Section 1.
________________________________________________________________
Signature Date
________________________________________________________________
Title (if owner is an organization)
________________________________________________________________
Signature Date
________________________________________________________________
Title (if owner is an organization)
12 SIGNATURE GUARANTEE (IF REQUIRED)
A signature guarantee is not required if you are establishing a new
account. For existing accounts, a signature guarantee is required if
you are adding or making changes to options listed in Sections 5B, 6, 7,
8 or 9. We are unable to accept notarizations.
Signature(s) Guaranteed by:
________________________________________________________________
Name of institution
________________________________________________________________
Name of authorized officer
________________________________________________________________
Signature of authorized officer
Guarantor's stamp:
