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. 29 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 30 [X]
STEIN ROE INCOME TRUST
One South Wacker Drive, Chicago, Illinois 60606
Telephone Number: 1-800-338-2550
Jilaine Hummel Bauer Cameron S. Avery
Executive Vice-President Bell, Boyd & Lloyd
& Secretary Three First National Plaza
Stein Roe 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)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[X] on November 1, 1996 pursuant to paragraph (a)(2) of rule 485
Registrant hereby elects to register under the Securities Act of
1933 an indefinite number of its shares of beneficial interest,
without par value, of the series of shares designated Stein Roe
High Yield Fund. Registrant has previously elected to register
pursuant to Rule 24f-2 an indefinite number of shares of beneficial
interest of the following series: Stein Roe Income Fund, Stein Roe
Cash Reserves Fund, Stein Roe Government Reserves Fund, Stein Roe
Government Income Fund, Stein Roe Intermediate Bond Fund, and Stein
Roe Limited Maturity Income Fund. The Rule 24f-2 Notice for the
fiscal year ended June 30, 1996 was filed on August 14, 1996.
Amending Parts A, B and C and filing exhibits.
<PAGE>
STEIN ROE INCOME TRUST
CROSS REFERENCE SHEET
ITEM
NO. CAPTION
- ----- -------
PART A (HIGH YIELD FUND PROSPECTUS)
1 Front cover
2 Fee Table; Summary
3 (a) Inapplicable
(b) Inapplicable
(c) Investment Return
(d) Inapplicable
4 Organization and Description of Shares; The Fund; How the
Fund Invests; Restrictions on the Fund's Investments; Risks
and Investment Considerations; Summary--Investment Risks;
Portfolio Investments and Strategies
5 (a) Management of the Fund--Trustees and Investment Adviser
(b) Management of the Fund--Trustees and Investment Adviser,
Fees and Expenses
(c) Management of the Fund--Portfolio Managers
(d) Inapplicable
(e) Management of the Fund--Transfer Agent
(f) Management of the Fund--Fees and Expenses
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see statement of
additional information: General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) Summary
(f) Shareholder Services; Distributions and Income Taxes
(g) Distributions and Income Taxes
(h) Organization and Description of Shares--Special Considerations
Regarding Master Fund/Feeder Fund Structure
7 How to Purchase Shares
(a) Management of the Fund--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 (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) Summary
(f) Shareholder Services; Distributions and Income Taxes
(g) Distributions and Income Taxes
(h) [Bond Funds] Organization and Description of Shares--Special
Considerations Regarding Master Fund/Feeder Fund Structure
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
(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 Investments and Strategies
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 Managers
(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. STATEMENT OF ADDITIONAL INFORMATION
10 Cover page
11 Table of Contents
12 General Information and History
13 Investment Policies; Portfolio Investments and Strategies;
Investment Restrictions
14 Management
15(a) Inapplicable
(b) Principal Shareholders
(c) Principal Shareholders
16(a) Investment Advisory Services; Management; see prospectus:
Management of the Funds
(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) Portfolio Transactions
(e) Portfolio Transactions
18 General Information and History
19(a) Purchases and Redemptions; see prospectus: How to Purchase
Shares, How to Redeem Shares, Shareholder Services
(b) Purchases and Redemptions; Additional Information on the
Determination of Net Asset Value of the Money Market Funds;
see prospectus: Net Asset Value
(c) Purchases and Redemptions
20 Additional Income Tax Considerations; Portfolio Investments
and Strategies--Taxation of Options and Futures
21(a) Distributor
(b) Inapplicable
(c) Inapplicable
22 Investment Performance
23 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>
The Prospectuses and Statements of Additional Information relating
to Stein Roe Cash Reserves Fund and Stein Roe Government Reserves
Fund (the Money Market Funds) and Stein Roe Limited Maturity
Income Fund, Stein Roe Government Income Fund, Stein Roe
Intermediate Bond Fund, and Stein Roe Income Fund (the Bond Funds),
each a series of Stein Roe Income Trust, are not affected by the
filing of this post-effective amendment No. 29.
<PAGE> 1
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 19, 1996
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT
YET BECOME EFFECTIVE. INFORMATION CONTAINED HEREIN IS SUBJECT
TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALES OF THESE SECURITIES IN ANY
STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
STEIN ROE HIGH YIELD FUND seeks total return by investing for a
high level of current income and capital growth. High Yield
Fund seeks to achieve its objective by investing all of its net
investable assets in shares of SR&F High Yield Portfolio, a
portfolio of SR&F Base Trust that has the same investment
objective and substantially the same investment restrictions as
High Yield Fund. High Yield Portfolio invests primarily in
high-yield, high-risk medium- and lower-quality debt securities,
commonly known as "junk bonds." LOWER-QUALITY SECURITIES ARE
SUBJECT TO A GREATER RISK WITH REGARD TO PAYMENT OF INTEREST AND
RETURN OF PRINCIPAL THAN HIGHER-RATED BONDS. INVESTORS SHOULD
CAREFULLY CONSIDER THE RISKS ASSOCIATED WITH JUNK BONDS BEFORE
INVESTING. (SEE HOW THE FUND INVESTS, RISKS AND INVESTMENT
CONSIDERATIONS, AND ORGANIZATION AND DESCRIPTION OF SHARES--
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND
STRUCTURE.)
High Yield Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. High Yield
Fund is a series of Stein Roe Income Trust and High Yield
Portfolio is a series of SR&F Base Trust. Each Trust is a
diversified open-end management investment company.
This prospectus contains information you should know before
investing in High Yield Fund. Please read it carefully and
retain it for future reference.
A Statement of Additional Information dated _____, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information may be obtained without
charge by writing to Stein Roe Funds, Suite 3200, One South
Wacker Drive, Chicago, Illinois 60606, or by calling 800-338-
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 ______, 1996.
<PAGE> 2
TABLE OF CONTENTS
Page
Summary.................................2
Fee Table ..............................3
The Fund ...............................5
How the Fund Invests ...................5
Portfolio Investments and Strategies....7
Restrictions on the Fund's Investments.11
Risks and Investment Considerations ...12
How to Purchase Shares.................13
By Check............................13
By Wire.............................14
By Electronic Transfer .............14
By Exchange ........................14
Purchase Price and Effective Date ..15
Conditions of Purchase .............15
Purchases Through Third Parties.....15
How to Redeem Shares ..................15
By Written Request .................15
By Exchange ........................16
Special Redemption Privileges ......16
General Redemption Policies ........18
Shareholder Services ..................19
Net Asset Value .......................21
Distributions and Income Taxes.........21
Investment Return .....................22
Management of the Fund.................23
Organization and Description of Shares.25
Certificate of Authorization...........28
SUMMARY
Stein Roe High Yield Fund ("High Yield Fund") is a series of
Stein Roe Income Trust, an open-end diversified management
investment company organized as a Massachusetts business trust.
High Yield Fund is a "no-load" fund. There are no sales or
redemption charges. (See The Fund and Organization and
Description of Shares.) This prospectus is not a solicitation
in any jurisdiction in which High Yield Fund is not qualified
for sale.
INVESTMENT OBJECTIVES AND POLICIES. High Yield Fund invests all
of its net investable assets in SR&F High Yield Portfolio ("High
Yield Portfolio"). High Yield Portfolio invests in a
diversified portfolio of securities in accordance with an
investment objective and investment policies identical to those
of High Yield Fund. High Yield Portfolio seeks total return by
investing for a high level of current income and capital growth.
High Yield Portfolio invests primarily in high-yield, high-risk
medium- and lower-quality debt securities. Medium-quality debt
securities, although considered investment grade, may have some
speculative characteristics. Lower-quality securities are
commonly referred to as "junk bonds."
<PAGE> 3
For a more detailed discussion of the investment objectives and
policies, please see How the Fund Invests and Portfolio
Investments and Strategies. There is, of course, no assurance
that High Yield Fund or High Yield Portfolio will achieve its
investment objective.
INVESTMENT RISKS. The risks inherent in High Yield Fund and
High Yield Portfolio depend primarily upon the term and quality
of the obligations in its investment portfolio, as well as on
market conditions. Interest rate fluctuations will affect its
net asset value, but not the income received from its portfolio
securities. However, because yields on debt securities
available for purchase vary over time, no specific yield on
shares of High Yield Fund or High Yield Portfolio can be
assured. High Yield Fund is designed for investors who can
accept the heightened level of risk and principal fluctuation
which might result from a portfolio that invests at least 65% of
its assets in medium- and lower-quality debt securities. High
Yield Portfolio may invest in foreign securities, which may
entail a greater degree of risk than investing in securities of
domestic issuers. Please see Restrictions on the Fund's
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 High Yield 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 High Yield
Fund account unless you elect to have them paid in cash,
deposited by electronic transfer into your bank 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 High Yield Portfolio. In
addition, it provides administrative and bookkeeping and
accounting services to High Yield Fund and High Yield Portfolio.
For a description of the Adviser and its fees, see Management of
the Fund.
If you have any additional questions about the Fund or High
Yield Portfolio, please feel free to discuss them with an
account representative by calling 800-338-2550.
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
<PAGE> 4
ANNUAL FUND OPERATING EXPENSES (after fee
waiver; as a percentage of average net assets)
Management and Administrative Fees (after
fee waiver) 0.46%
12b-1 Fees None
Other Expenses 0.54%
-----
Total Fund Operating Expenses (after fee
waiver) 1.00%
-----
-----
__________________
*There is a $7.00 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
------ --------
$10 $32
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 High Yield Fund. Because High
Yield Fund has no operating history, the information in the
table is based upon an estimate of expenses, assuming net assets
of $50 million. The figures assume that the percentage amounts
listed under Annual Fund Operating Expenses remain the same
during each of the periods, that all income dividends and
capital gain distributions are reinvested in additional Fund
shares, and that, for purposes of management fee breakpoints,
High Yield Fund's net assets remain at the same levels as in the
most recently completed fiscal year.
From time to time, the Adviser may voluntarily absorb certain
expenses of High Yield Fund. The Adviser has agreed to
voluntarily absorb Fund expenses to the extent they exceed 1% of
High Yield Fund's annual average net assets. This commitment
expires on October 31, 1997, subject to earlier termination by
the Adviser on 30 days' notice. Absent such expense
undertaking, the estimated Management and Administrative Fees
and Total Fund Operating Expenses would have been 0.65% and
1.19%. Any such absorption will temporarily lower High Yield
Fund's overall expense ratio and increase its overall return to
investors. (Also see Management of the Fund--Fees and
Expenses.)
High Yield Fund pays the Adviser an administrative fee based on
the Fund's average daily net assets and High Yield Portfolio
pays the Adviser a management fee based on High Yield
Portfolio's average daily net assets. The management fee and
expenses of both High Yield Fund and High Yield Portfolio are
summarized in the Fee Table above and are described under
Management of the Fund. High Yield Fund will bear its
proportionate share of Portfolio expenses. The Trustees of
Income Trust have considered whether the annual operating
expenses of High Yield Fund, including its proportionate share
of the expenses of High Yield Portfolio, would be more or less
than if High Yield Fund invested directly in the securities held
by High Yield Portfolio, and concluded that High Yield Fund's
expenses would not be materially greater in such case.
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
in the Examples and Fee Table is useful in reviewing High Yield
Fund's expenses and in providing a basis for comparison with
other mutual funds, it
<PAGE> 5
should not be used for comparison with other investments using
different assumptions or time periods.
THE FUND
STEIN ROE HIGH YIELD FUND ("High Yield 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 such as common stocks. 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. High Yield Fund does not impose commissions or
charges when shares are purchased or redeemed.
High Yield Fund is a series of Stein Roe Income Trust ("Income
Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series.
Stein Roe & Farnham Incorporated (the "Adviser") provides
portfolio management services to High Yield Portfolio and
administrative and accounting and bookkeeping services to High
Yield Fund and High Yield Portfolio. The Adviser also manages
several other 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 any of those mutual funds,
please call 800-338-2550.
Rather than invest in securities directly, High Yield Fund seeks
to achieve its investment objective by using the "master
fund/feeder fund" structure. Under that structure, High Yield
Fund and other mutual funds with the same investment objective
invest their assets in another investment company having the
same investment objective and substantially the same investment
policies and restrictions as High Yield Fund. The purpose of
such an arrangement is to achieve greater operational
efficiencies and reduce costs. (See Organization and
Description of Shares--Special Considerations Regarding Master
Fund/Feeder Fund Structure.) High Yield Fund invests all of its
assets in shares of SR&F High Yield Portfolio ("High Yield
Portfolio"), which is a series of shares of beneficial interest
of SR&F Base Trust ("Base Trust").
HOW THE FUND INVESTS
High Yield Fund and High Yield Portfolio each seek total return
by investing for a high level of current income and capital
growth. Further information on portfolio investments and
strategies may be found under Portfolio Investments and
Strategies in this prospectus and in the Statement of Additional
Information.
High Yield Fund seeks to achieve its objective by investing all
of its assets in High Yield Portfolio. The investment policies
of High Yield Portfolio are identical to those of High Yield
Fund.
<PAGE> 6
High Yield Portfolio invests principally in high-yield, high-
risk medium- and lower-quality debt securities. The medium- and
lower-quality debt securities in which High Yield Portfolio will
invest normally offer a current yield or yield to maturity that
is significantly higher than the yield from securities rated in
the three highest categories assigned by rating services such as
S&P or Moody's.
Under normal circumstances, at least 65% of High Yield
Portfolio's assets will be invested in high-yield, high-risk
medium- and lower-quality debt securities rated Baa or lower by
Moody's or BBB or lower by S&P, or equivalent ratings as
determined by other rating agencies or unrated securities that
the Adviser determines to be of comparable quality. Medium-
quality debt securities, although considered investment grade,
have some speculative characteristics. Lower-quality
securities, commonly referred to as "junk bonds," are those
rated below the fourth highest rating category or bonds of
comparable quality. Some issuers of debt securities choose not
to have their securities rated by a rating service, and High
Yield Portfolio may invest in unrated securities that the
Adviser believes are suitable for investment. High Yield
Portfolio may invest in debt obligations that are in default,
but such obligations are not expected to exceed 10% of High
Yield Portfolio's assts.
High Yield Portfolio may invest up to 35% of its total assets in
other securities including, but not limited to, pay-in-kind
bonds, private placements, bank loans, zero coupon bonds,
foreign securities, convertible securities, futures, and
options. High Yield Portfolio may also invest in higher-quality
debt securities. Under normal market conditions, however, High
Yield Portfolio is unlikely to emphasize higher-quality debt
securities since generally they offer lower yields than medium-
and lower-quality debt securities with similar maturities. High
Yield Portfolio may also invest in common stocks and securities
that are convertible into common stocks, such as warrants.
Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer
default or bankruptcy. High Yield Portfolio will diversify its
holdings among a number of issuers to help minimize this risk.
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 investment objective will be more dependent
on the Adviser's credit analysis than would be the case if High
Yield Portfolio were investing in higher-quality debt
securities. Since the ratings of rating services (which
evaluate the safety of principal and interest payments, not
market risks) are used only as preliminary indicators of
investment quality, the Adviser employs its own credit research
and analysis, from which it has developed a proprietary credit
rating system based upon comparative credit analyses of issuers
within the same industry. These analyses may take into
consideration such quantitative factors as an issuer's present
and potential liquidity,
<PAGE> 7
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 High Yield Fund or High Yield
Portfolio may have greater difficulty selling its portfolio
securities. (See Net Asset Value.) The market value of these
securities and their liquidity may be affected by adverse
publicity and investor perceptions.
PORTFOLIO INVESTMENTS AND STRATEGIES
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 High Yield Fund's shares can be expected to fluctuate
in value.
DERIVATIVES. Consistent with its objective, High Yield
Portfolio may invest in a broad array of financial instruments
and securities, including conventional exchange-traded and non-
exchange traded options, futures contracts, futures options,
securities collateralized by underlying pools of mortgages or
other receivables, and other instruments, the value of which is
"derived" from the performance of an underlying asset or a
"benchmark" such as a security index, an interest rate, or a
currency ("Derivatives"). High Yield Portfolio does not expect
to invest more than 5% of its net assets in any type of
Derivative except: options, futures contracts, and futures
options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may
be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates and
other market factors affecting the Derivative itself or the
value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as well
regulated and may be less marketable than
<PAGE> 8
exchange-traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
MORTGAGE AND OTHER ASSET-BACKED DEBT SECURITIES. High Yield
Portfolio may invest in securities secured by mortgages or other
assets such as automobile or home improvement loans and credit
card receivables. These instruments may be issued or guaranteed
by the U.S. Government or by its agencies or instrumentalities
or by private entities such as commercial, mortgage and
investment banks and financial companies or financial
subsidiaries of industrial companies.
Securities issued by GNMA represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the
Farmers Home Administration, or guaranteed by the Veterans
Administration. Securities issued by FNMA and FHLMC, U.S.
Government-sponsored corporations, also represent an interest in
a pool of mortgages.
The timely payment of principal and interest on GNMA securities
is guaranteed by GNMA and backed by the full faith and credit of
the U.S. Treasury. FNMA guarantees full and timely payment of
interest and principal on FNMA securities. FHLMC guarantees
timely payment of interest and ultimate collection of principal
on FHLMC securities. FNMA and FHLMC securities are not backed
by the full faith and credit of the U.S. Treasury.
Mortgage-backed debt securities, such as those issued by GNMA,
FNMA, and FHLMC, are of the "modified pass-through type," which
means the interest and principal payments on mortgages in the
pool are "passed through" to investors. During periods of
declining interest rates, there is increased likelihood that
mortgages will be prepaid, with a resulting loss of the full-
term benefit of any premium paid by High Yield Portfolio on
purchase of such securities; in addition, the proceeds of
prepayment would likely be invested at lower interest rates.
Mortgage-backed securities provide either a pro rata interest in
underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs"), which represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are
not guaranteed by either the U.S. Government or by its agencies
or instrumentalities and are usually issued in multiple classes,
each of which has different payment rights, pre-payment risks,
and yield characteristics. Mortgage-backed securities involve
the risk of pre-payment of the underlying mortgages at a faster
or slower rate than the established schedule. Pre-payments
generally increase with falling interest rates and decrease with
rising rates, but they also are influenced by economic, social,
and market factors. If mortgages are pre-paid during periods of
declining interest rates, there would be a resulting loss of the
full-term benefit of any premium paid by High Yield Portfolio on
purchase of the CMO, and the proceeds of pre-payment would
likely be invested at lower interest rates. High Yield
Portfolio tends to invest in CMOs of classes known as planned
amortization classes ("PACs") which have pre-payment protection
features tending to make them less susceptible to price
volatility.
Non-mortgage asset-backed securities usually have less pre-
payment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to
<PAGE> 9
support payments on the underlying loans which finance payments
on the securities themselves. Therefore, greater emphasis is
placed on the credit quality of the security issuer and the
guarantor, if any.
Asset-backed securities tend to experience greater price
volatility than straight debt securities.
FLOATING RATE INSTRUMENTS. High Yield Portfolio may also invest
in floating rate instruments which provide for periodic
adjustments in coupon interest rates that are automatically
reset based on changes in amount and direction of specified
market interest rates. In addition, the adjusted duration of
some of these instruments may be materially shorter than their
stated maturities. To the extent such instruments are subject
to lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with
an adjusted duration of 2 would increase by approximately 2%.
High Yield Portfolio does not intend to invest more than 5% of
its net assets in floating rate instruments.
FUTURES AND OPTIONS. High Yield Portfolio may purchase and
write both call options and put options on securities, indexes
and foreign currencies, and enter into interest rate, index and
foreign currency futures contracts. High Yield Portfolio may
also write options on such futures contracts and purchase other
types of forward or investment contracts linked to individual
securities, indexes or other benchmarks in order to, consistent
with its investment objective, provide additional revenue, or to
hedge against changes in security prices, interest rates, or
currency fluctuations. High Yield Portfolio may write a call or
put option only if the option is covered. As the writer of a
covered call option, High Yield Portfolio foregoes, during the
option's life, the opportunity to profit from increases in
market value of the security covering the call option above the
sum of the premium and the exercise price of the call. There
can be no assurance that a liquid market will exist when High
Yield Portfolio seeks to close out a position. Because of low
margin deposits required, the use of futures contracts involves
a high degree of leverage, and may result in losses in excess of
the amount of the margin deposit.
FOREIGN SECURITIES. High Yield Portfolio may invest in foreign
securities, but will not invest in a foreign security if, as a
result of such investment, more than 25% of its total assets
would be invested in foreign securities. For purposes of this
restriction, foreign debt securities do not include securities
represented by American Depositary Receipts ("ADRs"), foreign
debt securities denominated in U.S. dollars, or securities
guaranteed by a U.S. person such as a corporation domiciled in
the United States that is a parent or affiliate of the issuer of
the securities being guaranteed. High Yield Portfolio may
invest in sponsored or unsponsored ADRs. In addition to, or in
lieu of, such direct investment, High Yield Portfolio may
construct a synthetic foreign position by (a) purchasing a debt
instrument denominated in one currency, generally U.S. dollars;
and (b) concurrently entering into a forward contract to deliver
a corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate of
exchange. Because of the availability of a variety of highly
liquid U.S. dollar debt instruments, a
<PAGE> 10
synthetic foreign position utilizing such U.S. dollar
instruments may offer greater liquidity than direct investment
in foreign currency debt instruments. In connection with the
purchase of foreign securities, High Yield Portfolio may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
(See Risks and Investment Considerations.)
LENDING OF PORTFOLIO SECURITIES. Subject to certain
restrictions, High Yield Portfolio may lend portfolio securities
to broker-dealers and banks. Any such loan must be continuously
secured by collateral in cash or cash equivalents maintained on
a current basis in an amount at least equal to the market value
of the securities loaned by High Yield Portfolio. High Yield
Portfolio would continue to receive the equivalent of the
interest or dividends paid by the issuer on the securities
loaned, and would also receive an additional return that may be
in the form of a fixed fee or a percentage of the collateral.
High Yield Portfolio would have the right to call the loan and
obtain the securities loaned at any time on notice of not more
than five business days. In the event of bankruptcy or other
default of the borrower, High Yield Portfolio could experience
both delays in liquidating the loan collateral or recovering the
loaned securities and losses including (a) possible decline in
the value of the collateral or in the value of the securities
loaned during the period while the Portfolio seeks to enforce
its rights thereto; (b) possible subnormal levels of income and
lack of access to income during this period; and (c) expenses of
enforcing its rights.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; STANDBY
COMMITMENTS. The Portfolio's assets may include securities
purchased on a when-issued or delayed-delivery basis. Although
the payment and interest terms of these securities are
established at the time the purchaser enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed. High Yield Portfolio makes such commitments only with
the intention of actually acquiring the securities, but may sell
the securities before settlement date if the Adviser deems it
advisable for investment reasons. Securities purchased in this
manner involve a risk of loss if the value of the security
purchased declines before the settlement date.
When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that High Yield
Portfolio will sell securities with a commitment to purchase
similar, but not identical, securities at a future date.
Generally, the securities are repurchased at a price lower than
the sales price. Dollar roll transactions involve the risk of
restrictions on the Portfolio's ability to repurchase the
security if the counterparty becomes insolvent; an adverse
change in the price of the security during the period of the
roll or that the value the security repurchased will be less
than the security sold; and transaction costs exceeding the
return earned by High Yield Portfolio on the sales proceeds of
the dollar roll.
High Yield Portfolio may also invest in securities purchased on
a standby commitment basis, which is a delayed-delivery
agreement in which High Yield Portfolio binds itself to accept
delivery of a security at the option of the other party to the
agreement.
<PAGE> 11
PIK AND ZERO COUPON BONDS. High Yield Portfolio may invest up
to 20% of its total assets in zero coupon bonds and bonds the
interest on which is payable in kind ("PIK bonds"). A zero
coupon bond is a bond that does not pay interest for its entire
life. A PIK bond pays interest in the form of additional
securities. The market prices of both zero coupon and PIK bonds
are affected to a greater extent by changes in prevailing levels
of interest rates and thereby tend to be more volatile in price
than securities that pay interest periodically and in cash. In
addition, because High Yield Portfolio accrues income with
respect to these securities prior to the receipt of such
interest in cash, it may have to dispose of portfolio securities
under disadvantageous circumstances in order to obtain cash
needed to pay income dividends in amounts necessary to avoid
unfavorable tax consequences.
SHORT SALES AGAINST THE BOX. The Fund may sell short securities
it owns or has the right to acquire without further
consideration, a technique called selling short "against the
box." Short sales against the box may protect the Fund against
the risk of losses in the value of its portfolio securities
because any unrealized losses with respect to such securities
should be wholly or partly offset by a corresponding gain in the
short position. However, any potential gains in such securities
should be wholly or partially offset by a corresponding loss in
the short position. Short sales against the box may be used to
lock in a profit on a security when, for tax reasons or
otherwise, the Adviser does not want to sell the security. For
a more complete explanation, please refer to the Statement of
Additional Information.
PORTFOLIO TURNOVER. In attempting to attain its objective, High
Yield Portfolio may sell portfolio securities without regard to
the period of time they have been held. Further, the Adviser
may purchase and sell securities for the investment portfolio
with a view to maximizing current return, even if portfolio
changes would cause the realization of capital gains. Although
the average stated maturity of High Yield Portfolio will be from
five to ten years, the Adviser may adjust the average effective
maturity of High Yield Portfolio's portfolio from time to time,
depending on its assessment of the relative yields available on
securities of different maturities and its expectations of
future changes in interest rates. As a result, the turnover
rate of High Yield Portfolio may vary from year to year. The
turnover rate for High Yield Portfolio may exceed 100%, but is
not expected to exceed 200% under normal market conditions. A
high rate of portfolio turnover may result in increased
transaction expenses and the realization of capital gains (which
may be taxable) or losses. (See Distributions and Income
Taxes.)
RESTRICTIONS ON THE FUND'S INVESTMENTS
Neither High Yield Fund nor High Yield Portfolio may invest in a
security if, as a result of such investment: (1) with respect to
75% of its assets, more than 5% of its total assets would be
invested in the securities of any one issuer, except for U.S.
Government Securities or repurchase agreements 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, High
Yield Fund, but not High Yield Portfolio, may invest all of its
assets in another registered investment company having the same
investment objective and substantially similar investment
policies as the Fund.
<PAGE> 12
Neither High Yield Fund nor High Yield Portfolio may make loans
except that it may (1) purchase money market instruments and
enter into repurchase agreements /1/; (2) acquire publicly-
distributed or privately-placed debt securities; (3) lend its
portfolio securities under certain conditions; and (4)
participate in an interfund lending program with other Stein Roe
Funds. Neither may borrow money, except for non-leveraging,
temporary, or emergency purposes or in connection with
participation in the interfund lending program. Neither the
aggregate borrowings (including reverse repurchase agreements)
nor the aggregate loans at any one time may exceed 33 1/3% of
the value of total assets.
The policies set forth in the first two paragraphs under
Investment Restrictions (but not the footnote) are fundamental
policies of High Yield Fund and High Yield Portfolio./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 High
Yield Portfolio seeks to reduce risk by investing in a
diversified portfolio, this does not eliminate all risk. The
risks inherent in High Yield Fund depend primarily upon the term
and quality of the obligations in High Yield Portfolio's
investment portfolio, as well as on market conditions.
High Yield Fund is designed for investors who can accept the
heightened level of risk and principal fluctuation which might
result from a portfolio that invests at least 65% of its assets
in medium- and lower-quality debt securities.
A decline in prevailing levels of interest rates generally
increases the value of securities in the investment portfolio,
while an increase in rates usually reduces the value of those
securities. As a result, interest rate fluctuations will affect
net asset value, but not the income received by High Yield
Portfolio from its portfolio securities. (Because yields on
debt securities available for purchase by High Yield Portfolio
vary over time, no specific yield on shares of High Yield Fund
can be assured.) In addition, if the bonds in the investment
portfolio contain call, prepayment or redemption provisions,
during a period of declining interest rates, these securities
are likely to be redeemed, and High Yield Portfolio will
probably be unable to replace them with securities having as
great a yield.
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
- ------------------
/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.
/2/ A fundamental policy may be changed only with the approval
of a "majority of the outstanding vote securities" as defined in
the Investment Company Act.
- ------------------
<PAGE> 13
greater political instability. In addition, various
restrictions by foreign governments on investments by non-
residents may apply, including imposition of exchange controls
and withholding taxes on dividends, and seizure or
nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
High Yield Portfolio may enter into foreign currency forward
contracts and use options and futures contracts, as described
elsewhere in this prospectus, to limit or reduce foreign
currency risk.
There can be no assurance that High Yield Fund or High Yield
Portfolio will achieve its objective, nor can High Yield
Portfolio assure that payments of interest and principal on
portfolio securities will be made when due. If, after purchase
by High Yield Portfolio, the rating of a portfolio security is
lost or reduced, High Yield Portfolio would not be required to
sell the security, but the Adviser would consider such a change
in deciding whether High Yield Portfolio should retain the
security in its investment portfolio.
The investment objective of High Yield Fund and High Yield
Portfolio is not fundamental and may be changed by the
respective Board of Trustees without a vote of shareholders. If
there were a change in the investment objective, such change may
result in High Yield Fund having an investment objective
different from the objective that the shareholder considered
appropriate at the time of investment in High Yield Fund.
HOW TO PURCHASE SHARES
You may purchase shares of High Yield 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
Personal Counselor [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 High Yield
Fund by check, please complete and sign the Application and mail
it, together with a check made payable to Stein Roe Mutual
Funds, to SteinRoe Services Inc. at P.O. Box 8900, Boston,
Massachusetts 02205. Participants in the Stein Roe Counselor
[service mark] and Personal Counselor [service mark] Programs
should send orders to SteinRoe Services Inc. at P.O. Box 803938,
Chicago, Illinois 60680.
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 Income Trust generally will not accept
cash, drafts, third party checks, or checks drawn on banks
<PAGE> 14
outside of the United States. Should an order to purchase
shares of High Yield Fund be cancelled because your check does
not clear, you will be responsible for any resulting loss
incurred by the Fund.
BY WIRE. You also may pay for shares by instructing your bank
to wire federal funds (monies of member banks within the Federal
Reserve System) to the First National Bank of Boston. Your bank
may charge you a fee for sending the wire. If you are opening a
new account by wire transfer, you must first call 800-338-2550
to request an account number and furnish your social security or
other tax identification number. Neither High Yield Fund nor
Income 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:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. ___; Stein Roe High Yield Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Participants in the Stein Roe Counselor [service mark] and
Personal Counselor [service mark] Programs should address their
wires as follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. ___; Stein Roe High Yield Fund
Account of (exact name(s) in registration)
Counselor Account No. ________
BY ELECTRONIC TRANSFER. You may also make subsequent
investments by an electronic transfer of funds from your bank
account. Electronic transfer allows you to make purchases at
your request ("Special Investments") by calling 800-338-2550 or
at pre-scheduled intervals ("Regular Investments") elected on
your Application. (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 High Yield Fund
be cancelled because your electronic transfer does not clear,
you will be responsible for any resulting loss incurred by the
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 the
Automatic Exchange Privilege). Restrictions apply; please
review the information under How to Redeem Shares--By Exchange.
<PAGE> 15
PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of High Yield
Fund's shares is made at its 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 the Fund receives 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
instruction received by telephone on a business day before 3:00
p.m., Central 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 High Yield Fund
must be accepted by an authorized officer of Income Trust or its
authorized agent and is not binding until accepted and entered
on the books of the Fund. Once your purchase order has been
accepted, you may not cancel or revoke it; you may, however,
redeem the shares. Income 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 High Yield Fund's shareholders.
Income Trust also reserves the right to waive or lower its
investment minimums for any reason. Income Trust does not issue
certificates for shares.
PURCHASES THROUGH THIRD PARTIES. You may purchase (or redeem)
shares through broker-dealers, banks, or other intermediaries.
These intermediaries may charge for their services or place
limitations on the extent to which you may use the services
offered by Income Trust. There are no charges or limitations
imposed by Income Trust (other than those described in this
prospectus) if shares are purchased (or redeemed) directly from
the Trust.
Some intermediaries that maintain nominee accounts with High
Yield Fund for their clients who are Fund shareholders charge at
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. The
Adviser pays these annual fees as well as all sales and
promotional expenses.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST. You may redeem all or a portion of your
shares of High Yield Fund by submitting a written request in
"good order" to SteinRoe Services Inc. at P.O. Box 8900, Boston,
Massachusetts 02205. Participants in the Stein Roe Counselor
[service mark] and Personal Counselor [service mark] Programs
should send redemption requests to SteinRoe Services Inc. at
P.O. Box 803938, 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 and must 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;
<PAGE> 16
(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 High Yield Fund
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 Income
Trust); and
(6) The request must include other supporting legal documents as
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 High
Yield 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--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 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.)
<PAGE> 17
Telephone Exchange Privilege. You may use the Telephone
Exchange Privilege to exchange an amount of $50 or more from
your account by calling 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 HIGH YIELD FUND
MAY REFUSE REQUESTS FOR TELEPHONE EXCHANGES IN EXCESS OF FOUR
ROUND-TRIPS (A ROUND-TRIP BEING THE EXCHANGE OUT OF HIGH YIELD
FUND INTO ANOTHER STEIN ROE FUND, AND THEN BACK TO HIGH YIELD
FUND). In addition, Income Trust's general redemption policies
apply to redemptions of shares by Telephone Exchange. (See
General Redemption Policies.)
Income Trust reserves the right to suspend or terminate at any
time and without prior notice the use of the Telephone Exchange
Privilege by any person or class of persons. Income Trust
believes that use of the Telephone Exchange Privilege by
investors utilizing market-timing strategies adversely affects
High Yield Fund. THEREFORE, INCOME TRUST GENERALLY WILL NOT
HONOR REQUESTS FOR TELEPHONE EXCHANGES BY SHAREHOLDERS
IDENTIFIED BY THE TRUST AS "MARKET-TIMERS." Moreover, Income
Trust reserves the right to suspend, limit, modify, or terminate
at any time and without prior notice 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 High Yield Fund, Income 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 High Yield
Fund. IF INCOME 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 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 shares from your account ($1,000 minimum;
$100,000 maximum) by calling 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 $7.00
per transaction) will be deducted from the amount wired.
Electronic Transfer Privilege. You may redeem shares by calling
800-338-2550 and requesting an electronic transfer ("Special
Redemption") of the proceeds to a bank account previously
designated by you at a bank that is a member of the Automated
<PAGE> 18
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 3:00 p.m.,
Central 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. Income Trust cannot accept a redemption request that
specifies a particular date or price for redemption or any
special conditions. Please call 800-338-2550 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.) Income
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 High Yield Fund's net
asset value per share at the time of redemption, it may be more
or less than the price you originally paid for the shares and
may result in a realized capital gain or loss.
Income Trust will generally mail payment for shares redeemed
within seven days after proper instructions are received.
However, Income Trust normally intends to pay proceeds of a
Telephone Redemption 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, Income Trust recommends
that your purchase be made by federal funds wire through your
bank. Generally, you may not use 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.
Income 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 Income 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. High Yield Fund
employs 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 High Yield and its 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 that
the shareholder review the transactions and inform the Fund
immediately if there is a
<PAGE> 19
problem. If High Yield 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.
Income 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 would be
allowed 30 days to increase the account before the redemption is
processed.
Shares in any account you maintain with High Yield 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 High Yield Fund, as well as periodic statements
detailing distributions made by the Fund. Shares purchased by
reinvestment of dividends, by cross-reinvestment of dividends
from another Fund, or through an automatic investment plan will
be confirmed to you quarterly. In addition, Income 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] AUTOMATED TELEPHONE SERVICE.
To access Stein Roe Funds-on-Call [registered mark], just call
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. You
also may use Funds-on-Call [registered mark] to make Special
Investments and Redemptions, Telephone Exchanges, and Telephone
Redemptions by Check. 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 Personal
Counselor [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 Personal
Counselor [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.
<PAGE> 20
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 800-338-2550 or write Income 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 to allow each distribution
to 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 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 bank account ($1,000 minimum; $100,000 maximum).
Special Redemption Option (electronic transfer)--to redeem
shares at any time and have the proceeds deposited directly to
your bank account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--to purchase Fund
shares at regular intervals directly from your bank 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 bank 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).
<PAGE> 21
Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank 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 High Yield Fund's shares is
its net asset value per share. High Yield Fund and High Yield
Portfolio determine the net asset value of its shares as of the
close of trading on the New York Stock Exchange ("NYSE")
(currently 3:00 p.m., Central time) by dividing the difference
between the values of its assets and liabilities by the number
of shares outstanding. High Yield Fund's shares of High Yield
Portfolio are valued at their net asset value.
Net asset value will not be determined on days when the NYSE is
closed unless, in the judgment of the Board of Trustees, the net
asset value of High Yield Fund should be determined on any such
day, in which case the determination will be made at 3:00 p.m.,
Central time.
Securities for which market quotations are readily available at
the time of valuation are valued on that basis. Long-term
straight-debt securities for which market quotations are not
readily available are valued at a fair value based on valuations
provided by pricing services approved by the Board, which may
employ electronic data processing techniques, including a matrix
system, to determine valuations. Short-term debt securities
with remaining maturities of 60 days or less are valued at their
amortized cost, which does not take into account unrealized
gains or losses. The Board believes that the amortized cost
represents a fair value for such securities. Short-term debt
securities with remaining maturities of more than 60 days for
which market quotations are not readily available are valued by
use of a matrix prepared by the Adviser based on quotations for
comparable securities. Other assets and securities held by High
Yield 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. High Yield Fund
intends to distribute by the end of each calendar year at least
98% of any net capital gains realized from the sale of
securities during the twelve-month period ended October 31 in
that year. High Yield Fund intends 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 account; (3) applied to
purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a
<PAGE> 22
Stein Roe Fund account of another person. (See Shareholder
Services.) Reinvestment normally occurs on the payable date.
Income 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 realize a loss on the sale or exchange of Fund shares
held for six months or less, your short-term loss is
recharacterized as long-term to the extent of any long-term
capital gain distributions you have received with respect to
those shares.
For federal income tax purposes, High Yield Fund is treated as a
separate taxable entity distinct from the other series of Income
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. Income Trust may be required to withhold
federal income tax ("backup withholding") from certain payments
to you, generally redemption proceeds. Backup withholding may
be required if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due
to the underreporting of certain income;
- - The Internal Revenue Service informs Income Trust that your
tax identification number is incorrect.
These certifications are contained in the Application that you
should complete and return when you open an account. High Yield
Fund must promptly pay to the IRS all amounts withheld.
Therefore, it is usually not possible for High Yield Fund to
reimburse you for amounts withheld. You may, however, claim the
amount withheld as a credit on your federal income tax return.
INVESTMENT RETURN
The total return from an investment in High Yield Fund is
measured by the distributions received (assuming reinvestment)
plus or minus the change in the net asset value
<PAGE> 23
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 High Yield Fund is calculated by dividing its net
investment income per share (a hypothetical figure as defined in
the SEC rules) during a 30-day period by the net asset value per
share on the last day of the period. The yield formula provides
for semiannual compounding, which assumes that net investment
income is earned and reinvested at a constant rate and
annualized at the end of a six-month period.
Comparison of High Yield 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 800-338-2550.
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER. The Board of Trustees of
Income Trust has overall management responsibility for Income
Trust and High Yield Fund. See Management in the Statement of
Additional Information for the names of and other information
about the trustees and officers. Since Income Trust and Base
Trust have the same trustees, the trustees have adopted conflict
of interest procedures to monitor and address potential
conflicts between the interests of High Yield Fund and High
Yield Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
investment portfolio of High Yield Portfolio and the business
affairs of High Yield Fund, High Yield Portfolio, Income Trust,
and Base Trust, subject to the direction of the respective
Board. The Adviser is registered as an investment adviser under
the Investment Advisers Act of 1940. The Adviser was organized
in 1986 to succeed to the business of Stein Roe & Farnham, a
partnership that had advised and managed mutual funds since
1949. The Adviser is a wholly owned subsidiary of Liberty
Financial Companies, Inc. ("Liberty Financial"), which in turn
is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.
PORTFOLIO MANAGERS. Ann H. Benjamin has been portfolio manager
of High Yield Portfolio since its inception in 1996. She is a
senior vice president of the Adviser and has been associated
with the Adviser since 1989. She received her B.B.A. from
Chatham College in 1980 and her M.A. from Carnegie Mellon
University in 1985. Ms. Benjamin managed $309 million in mutual
fund assets for the Adviser as of June 30, 1996, serves as High-
Yield Credit Research Manager for the Adviser, and is a member
of the Adviser's Fixed Income Credit Review Committee.
<PAGE> 24
Stephen F. Lockman has been associate portfolio manager of High
Yield Portfolio since its inception in 1996. Mr. Lockman is a
senior vice president of the Adviser and has been employed by
the Adviser since January 1994. A chartered financial analyst,
Mr. Lockman received a B.S. degree from the University of
Illinois in 1983 and an M.B.A. from DePaul University in 1986.
FEES AND EXPENSES. The Adviser receives a monthly
administrative fee from High Yield Fund, computed and accrued
daily, at an annual rate of .150% of the first $500 million of
average net assets and .125% thereafter; and a monthly
management fee from High Yield Portfolio, computed and accrued
daily, at an annual rate of .500% of the first $500 million of
average net assets and .475% thereafter.
The Adviser provides office space and executive and other
personnel to Income Trust and Base Trust and bears any sales or
promotional expenses. All expenses of High Yield Fund other
than those paid by the Adviser (including, but not limited to,
printing and postage charges, securities registration fees,
custodian and transfer agency fees, legal and auditing fees,
compensation of trustees not affiliated with the Adviser, and
expenses incidental to its organization) are paid out of the
assets of High Yield Fund.
Under a separate agreement with Income Trust, the Adviser
provides certain accounting and bookkeeping services to High
Yield Fund including computation of 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 High Yield Fund and High Yield Portfolio.
In doing so, the Adviser seeks to obtain the best combination of
price and execution, which involves a number of judgmental
factors.
TRANSFER AGENT. SteinRoe Services Inc. ("SSI"), One South
Wacker Drive, Chicago, Illinois 60606, a wholly owned subsidiary
of Liberty Financial, is the agent of Income Trust for the
transfer of shares, disbursement of dividends, and maintenance
of shareholder accounting records.
DISTRIBUTOR. The shares of High Yield Fund are offered for sale
through Liberty Securities Corporation ("Distributor") without
any sales commissions or charges to High Yield Fund or to their
shareholders. The Distributor is a wholly owned indirect
subsidiary of Liberty Financial. The business address of the
Distributor is 600 Atlantic Avenue, Boston, Massachusetts 02210;
however, all Fund correspondence (including purchase and
redemption orders) should be mailed to SteinRoe Services Inc. at
P.O. Box 8900, Boston, Massachusetts 02205. All distribution
and promotional expenses are paid by the Adviser, including
payments to the Distributor for sales of Fund shares.
CUSTODIAN. State Street Bank and Trust Company (the "Bank"),
225 Franklin Street, Boston, Massachusetts 02101, is the
custodian for High Yield Fund. Foreign securities are
maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
<PAGE> 25
ORGANIZATION AND DESCRIPTION OF SHARES
Income 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, seven series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as Income 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 Fund was unable to meet its
obligations.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND
STRUCTURE.
High Yield Fund, an open-end management investment company,
seeks to achieve its objective by investing all of its assets in
shares of another mutual fund having an identical investment
objective to High Yield Fund. This policy permitting High Yield
Fund to act as a feeder fund by investing in High Yield
Portfolio, acting as a master fund, was approved by High Yield
Fund's initial shareholders. Please refer to the How the Fund
Invests, Portfolio Investments and Strategies, and Restrictions
on the Fund's Investments for a description of the investment
objectives, policies, and restrictions of High Yield Fund and
High Yield Portfolio. The management and expenses of both High
Yield Fund and High Yield Portfolio are described under the Fee
Table and Management of the Fund. High Yield Fund will bear its
proportionate share of High Yield Portfolio's expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
SR&F High Yield Portfolio is a separate series of SR&F Base
Trust ("Base Trust"), a Massachusetts common trust organized
under an Agreement and Declaration of Trust ("Declaration of
Trust") dated August 23, 1993. The Declaration of Trust of the
Base Trust provides that High Yield Fund and other investors in
High Yield Portfolio will
<PAGE> 26
each be liable for all obligations of High Yield Portfolio that
are not satisfied by High Yield Portfolio. However, the risk of
High Yield Fund incurring financial loss on account of such
liability is limited to circumstances in which both inadequate
insurance existed and High Yield Portfolio itself were unable to
meet its obligations. Accordingly, the Trustees of Income Trust
believe that neither High Yield Fund nor its shareholders will
be adversely affected by reason of High Yield Fund's investing
in High Yield Portfolio.
The Declaration of Trust of Base Trust provides that High Yield
Portfolio will terminate 120 days after the withdrawal of High
Yield Fund or any other investor in High Yield Portfolio, unless
the remaining investors vote to agree to continue the business
of High Yield Portfolio. The Trustees of Income Trust may vote
High Yield Fund's interests in High Yield Portfolio for such
continuation without approval of High Yield Fund's shareholders.
The common investment objective of High Yield Fund and High
Yield Portfolio is non-fundamental and may be changed without
shareholder approval, subject, however, to at least 30 days'
advance written notice to High Yield Fund's shareholders. The
fundamental policies of High Yield Fund and the corresponding
fundamental policies of High Yield Portfolio can be changed only
with shareholder approval.
If High Yield Fund, as an investor in High Yield Portfolio, is
requested to vote on a change in a fundamental policy of High
Yield Portfolio or any other matter pertaining to High Yield
Portfolio (other than continuation of the business of High Yield
Portfolio after withdrawal of another investor), High Yield Fund
will solicit proxies from its shareholders and vote its interest
in High Yield Portfolio for and against such matters
proportionately to the instructions to vote for and against such
matters received from Fund shareholders. High Yield Fund will
vote shares for which it receives no voting instructions in the
same proportion as the shares for which it receives voting
instructions. If there are other investors in High Yield
Portfolio, there can be no assurance that any matter receiving a
majority of votes cast by Fund shareholders will receive a
majority of votes cast by all High Yield Portfolio investors.
If other investors hold a majority interest in High Yield
Portfolio, they could have voting control over High Yield
Portfolio.
In the event that High Yield Portfolio's fundamental policies
were changed so as to be inconsistent with those of High Yield
Fund, the Board of Trustees of Income Trust would consider what
action might be taken, including changes to High Yield Fund's
investment objective or fundamental policies, withdrawal of High
Yield Fund's assets from High Yield Portfolio and investment of
such assets in another pooled investment entity, or the
retention of another investment adviser. Any of these actions
would require the approval of High Yield Fund's shareholders.
High Yield Fund's inability to find a substitute master fund or
comparable investment management could have a significant impact
upon its shareholders' investments. Any withdrawal of High
Yield Fund's assets could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) to High
Yield Fund. Should such a distribution occur, High Yield Fund
would incur brokerage fees or other transaction costs in
converting such securities to cash. In addition, a distribution
in kind could result in a less diversified portfolio of
investments for High Yield Fund and could affect its liquidity.
<PAGE> 27
Each investor in High Yield Portfolio, including High Yield
Fund, may add to or reduce its investment in High Yield
Portfolio on each day the NYSE is open for business. At 3:00
p.m., Central time, on each such business day, the value of each
investor's beneficial interest in High Yield Portfolio will be
determined by multiplying the net asset value of High Yield
Portfolio by the percentage effective for that day which
represents that investor's share of the aggregate beneficial
interests in High Yield Portfolio. Any additions or withdrawals
which are to be effected on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in
High Yield Portfolio will then be recomputed as the percentage
equal to the fraction (i) the numerator of which is the value of
such investor's investment in High Yield Portfolio as of 3:00
p.m., Central time, on such day plus or minus, as the case may
be, the amount of any additions to or withdrawals from the
investor's investment in High Yield Portfolio effected on such
day; and (ii) the denominator of which is the aggregate net
asset value of High Yield Portfolio as of 3:00 p.m., Central
time, on such day plus or minus, as the case may be, the amount
of the net additions to or withdrawals from the aggregate
investment in High Yield Portfolio by all investors in High
Yield Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in
High Yield Portfolio as of 3:00 p.m., Central time, on the
following such business day.
Base Trust may permit other investment companies and/or other
institutional investors to invest in High Yield Portfolio, but
members of the general public may not invest directly in High
Yield Portfolio. Other investors in High Yield Portfolio are
not required to sell their shares at the same public offering
price as High Yield Fund, could have different administrative
fees and expenses than High Yield Fund, and might charge a sales
commission. Therefore, Fund shareholders might have different
investment returns than shareholders in another investment
company that invests exclusively in High Yield Portfolio.
Investment by such other investors in High Yield Portfolio would
provide funds for the purchase of additional portfolio
securities and would tend to reduce the operating expenses as a
percentage of High Yield Portfolio's net assets. Conversely,
large-scale redemptions by any such other investors in High
Yield Portfolio could result in untimely liquidations of High
Yield Portfolio's security holdings, loss of investment
flexibility, and increases in the operating expenses of High
Yield Portfolio as a percentage of High Yield Portfolio's net
assets. As a result, High Yield Portfolio's security holdings
may become less diverse, resulting in increased risk.
Currently one other investment company invests in High Yield
Portfolio, and that is Stein Roe Institutional High Yield Fund,
a series of Stein Roe Institutional Trust. Information
regarding any investment company that may invest in High Yield
Portfolio in the future may be obtained by writing to Base
Trust, Suite 3200, One South Wacker Drive, Chicago, Illinois
60606 or by calling 800-338-2550. The Adviser may provide
administrative or other services to one or more of such
investors.
<PAGE> 28
Stein Roe Mutual Funds
Certificate of Authorization
for use by corporations and associations only
Corporations or associations 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 a Stein Roe account
representative at 800-338-2550 .
The undersigned hereby certifies that he is the duly elected
Secretary of ____________________________
(name of Corporation/Assocation) (the "Corporation") 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 By-laws 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> 29
[STEIN ROE MUTUAL FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Balanced Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Young Investor Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe International Fund
800-338-2550
In Chicago, visit our Fund Center at One South Wacker Drive,
Suite 3200
Liberty Securities Corporation, Distributor
<PAGE> 1
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED AUGUST 19, 1996
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT
YET BECOME EFFECTIVE. INFORMATION CONTAINED HEREIN IS SUBJECT
TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS STATEMENT OF
ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALES
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
______________________________
Statement of Additional Information Dated _____, 1996
STEIN ROE INCOME TRUST
Stein Roe High Yield Fund
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
This Statement of Additional Information is not a
prospectus but provides additional information that should be
read in conjunction with the Prospectus dated _______, 1996 and
any supplements thereto. The Prospectus may be obtained at no
charge by telephoning 800-338-2550.
TABLE OF CONTENTS
Page
General Information and History...................2
Investment Policies...............................2
Portfolio Investments and Strategies..............4
Investment Restrictions..........................20
Additional Investment Considerations.............23
Purchases and Redemptions........................24
Management.......................................25
Principal Shareholders...........................28
Investment Advisory Services.....................28
Distributor......................................30
Transfer Agent...................................30
Custodian........................................31
Independent Auditors.............................31
Portfolio Transactions...........................32
Additional Income Tax Considerations.............33
Investment Performance...........................33
Appendix--Ratings................................37
Balance Sheet....................................40
<PAGE> 2
GENERAL INFORMATION AND HISTORY
Stein Roe High Yield Fund ("High Yield Fund") is a series
of the Stein Roe Income Trust ("Income Trust"). The Fund
invests all of its assets in shares of SR&F High Yield Portfolio
("High Yield Portfolio"), which is a series of shares of
beneficial interest of SR&F Base Trust ("Base Trust").
Currently seven series of Income Trust are authorized and
outstanding. Each share of a series is entitled to participate
pro rata in any dividends and other distributions declared by
the Board on shares of that series, and all shares of a series
have equal rights in the event of liquidation of that series.
Each whole share (or fractional share) outstanding on the record
date established in accordance with the By-Laws shall be
entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or
fractional share) in United States dollars determined at the
close of business on the record date (for example, a share
having a net asset value of $10.50 would be entitled to 10.5
votes). As a business trust, Income 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 Income Trust's outstanding shares, Income 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 Income Trust are voted together in the election of trustees.
On any other matter submitted to a vote of shareholders, shares
are voted by individual series and not in the aggregate, except
that shares are voted in the aggregate when required by the
Investment Company Act of 1940 or other applicable law. When
the Board of Trustees determines that the matter affects only
the interests of one or more series, shareholders of the
unaffected series are not entitled to vote on such matters.
Stein Roe & Farnham Incorporated (the "Adviser") provides
administrative and accounting and recordkeeping services to High
Yield Fund and High Yield Portfolio and provides investment
advisory services to High Yield Portfolio.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND
STRUCTURE
Rather than invest in securities directly, High Yield Fund
seeks 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. For more
information, please refer to the Prospectus under the caption
Organization and Description of Shares--Special Considerations
Regarding the Master Fund/Feeder Fund Structure.
INVESTMENT POLICIES
The following information supplements the discussion of the
investment objective and policies of High Yield Fund and High
Yield Portfolio described in the
<PAGE> 3
Prospectus. In pursuing its objective, High Yield Portfolio
will invest as described below and may employ the investment
techniques described in the Prospectus and in this Statement of
Additional Information under Portfolio Investments and
Strategies. The investment objective is a non-fundamental
policy and may be changed by the Board of Trustees without the
approval of a "majority of the outstanding voting securities"/1/
of the Fund or Portfolio.
High Yield Fund seeks to achieve its objective by investing
all of its assets in High Yield Portfolio. The investment
policies of High Yield Portfolio are identical to those of the
Fund. High Yield Portfolio seeks total return by investing for
a high level of current income and capital growth.
High Yield Portfolio invests principally in high-yield,
high-risk medium- and lower-quality debt securities. The
medium- and lower-quality debt securities in which High Yield
Portfolio will invest normally offer a current yield or yield to
maturity that is significantly higher than the yield from
securities rated in the three highest categories assigned by
rating services such as S&P or Moody's.
Under normal circumstances, at least 65% of High Yield
Portfolio's assets will be invested in high-yield, high-risk
medium- and lower-quality debt securities rated Baa or lower by
Moody's or BBB or lower by S&P, or equivalent ratings as
determined by other rating agencies or unrated securities that
the Adviser determines to be of comparable quality. Medium-
quality debt securities, although considered investment grade,
have some speculative characteristics. Lower-quality
securities, commonly referred to as "junk bonds," are those
rated below the fourth highest rating category or bonds of
comparable quality. Some issuers of debt securities choose not
to have their securities rated by a rating service, and High
Yield Portfolio may invest in unrated securities that the
Adviser believes are suitable for investment. High Yield
Portfolio may invest in debt obligations that are in default,
but such obligations are not expected to exceed 10% of High
Yield Portfolio's assts.
High Yield Portfolio may invest up to 35% of its total
assets in other securities including, but not limited to, pay-
in-kind bonds, private placements, bank loans, zero coupon
bonds, foreign securities, convertible securities, futures, and
options. High Yield Portfolio may also invest in higher-quality
debt securities. Under normal market conditions, however, High
Yield Portfolio is unlikely to emphasize higher-quality debt
securities since generally they offer lower yields than medium-
and lower-quality debt securities with similar maturities. High
Yield Portfolio may also invest in common stocks and securities
that are convertible into common stocks, such as warrants.
Investment in medium- or lower-quality debt securities
involves greater investment risk, including the possibility of
issuer default or bankruptcy. High Yield Portfolio will
diversify its holdings among a number of issuers to help
minimize this
- ---------------
/1/ A "majority of the outstanding voting securities" means the
approval of the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding
shares are present or represented by proxy or (ii) more than 50%
of the outstanding shares.
- ----------------
<PAGE> 4
risk. 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 and generally are
more sensitive to adverse economic changes or individual
corporate developments. During a period of adverse economic
changes, including a period of rising interest rates, issuers of
such bonds may experience difficulty in servicing their
principal and interest payment obligations.
Achievement of the investment objective will be more dependent
on the Adviser's credit analysis than would be the case if High
Yield Portfolio were investing in higher-quality debt
securities. Since the ratings of rating services (which
evaluate the safety of principal and interest payments, not
market risks) are used only as preliminary indicators of
investment quality, the Adviser employs its own credit research
and analysis, from which it has developed a proprietary credit
rating system based upon comparative credit analyses of issuers
within the same industry. These analyses may take into
consideration such quantitative factors as an issuer's present
and potential liquidity, profitability, internal capability to
generate funds, debt/equity ratio and debt servicing
capabilities, and such qualitative factors as an assessment of
management, industry characteristics, accounting methodology,
and foreign business exposure.
Medium- and lower-quality debt securities tend to be less
marketable than higher-quality debt securities because the
market for them is less broad. The market for unrated debt
securities is even narrower. During periods of thin trading in
these markets, the spread between bid and asked prices is likely
to increase significantly, and High Yield Portfolio may have
greater difficulty selling its portfolio securities. The market
value of these securities and their liquidity may be affected by
adverse publicity and investor perceptions.
PORTFOLIO INVESTMENTS AND STRATEGIES
For purposes of discussion under Portfolio Investments and
Strategies, the term "the Fund" refers to High Yield Fund and
High Yield Portfolio.
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").
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
<PAGE> 5
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates and
other market factors affecting the Derivative itself or the
value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as well
regulated and may be less marketable than exchange-traded
Derivatives.
The Fund does not intend to invest more than 5% of its
assets in any type of Derivative.
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.
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. High Yield Portfolio intends to invest in CMOs
of classes known as planned amortization classes ("PACs") which
have pre-payment protection features tending to make them less
susceptible to price volatility.
Non-mortgage asset-backed securities usually have less pre-
payment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to support payments on
the underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.
VARIABLE AND 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
<PAGE> 6
changes in amount and direction of specified market interest
rates. In addition, the adjusted duration of some of these
instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with
an adjusted duration of 2 would increase by approximately 2%.
The Fund does not intend to invest more than 5% of its net
assets in floating rate instruments.
LENDING OF PORTFOLIO SECURITIES
Subject to restriction (7) under Investment Restrictions,
the 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; REVERSE REPURCHASE
AGREEMENTS; STANDBY COMMITMENTS
The Fund may purchase securities on a when-issued or
delayed-delivery basis, as described in the Prospectus. 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 on a when-issued or delayed-
delivery basis are sometimes done on a "dollar roll" basis.
Dollar roll transactions consist of the sale by the 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 the
Fund to buy a security. A dollar roll transaction involves the
following risks: if the broker-dealer to whom the 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 the Fund is required to repurchase may be
worth less than a security which the Fund originally held; and
the return earned by the Fund with the proceeds of a dollar roll
may not exceed transaction costs.
<PAGE> 7
The Fund 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 agreement may be preferable to a regular sale and
later repurchase of securities because it avoids certain market
risks and transaction costs.
At the time the 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
the 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
The Fund may sell securities short against the box; that
is, enter into short sales of securities that it currently owns
or has the right to acquire through the conversion or exchange
of other securities that it owns at no additional cost. The
Fund may make short sales of securities only if at all times
when a short position is open the Fund owns at least an equal
amount of such securities or securities convertible into or
exchangeable for securities of the same issue as, and equal in
amount to, the securities sold short, at no additional cost.
In a short sale against the box, the Fund does not deliver
from its portfolio the securities sold. Instead, the Fund
borrows the securities sold short from a broker-dealer through
which the short sale is executed, and the broker-dealer delivers
such securities, on behalf of the Fund, to the purchaser of such
securities. The Fund is required to pay to the broker-dealer
the amount of any dividends paid on shares sold short. Finally,
to secure its obligation to deliver to such broker-dealer the
securities sold short, the Fund must deposit and continuously
maintain in a separate account
<PAGE> 8
with the Fund's custodian an equivalent amount of the securities
sold short or securities convertible into or exchangeable for
such securities at no additional cost. The Fund is said to have
a short position in the securities sold until it delivers to the
broker-dealer the securities sold. The Fund may close out a
short position by purchasing on the open market and delivering
to the broker-dealer an equal amount of the securities sold
short, rather than by delivering portfolio securities.
Short sales may protect the Fund against the risk of losses
in the value of its portfolio securities because any unrealized
losses with respect to such portfolio securities should be
wholly or partially offset by a corresponding gain in the short
position. However, any potential gains in such portfolio
securities should be wholly or partially offset by a
corresponding loss in the short position. The extent to which
such gains or losses are offset will depend upon the amount of
securities sold short relative to the amount the Fund owns,
either directly or indirectly, and, in the case where the Fund
owns convertible securities, changes in the conversion premium.
Short sale transactions involve certain risks. If the
price of the security sold short increases between the time of
the short sale and the time the Fund replaces the borrowed
security, the Fund will incur a loss and if the price declines
during this period, the Fund will realize a short-term capital
gain. Any realized short-term capital gain will be decreased,
and any incurred loss increased, by the amount of transaction
costs and any premium, dividend or interest which the Fund may
have to pay in connection with such short sale. Certain
provisions of the Internal Revenue Code may limit the degree to
which the Fund is able to enter into short sales. There is no
limitation on the amount of the Fund's assets that, in the
aggregate, may be deposited as collateral for the obligation to
replace securities borrowed to effect short sales and allocated
to segregated accounts in connection with short sales. High
Yield Portfolio currently expects that no more than 5% of its
total assets would be involved in short sales against the box.
LINE OF CREDIT
Subject to restriction (8) under Investment Restrictions,
the 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
The Fund may invest up to 20% of its assets in zero coupon
bonds and bonds the interest on which is payable in kind ("PIK
bonds"). A zero coupon bond is a bond that does not pay
interest for its entire life. A PIK bond pays interest in the
form of additional securities. The market prices of both zero
coupon and PIK bonds are affected to a greater extent by changes
in prevailing levels of interest rates and thereby tend to be
more volatile in price than securities that pay interest
periodically and in cash. In addition, because the Fund accrues
income with respect to these securities prior to the receipt of
such interest in cash, it may have to dispose of portfolio
<PAGE> 9
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
the Fund include securities given a rating conditionally by
Moody's or provisionally by S&P. If the rating of a security
held by the Fund is withdrawn or reduced, the Fund is not
required to sell the security, but the Adviser will consider
such fact in determining whether the 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, the Fund will attempt to use comparable ratings as
standards for its investments in debt securities in accordance
with its investment policies.
FOREIGN SECURITIES
The 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.
The Fund may invest in both "sponsored" and "unsponsored"
ADRs. In a sponsored ADR, the issuer typically pays some or all
of the expenses of the depositary and agrees to provide its
regular shareholder communications to ADR holders. An
unsponsored ADR is created independently of the issuer of the
underlying security. The ADR holders generally pay the expenses
of the depositary and do not have an undertaking from the issuer
of the underlying security to furnish shareholder
communications. High Yield Portfolio does not expects to invest
as much as 5% of its total assets in unsponsored ADRs.
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, the Fund's
investment performance is affected by the strength or weakness
of the U.S. dollar against these currencies. For example, if
the dollar falls in value relative to the Japanese yen, the
dollar value of a yen-denominated stock held in the investment
portfolio will rise even though the price of the stock remains
unchanged. Conversely, if the dollar rises in value relative to
the yen, the dollar value of the yen-denominated stock will
fall. (See discussion of transaction hedging and portfolio
hedging under Currency Exchange Transactions.)
Investors should understand and consider carefully the
risks involved in foreign investing. Investing in foreign
securities, positions in which are generally denominated in
foreign currencies, and utilization of forward foreign currency
<PAGE> 10
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 Fund will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption
of foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment
in these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash)
basis at the spot rate for purchasing or selling currency
prevailing in the foreign exchange market or through forward
currency exchange contracts ("forward contracts"). Forward
contracts are contractual agreements to purchase or sell a
specified currency at a specified future date (or within a
specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks
and broker-dealers, are not exchange traded, and are usually for
less than one year, but may be renewed.
The Fund's foreign currency exchange transactions are
limited to transaction and portfolio hedging involving either
specific transactions or portfolio positions, except to the
extent described below under Synthetic Foreign Positions.
Transaction hedging is the purchase or sale of forward contracts
with respect to specific receivables or payables of the Fund
arising in connection with the purchase and sale of its
portfolio securities. Portfolio hedging is the use of forward
contracts with respect to portfolio security positions
denominated or quoted in a particular foreign currency.
Portfolio hedging allows the Fund to limit or reduce its
exposure in a foreign currency by entering into a forward
contract to sell such foreign currency (or another foreign
currency that acts as a proxy for that currency) at a future
date for a price payable in U.S. dollars so that the value of
the foreign-denominated portfolio securities can be
approximately matched by a foreign-denominated liability. The
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 the 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,
the
<PAGE> 11
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 the
Fund. The Fund may not engage in "speculative" currency
exchange transactions.
At the maturity of a forward contract to deliver a
particular currency, the 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 the 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 the 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 the 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 the 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, the 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 the 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 the Fund to 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 the 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.
<PAGE> 12
Synthetic Foreign Positions. The Fund may invest in debt
instruments denominated in foreign currencies. 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. 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 Fund may also construct a synthetic foreign position by
entering into a swap arrangement. A swap is a contractual
agreement between two parties to exchange cash flows--at the
time of the swap agreement and again at maturity, and, with some
swaps, at various intervals through the period of the agreement.
The use of swaps to construct a synthetic foreign position would
generally entail the swap of interest rates and currencies. A
currency swap is a contractual arrangement between two parties
to exchange principal amounts in different currencies at a
predetermined foreign exchange rate. An interest rate swap is a
contractual agreement between two parties to exchange interest
payments on identical principal amounts. An interest rate swap
may be between a floating and a fixed rate instrument, a
domestic and a foreign instrument, or any other type of cash
flow exchange. A currency swap generally has the same risk
characteristics as a forward currency contract, and all types of
swaps have counter-party risk. Depending on the facts and
circumstances, swaps may be considered illiquid. Illiquid
securities usually have greater investment risk and are subject
to greater price volatility. The net amount of the excess, if
any, of the 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 Fund may also construct a synthetic foreign position by
purchasing an instrument whose return is tied to the return of
the desired foreign position. An investment in these "principal
exchange rate linked securities" (often called PERLS) can
produce a similar return to a direct investment in a foreign
security.
RULE 144A SECURITIES
The 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
<PAGE> 13
purchased under Rule 144A are illiquid and thus subject to the
Fund's restriction of investing no more than 10% of its net
assets in illiquid securities. A determination of whether a
Rule 144A security is liquid or not is a question of fact. In
making this determination, the Adviser will consider the trading
markets for the specific security, taking into account the
unregistered nature of a Rule 144A security. In addition, the
Adviser could consider the (1) frequency of trades and quotes,
(2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, and (4) nature of the security
and of marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers, and the mechanics
of transfer). The liquidity of Rule 144A securities would be
monitored and, if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the
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 10% 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
The turnover rate for High Yield Portfolio in the future
may vary greatly from year to year, and when portfolio changes
are deemed appropriate due to market or other conditions, such
turnover rate may be greater than might otherwise be
anticipated. A high rate of portfolio turnover may result in
increased transaction expenses and the realization of capital
gains or losses. Distributions of any net realized gains are
subject to federal income tax. (See Risks and Investment
Considerations and Distributions and Income Taxes in the
Prospectus, and Additional Income Tax Considerations in this
Statement of Additional Information.)
OPTIONS ON SECURITIES AND INDEXES
The 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
<PAGE> 14
particular financial or securities market, a specific group of
financial instruments or securities, or certain economic
indicators.)
The 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 the 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 the 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.
The 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.
A put or call option purchased by the Fund is an asset of
the Fund, valued initially at the premium paid for the option.
The premium received for an option written by the 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 the Fund seeks to close out an option position. If the
Fund were unable to close out an option that it
<PAGE> 15
had purchased on a security, it would have to exercise the
option in order to realize any profit or the option would expire
and become worthless. If the 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, the 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 the
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
The 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 /2/ at a specified price and time.
A public market exists in futures contracts covering a number of
indexes as well as the following financial instruments: U.S.
Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-
month U.S. Treasury bills; 90-day commercial paper; bank
certificates of deposit; Eurodollar certificates of deposit; and
foreign currencies. It is expected that other futures contracts
will be developed and traded.
The Fund may purchase and write call and put futures
options. Futures options possess many of the same
characteristics as options on securities and indexes (discussed
above). A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon
exercise of a call option, the holder acquires a long position
in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is
true. The 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 the 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.
The 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.
- ------------
/2/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at
the close of the last trading day of the contract and the price
at which the index contract was originally written. Although
the value of a securities index is a function of the value of
certain specified securities, no physical delivery of those
securities is made.
- ------------
<PAGE> 16
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, the
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
the 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. The Fund expects to earn
interest income on its initial margin deposits. A futures
contract held by the 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 the Fund does not represent a borrowing or
loan by the 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, the Fund will mark-to-market
its open futures positions.
The 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 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
<PAGE> 17
between price movements in the futures contract and in the
portfolio exposure sought. In addition, there are significant
differences between the securities and futures markets that
could result in an imperfect correlation between the markets,
causing a given transaction not to achieve its objectives. The
degree of imperfection of correlation depends on circumstances
such as: variations in speculative market demand for futures,
futures options and debt securities, including technical
influences in futures trading and futures options and
differences between the financial instruments and the
instruments underlying the standard contracts available for
trading in such respects as interest rate levels, maturities,
and creditworthiness of issuers. A decision as to whether, when
and how to hedge involves the exercise of skill and judgment,
and even a well-conceived transaction may be unsuccessful to
some degree because of market behavior or unexpected interest
rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount
that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached
in a futures contract subject to the limit, no more trades may
be made on that day at a price beyond that limit. The daily
limit governs only price movements during a particular trading
day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable
positions. For example, futures prices have occasionally moved
to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of
positions and subjecting some holders of futures contracts to
substantial losses.
There can be no assurance that a liquid market will exist
at a time when the 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 would continue to be required to meet margin requirements
until the position is closed. In addition, many of the
contracts discussed above are relatively new instruments without
a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or
continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES
If other options, futures contracts, or futures options of
types other than those described herein are traded in the
future, the Fund may also use those investment vehicles,
provided the Board of Trustees determines that their use is
consistent with the Fund's investment objective.
The 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 the Fund plus premiums
paid by it for open futures option positions, less the amount by
<PAGE> 18
which any such positions are "in-the-money,"/3/ would exceed 5%
of the Fund's total assets.
When purchasing a futures contract or writing a put on a
futures contract, the 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.
The 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," the 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 the 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 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 the 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 the 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 the Fund, the difference between
the cash received at exercise and the premium paid is a capital
gain or loss.
- --------------
/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- --------------
<PAGE> 19
If a call or put option written by the 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 the 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 the 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
the Fund delivers securities under a futures contract, the Fund
also realizes a capital gain or loss on those securities.
For federal income tax purposes, the 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 the Fund: (1) will affect the
holding period of the hedged securities; and (2) may cause
unrealized gain or loss on such securities to be recognized upon
entry into the hedge.
In order for the 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.
<PAGE> 20
The Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options
and futures transactions. Such distributions are combined with
distributions of capital gains realized on the Fund's other
investments and shareholders are advised of the nature of the
payments.
INVESTMENT RESTRICTIONS
High Yield Fund and High Yield Portfolio operate under the
following investment restrictions. High Yield Fund and High
Yield Portfolio may not:
(1) invest in a security if, as a result of such
investment, more than 25% of its total assets (taken at market
value at the time of such investment) would be invested in the
securities of issuers in any particular industry, except that
this restriction does not apply to U.S. Government Securities,
and [High Yield Fund only] except that all or substantially all
of the assets of the Fund may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund;
(2) invest in a security if, with respect to 75% of its
assets, as a result of such investment, more than 5% of its
total assets (taken at market value at the time of such
investment) would be invested in the securities of any one
issuer, except that this restriction does not apply to U.S.
Government Securities or repurchase agreements for such
securities and [High Yield Fund only] except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(3) invest in a security if, as a result of such
investment, it would hold more than 10% (taken at the time of
such investment) of the outstanding voting securities of any one
issuer, [High Yield Fund only] except that all or substantially
all of the assets of the Fund may be invested in another
registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate, or
interests therein);
(5) purchase or sell commodities or commodities contracts
or oil, gas or mineral programs, except that it may enter into
(i) futures and options on futures and (ii) forward contracts;
(6) purchase securities on margin, except for use of
short-term credit necessary for clearance of purchases and sales
of portfolio securities, but it may make margin deposits in
connection with transactions in options, futures, and options on
futures;
(7) make loans, although it may (a) lend portfolio
securities and participate in an interfund lending program with
other Stein Roe Funds provided that no such loan may be made if,
as a result, the aggregate of such loans would exceed 33 1/3% of
the
<PAGE> 21
value of its total assets (taken at market value at the time of
such loans); (b) purchase money market instruments and enter
into repurchase agreements; and (c) acquire publicly-distributed
or privately-placed debt securities;
(8) borrow except that it may (a) borrow for non-
leveraging, temporary or emergency purposes, (b) engage in
reverse repurchase agreements and make other borrowings,
provided that the combination of (a) and (b) shall not exceed 33
1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law, and (c) enter into futures and
options transactions; it may borrow from banks, other Stein Roe
Funds, and other persons to the extent permitted by applicable
law;
(9) act as an underwriter of securities, except insofar as
it may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 on disposition of securities acquired
subject to legal or contractual restrictions on resale, [High
Yield Fund only] except that all or substantially all of the
assets of the Fund may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund; or
(10) issue any senior security except to the extent
permitted under the Investment Company Act of 1940.
The above restrictions are fundamental policies and may not
be changed without the approval of a "majority of the
outstanding voting securities" of the Fund or High Yield
Portfolio, as previously defined herein. The policy on the
scope of transactions involving lending of portfolio securities
to broker-dealers and banks (as set forth herein under Portfolio
Investments and Strategies) is also a fundamental policy.
High Yield Fund and High Yield Portfolio are also subject
to the following restrictions and policies that may be changed
by the Board of Trustees. None of the following restrictions
shall prevent it from investing all or substantially all of its
assets in another investment company having the same investment
objective and substantially similar investment policies as the
Fund. Unless otherwise indicated, High Yield Fund and High
Yield Portfolio may not:
(A) invest for the purpose of exercising control or
management;
(B) purchase more than 3% of the stock of another
investment company or purchase stock of other investment
companies equal to more than 5% of its total assets (valued at
time of purchase) in the case of any one other investment
company and 10% of such assets (valued at time of purchase) in
the case of all other investment companies in the aggregate; any
such purchases are to be made in the open market where no profit
to a sponsor or dealer results from the purchase, other than the
customary broker's commission, except for securities acquired as
part of a merger, consolidation or acquisition of assets;/4/
- ---------------
/4/ Stein Roe Funds have been informed that the staff of the
Securities and Exchange Commission takes the position that the
issuers of certain CMOs and certain other collateralized assets
are investment companies and that subsidiaries of foreign banks
may be investment companies for purposes of Section 12(d)(1) of
the Investment Company Act of 1940, which limits the ability of
one investment company to invest in another investment company.
Accordingly, High Yield Portfolio intends to operate within the
applicable limitations under Section 12(d)(1)(A) of that Act.
- ---------------
<PAGE> 22
(C) mortgage, pledge, hypothecate or in any manner
transfer, as security for indebtedness, any securities owned or
held by it, except as may be necessary in connection with (i)
borrowings permitted in (8) above and (ii) options, futures, and
options on futures;
(D) purchase or retain securities of any issuer if 5% of
the securities of such issuer are owned by those officers and
trustees or directors of the Trust or of its investment adviser
who each own beneficially more than l/2 of 1% of its securities;
(E) purchase portfolio securities 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;
(F) purchase shares of other open-end investment
companies, except in connection with a merger, consolidation,
acquisition, or reorganization;
(G) invest more than 5% of its net assets (valued at time
of investment) in warrants, nor more than 2% of its net assets
in warrants which are not listed on the New York or American
Stock Exchange;
(H) purchase a put or call option if the aggregate
premiums paid for all put and call options exceed 20% of its net
assets (less the amount by which any such positions are in-the-
money), excluding put and call options purchased as closing
transactions;
(I) write an option on a security unless the option is
issued by the Options Clearing Corporation, an exchange, or
similar entity;
(J) buy or sell an option on a security, a futures
contract, or an option on a futures contract unless the option,
the futures contract, or the option on the futures contract is
offered through the facilities of a national securities
association or listed on a national exchange or similar entity;
(K) invest in limited partnerships in real estate unless
they are readily marketable;
(L) sell securities short unless (i) 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;
(M) invest more than 5% of its total assets (taken at
market value at the time of a particular investment) in
securities of issuers (other than issuers of federal agency
obligations or securities issued or guaranteed by any foreign
country or asset-backed securities) that, together with any
predecessors or unconditional guarantors, have been in
continuous operation for less than three years ("unseasoned
issuers");
<PAGE> 23
(N) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in
restricted securities, other than securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933;
(O) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in
restricted securities and securities of unseasoned issuers; or
(P) invest more than 10% of its net assets (taken at
market value at the time of a particular investment) in illiquid
securities /5/, including repurchase agreements maturing in more
than seven days.
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 goals.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share
price, such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If
you have a longer investment time frame, you may seek to
maximize your investment returns by investing in a mutual fund
that offers greater yield or appreciation potential in exchange
for greater investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks
which will vary depending on investment objective and security
type. However, mutual funds seek to reduce risk through
professional investment management and portfolio
diversification.
- ---------------
/5/ In the judgment of the Adviser, Private Placement Notes,
which are issued pursuant to Section 4(2) of the Securities Act
of 1933, generally are readily marketable even though they are
subject to certain legal restrictions on resale. As such, they
are not treated as being subject to the limitation on illiquid
securities.
- --------------
<PAGE> 24
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,
and Net Asset Value, 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
Income Trust of any such purchase order. The state of Texas has
asked that mutual funds disclose in their Statement of
Additional Information, as a reminder to any such bank or
institution, that it must be registered as a dealer in Texas.
High Yield Fund's net asset value is determined on days on
which the New York Stock Exchange (the "NYSE") is open for
trading. The NYSE is regularly closed on Saturdays and Sundays
and on New Year's Day, the third Monday in February, Good
Friday, the last Monday in May, Independence Day, Labor Day,
Thanksgiving, and Christmas. If one of these holidays falls on
a Saturday or Sunday, the NYSE will be closed on the preceding
Friday or the following Monday, respectively. Net asset value
will not be determined on days when the NYSE is closed unless,
in the judgment of the Board of Trustees, net asset value of
High Yield Fund should be determined on any such day, in which
case the determination will be made at 3:00 p.m., Central time.
Income Trust reserves the right to suspend or postpone
redemptions of shares of its series during any period when: (a)
trading on the NYSE is restricted, as determined by the
Securities and Exchange Commission, or the NYSE is closed for
other than customary weekend and holiday closings; (b) the
Securities and Exchange Commission has by order permitted such
suspension; or (c) an emergency, as determined by the Securities
and Exchange Commission, exists, making disposal of portfolio
securities or valuation of net assets of a series not reasonably
practicable.
Income Trust intends to pay all redemptions in cash and is
obligated to redeem shares of its series solely in cash up to
the lesser of $250,000 or one percent of the net assets of the
Fund during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly
by a distribution in kind of securities. If redemptions were
made in kind, the redeeming shareholders might incur transaction
costs in selling the securities received in the redemptions.
<PAGE> 25
Due to the relatively high cost of maintaining smaller
accounts, Income 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 Income Trust
to redeem shares under certain other circumstances as may be
specified by the Board of Trustees.
MANAGEMENT
The following table sets forth certain information with
respect to trustees and officers of Income 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 40 Senior Vice-President Chief Financial Officer of the Mutual
(4) Funds division of Stein Roe & Farnham
Incorporated (the "Adviser"); senior vice
president of the Adviser since April,
1996; vice president of the Adviser,
January, 1991 to April, 1996
Timothy K. Armour 48 President; Trustee President of the Mutual Funds division of
(1) (2) (4) the Adviser and director of the Adviser
since June, 1992; senior vice president
and director of marketing of Citibank
Illinois prior thereto
Jilaine Hummel Bauer 41 Executive Vice-President; General counsel and secretary of the
(4) Secretary Adviser since November 1995; senior vice
president of the Adviser since April,
1992; vice president of the Adviser prior
thereto
Ann H. Benjamin 38 Vice-President Senior vice president of the Adviser
since July, 1994; vice president of the
Adviser from January, 1992 to July, 1994;
associate of the Adviser prior thereto
Kenneth L. Block 76 Trustee Chairman Emeritus of A. T. Kearney, Inc.
(3) (4) (international management consultants)
William W. Boyd 69 Trustee Chairman and director of Sterling
(3) (4) Plumbing Group, Inc. (manufacturer of
plumbing products) since 1992; chairman,
president, and chief executive officer of
Sterling Plumbing Group, Inc. prior
thereto
Thomas W. Butch 39 Vice-President Senior vice president of the Adviser
since September, 1994; first vice
president, corporate communications, of
Mellon Bank Corporation prior thereto
N. Bruce Callow (4) 50 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
<PAGE> 26
Lindsay Cook (1)(4) 44 Trustee Senior vice president of Liberty
Financial Companies, Inc. (the indirect
parent of the Adviser)
Philip J. Crosley 50 Vice-President Senior Vice President of the Adviser
since February, 1996; Vice President,
Institutional Sales-Advisor Sales,
Invesco Funds Group, May, 1988 to
February, 1996
Douglas A. Hacker 41 Trustee Senior vice president and chief financial
(3) (4) officer, United Airlines, since July,
1994; senior vice president--Finance,
United Airlines, February, 1993 to July,
1994; vice president--corporate & fleet
planning, American Airlines, 1991 to
February, 1993
Michael T. Kennedy 34 Vice-President Senior vice president of the Adviser
since October, 1994; vice president of
the Adviser from January, 1992 to
October, 1994; associate of the Adviser
prior thereto
Steven P. Luetger 42 Vice-President Senior vice president of the Adviser
Lynn C. Maddox 55 Vice-President Senior vice president of the Adviser
Anne E. Marcel 38 Vice-President Vice president of the Adviser since
April, 1996; manager, Mutual Fund Sales &
Services of the Adviser since October,
1994; supervisor of the Counselor
Department of the Adviser from October,
1992 to October, 1994; vice president of
Selected Financial Services from May,
1990 to March, 1992
Francis W. Morley 76 Trustee Chairman of Employer Plan Administrators
(2) (3) (4) and Consultants Co. (designer,
administrator, and communicator of
employee benefit plans)
Jane M. Naeseth 46 Vice-President Senior vice president of the Adviser
since January, 1991; vice president of
the Adviser prior thereto
Charles R. Nelson 54 Trustee Van Voorhis Professor of Political
(3) (4) Economy of the University of Washington
Nicolette D. Parrish 46 Vice-President; Senior compliance administrator and
(4) Assistant Secretary assistant secretary of the Adviser since
November 1995; senior legal assistant for
the Adviser prior thereto
Cynthia A. Prah (4) 34 Vice-President Manager of Mutual Fund Operations for the
Adviser
Sharon R. Robertson 34 Controller Accounting manager for the Adviser's
(4) Mutual Funds division
Janet B. Rysz (4) 41 Assistant Secretary Senior compliance administrator and
assistant secretary of the Adviser
Thomas P. Sorbo 35 Vice-President Senior vice president of the Adviser
since January, 1994; vice president of
the Adviser from September, 1992 to
December, 1993; associate of Travelers
Insurance Company prior thereto
<PAGE> 27
Thomas C. Theobald 59 Trustee Managing partner, William Blair Capital
(3)(4) Partners (private equity fund) since
1994; chief executive officer and
chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994
Gordon R. Worley 77 Trustee Private investor
(3) (4)
Hans P. Ziegler (4) 55 Executive Vice-President Chief executive officer of the Adviser
since May, 1994; president of the
Investment Counsel division of the
Adviser from July, 1993 to June, 1994;
president and chief executive officer,
Pitcairn Financial Management Group prior
thereto
Margaret O. Zwick(4) 30 Treasurer Compliance manager for the Adviser's
Mutual Funds division since August 1995;
compliance accountant, January 1995 to
July 1995; section manager, January 1994
to January 1995; supervisor, February
1990 to December 1993
<FN>
______________________
(1) Trustee who is an "interested person" of the Trust and of
the Adviser, as defined in the Investment Company Act of
1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board
with certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope
and results of the audit.
(4) This person holds the corresponding officer or trustee
position with the Base Trust.
</TABLE>
Certain of the trustees and officers of Income Trust and of
Base Trust are trustees or officers of other investment
companies managed by the Adviser. Mr. Armour, Ms. Bauer, and
Mr. Cook are also vice presidents of the Fund's distributor,
Liberty Securities Corporation. The address of Mr. Block is 11
Woodley Road, Winnetka, Illinois 60093; that of Mr. Boyd is 2900
Golf Road, Rolling Meadows, Illinois 60008; that of Mr. Cook is
600 Atlantic Avenue, Boston, MA 02210; that of Mr. Hacker is
P.O. Box 66100, Chicago, IL 60666; that of Mr. Morley is 20
North Wacker Drive, Suite 2275, Chicago, Illinois 60606; that of
Mr. Nelson is Department of Economics, University of Washington,
Seattle, Washington 98195; that of Mr. Theobald is Suite 3300,
222 West Adams Street, Chicago, IL 60606; 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 Income Trust. In compensation for
their services to Income Trust, trustees who are not "interested
persons" of Income Trust or the Adviser are paid an annual
retainer of $8,000 (divided equally among the Funds of Income
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 $50 million, the fee is $50 per meeting;
with $51 to $250 million, the fee is $200 per meeting; with $251
million to $500 million, $350; with $501 million to $750
million, $500; with $750 million to $1 billion, $650; and with
over $1 billion in net assets, $800. For Funds participating in
the master fund/feeder fund structure, the trustees' attendance
fee is paid based
<PAGE> 28
on the net assets at the master level. Each non-interested
trustee also receives an aggregate of $500 for attending each
meeting of the Nominating Committee. Income Trust has no
retirement or pension plans. The following table sets forth
compensation paid by Income Trust during the fiscal year ended
June 30, 1996 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-
Douglas A. Hacker -0- -0-
Thomas C. Theobald -0- -0-
Kenneth L. Block $23,567 $75,417
William W. Boyd 25,067 86,817
Francis W. Morley 23,767 82,517
Charles R. Nelson 25,067 86,817
Gordon R. Worley 33,567 82,317
_______________
* During this period, the Stein Roe Fund Complex consisted of
the six series of Income Trust, four series of Stein Roe
Municipal Trust, eight series of Stein Roe Investment Trust, and
one series of Base Trust. Messrs. Hacker and Theobald were
elected trustees on June 18, 1996, and, therefore, did not
receive any compensation for the year ended June 30, 1996.
PRINCIPAL SHAREHOLDERS
As of the date of this Statement of Additional Information,
High Yield Fund had only one shareholder, _______, which held
___ shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated provides administrative
services to High Yield Fund and High Yield Portfolio and
portfolio management services to High Yield Portfolio. The
Adviser is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Funds' transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which is a majority owned subsidiary of LFC
Holdings, Inc., which is a wholly owned subsidiary of Liberty
Mutual Equity Corporation, which is a wholly owned subsidiary of
Liberty Mutual Insurance Company. Liberty Mutual Insurance
Company is a mutual insurance company, principally in the
property/casualty insurance field, organized under the laws of
Massachusetts in 1912.
The directors of the Adviser are Kenneth R. Leibler, C.
Allen Merritt, Jr., Timothy K. Armour, N. Bruce Callow, and Hans
P. Ziegler. Mr. Leibler is President and Chief Executive
Officer of Liberty Financial; Mr. Merritt is Senior Vice
President and Treasurer of Liberty Financial; Mr. Armour is
President of the Adviser's Mutual Funds division; 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 Messrs. Leibler and Merritt is Federal Reserve Plaza,
Boston, Massachusetts 02210;
<PAGE> 29
and 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, 1996, the Adviser
managed over $24.7 billion in assets: over $7.4 billion in
equities and over $17.3 billion in fixed-income securities
(including $1.2 billion in municipal securities). The $24.7
billion in managed assets included over $7 billion held by open-
end mutual funds managed by the Adviser (approximately 16% of
the mutual fund assets were held by clients of the Adviser).
These mutual funds were owned by over 189,000 shareholders. The
$7 billion in mutual fund assets included over $660 million in
over 38,000 IRA accounts. In managing those assets, the Adviser
utilizes a proprietary computer-based information system that
maintains and regularly updates information for approximately
6,500 companies. The Adviser also monitors over 1,400 issues
via a proprietary credit analysis system. At June 30, 1996, the
Adviser employed approximately 16 research analysts and 32
account managers. The average investment-related experience of
these individuals was 20 years.
Please refer to the description of the Adviser, the
management and administrative agreements, fees, expense
limitations, and transfer agency services under Management and
Fee Table in the Prospectus, which is incorporated herein by
reference.
The Adviser provides office space and executive and other
personnel to the Fund and bears any sales or promotional
expenses. High Yield Fund pays all expenses other than those
paid by the Adviser, including but not limited to printing and
postage charges and securities registration and custodian fees
and expenses incidental to its organization.
High Yield Fund's administrative agreement provides that
the Adviser shall reimburse the Fund to the extent that total
annual expenses of the Fund (including fees paid to the Adviser,
but excluding taxes, interest, brokers' commissions and other
normal charges incident to the purchase and sale of portfolio
securities, and expenses of litigation to the extent permitted
under applicable state law) exceed the applicable limits
prescribed by any state in which shares of High Yield Fund are
being offered for sale to the public; however, such
reimbursement for any fiscal year will not exceed the amount of
the fees paid by High Yield Fund under that agreement for such
year. Income 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 Fund's
expenses, the Adviser may voluntarily waive its management fee
and/or absorb certain expenses for the Fund, as described in the
Prospectus under Fee Table. Any such reimbursements will
enhance the yield of the Fund.
<PAGE> 30
High Yield Portfolio's management agreement provides that
neither the Adviser nor any of its directors, officers,
stockholders (or partners of stockholders), agents, or employees
shall have any liability to Base Trust or any shareholder of
High Yield Portfolio for any error of judgment, mistake of law
or any loss arising out of any investment, or for any other act
or omission in the performance by the Adviser of its duties
under the agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on the Adviser's part
in the performance of its duties or from reckless disregard by
the Adviser of the Adviser's obligations and duties under that
agreement.
Any expenses that are attributable solely to the
organization, operation, or business of High Yield Fund shall be
paid solely out of that Fund's assets. Any expenses incurred by
Income 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 Income 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
years ended June 30, 1995 and 1996, the Adviser received
aggregate fees of $114,541 and $173,384, respectively, from
Income Trust for services performed under this agreement.
DISTRIBUTOR
Shares of the Fund are distributed by Liberty Securities
Corporation ("LSC"), under a Distribution Agreement as described
under Management in the Prospectus, which is incorporated herein
by reference. The Distribution Agreement continues in effect
from year to year, provided such continuance is approved
annually (i) by a majority of the trustees or by a majority of
the outstanding voting securities of Income Trust, and (ii) by a
majority of the trustees who are not parties to the Agreement or
interested persons of any such party. Income Trust has agreed
to pay all expenses in connection with registration of its
shares with the Securities and Exchange Commission and auditing
and filing fees in connection with registration of its shares
under the various state blue sky laws and assumes the cost of
preparation of prospectuses and other expenses.
As agent, LSC offers shares of High Yield Fund to investors
in states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. No sales commission or "12b-1" payment is paid by
High Yield Fund. LSC offers the Fund's shares only on a best-
efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for Income
Trust, as described under Management of the Fund in the
Prospectus. For performing these services, SSI
<PAGE> 31
receives from the Fund a fee based on an annual rate of 0.140 of
1% of average daily net assets of High Yield Fund. 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 Income Trust and Base Trust. It is responsible for holding
all securities and cash of the Fund, receiving and paying for
securities purchased, delivering against payment securities
sold, receiving and collecting income from investments, making
all payments covering expenses of the Fund, 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 Fund.
Portfolio securities purchased in the U.S. are maintained
in the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the
U.S. are maintained in the custody of foreign banks and trust
companies that are members of the Bank's Global Custody Network,
and foreign depositories ("foreign sub-custodians"). Each of
the domestic and foreign custodial institutions holding
portfolio securities has been approved by the Board of Trustees
in accordance with regulations under the Investment Company Act
of 1940.
Each Board of Trustees reviews, at least annually, whether
it is in the best interest of High Yield Fund, High Yield
Portfolio, and their shareholders to maintain assets in each
custodial institution. However, with respect to foreign sub-
custodians, there can be no assurance that it, and the value of
its shares, will not be adversely affected by acts of foreign
governments, financial or operational difficulties of the
foreign sub-custodians, difficulties and costs of obtaining
jurisdiction over, or enforcing judgments against, the foreign
sub-custodians, or application of foreign law to the foreign
sub-custodial arrangements. Accordingly, an investor should
recognize that the non-investment risks involved in holding
assets abroad are greater than those associated with investing
in the United States.
High Yield Fund and High Yield Portfolio may invest in
obligations of the custodian and may purchase or sell securities
from or to the custodian.
INDEPENDENT AUDITORS
The independent auditors for Income Trust and High Yield
Portfolio are Ernst & Young LLP, 233 South Wacker Drive,
Chicago, Illinois 60606. The independent auditors audit and
report on the annual financial statements, review certain
regulatory reports and the federal income tax returns, and
perform other professional accounting, auditing, tax and
advisory services when engaged to do so by the Trust.
<PAGE> 32
PORTFOLIO TRANSACTIONS
For purposes of discussion under Portfolio Transactions,
the term "the Fund" refers to High Yield Fund and High Yield
Portfolio.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts for the
Fund. Purchases and sales of portfolio securities are
ordinarily transacted with the issuer or with a primary market
maker acting as principal or agent for the securities on a net
basis, with no brokerage commission being paid by the Fund.
Transactions placed through dealers reflect the spread between
the bid and asked prices. Occasionally, the 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 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, the
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
the 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 Fund, 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-
<PAGE> 33
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 Fund), 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
the 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 the 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 under the Rules of Fair Practice of the National
Association of Securities Dealers ("NASD").
ADDITIONAL INCOME TAX CONSIDERATIONS
High Yield Fund and High Yield Portfolio intend to comply
with the special provisions of the Internal Revenue Code that
relieve it of federal income tax to the extent of its net
investment income and capital gains currently distributed to
shareholders.
Because capital gain distributions reduce net asset value,
if a shareholder purchases shares shortly before a record date,
he will, in effect, receive a return of a portion of his
investment in such distribution. The distribution would
nonetheless be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income
tax purposes the shareholder's original cost would continue as
his tax basis.
High Yield Fund expects that none of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
INVESTMENT PERFORMANCE
High Yield Fund may quote yield figures from time to time.
The "Yield" of the Fund is computed by dividing the net
investment income per share earned during a 30-day period (using
the average number of shares entitled to receive dividends) by
the net asset value per share on the last day of the period.
The Yield formula provides for semiannual compounding which
assumes that net investment income is earned and reinvested at a
constant rate and annualized at the end of a six-month period.
For a given period, an "Average Annual Total Return" may be
<PAGE> 34
computed by finding the average annual compounded rate that
would equate a hypothetical initial amount invested of $1,000 to
the ending redeemable value.
6
The Yield formula is as follows: YIELD = 2[((a-b/cd) +1) -1].
Where: a = dividends and interest earned during the period
. (For this purpose, the Fund will recalculate the
yield to maturity based on market value of each
portfolio security on each business day on which net
asset value is calculated.)
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the ending net asset value of the Fund for the period.
_____________________
High Yield Fund may quote total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends received per share plus or minus the change in the net
asset value per share for a period. A "Total Return Percentage"
may be calculated by dividing the value of a share at the end of
a period (including reinvestment of distributions) by the value
of the share at the beginning of the period and subtracting one.
n
Average Annual Total Return is computed as follows: ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion thereof).
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must
pay on a current basis. They are not necessarily indicative of
future results. The performance of High Yield Fund is a result
of conditions in the securities markets, portfolio management,
and operating expenses. Although investment performance
information is useful in reviewing High Yield Fund's performance
and in providing some basis for comparison with other investment
alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time
periods.
In advertising and sales literature, High Yield Fund may
compare its yield and performance with that of other mutual
funds, indexes or averages of other mutual funds, indexes of
related financial assets or data, and other competing investment
and deposit products available from or through other financial
institutions. The composition of these indexes or averages
differs from that of the Fund. Comparison of High Yield Fund to
an alternative investment should be made with consideration of
differences in features and expected performance.
<PAGE> 35
All of the indexes and averages noted below will be
obtained from the indicated sources or reporting services, which
the Fund believes to be generally accurate. High Yield Fund may
also note its mention in newspapers, magazines, or other media
from time to time. However, the Fund assumes no responsibility
for the accuracy of such data. Newspapers and magazines that
might mention High Yield Fund include, but are not limited to,
the following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Associated Press
Barron's
Bloomberg
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Decoder
Gourmet
Individual Investor
Investment Adviser
Investment Dealers' Digest
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
The Fund may compare its performance to the Consumer Price
Index (All Urban), a widely-recognized measure of inflation.
The Fund's performance may be compared to the following as
indicated below:
CS First Boston High Yield Index
ICD High Yield Index
Lehman High Yield Bond Index
Lehman High Yield Corporate Bond Index
Merrill Lynch High-Yield Master Index
Morningstar Corporate Bond (General) Average
Salomon Brothers Extended High Yield Market Index
Salomon Brothers High Yield Market Index
The Lipper and Morningstar averages are unweighted averages
of total return performance of mutual funds as classified,
calculated, and published by these independent services that
monitor the performance of mutual funds. The Fund may also use
comparative performance as computed in a ranking by these
services or category averages and rankings provided by another
independent service. Should these
<PAGE> 36
services reclassify High Yield Fund to a different category or
develop (and place it into) a new category, the 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, High Yield Fund may
also cite its rating, recognition, or other mention by
Morningstar or any other entity. Morningstar's rating system is
based on risk-adjusted total return performance and is expressed
in a star-rating format. The risk-adjusted number is computed
by subtracting the 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, High Yield Fund may use historical data
provided by Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-
based investment firm. Ibbotson constructs (or obtains) very
long-term (since 1926) total return data (including, for
example, total return indexes, total return percentages, average
annual total returns and standard deviations of such returns)
for the following asset types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
____________________
High Yield Fund may also use hypothetical returns to be
used as an example in a mix of asset allocation strategies. One
such example is reflected in the chart below, which shows the
effect of tax deferral on a hypothetical investment. This chart
assumes that an investor invested $2,000 a year on January 1,
for any specified period, in both a Tax-Deferred Investment and
a Taxable Investment, that both investments earn either 6%, 8%
or 10% compounded annually, and that the investor withdrew the
entire amount at the end of the period. (A tax rate of 39.6% is
applied annually to the Taxable Investment and on the withdrawal
of earnings on the Tax-Deferred Investment.)
<PAGE> 37
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, High Yield
Fund may quote an average life figure for its portfolio.
Average life is the weighted average period over which the
Adviser expects the principal to be paid, and differs from
stated maturity in that it estimates the effect of expected
principal prepayments and call provisions. With respect to GNMA
securities and other mortgage-backed securities, average life is
likely to be substantially less than the stated maturity of the
mortgages in the underlying pools. With respect to obligations
with call provisions, average life is typically the next call
date on which the obligation reasonably may be expected to be
called. Securities without prepayment or call provisions
generally have an average life equal to their stated maturity.
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average
cost per share.
Like any investment strategy, dollar cost averaging can't
guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's
opinion as to the credit quality of the security being rated.
However, the ratings are general and are not absolute standards
of quality or guarantees as to the creditworthiness of an
issuer. Consequently, the Adviser believes that the quality of
debt securities in which High Yield Portfolio invests should be
continuously reviewed and that individual analysts give
different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell or
hold a security because it does not take into account market
value or suitability for a particular investor. When a security
has received a rating from more than one service, each rating
should be evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating
services from other sources that they consider reliable.
Ratings may be changed, suspended or withdrawn as a result of
changes in or unavailability of such information, or for other
reasons.
<PAGE> 38
The following is a description of the characteristics of
ratings used by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P").
CORPORATE BOND RATINGS
RATINGS BY MOODY'S
AAA. Bonds rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or an exceptionally stable margin and
principal is secure. Although the various protective elements
are likely to change, such changes as can be visualized are more
unlikely to impair the fundamentally strong position of such
bonds.
AA. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
bonds.
A. Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA. Bonds rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
BA. Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
CA. Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
<PAGE> 39
C. Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to
pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the highest rated
issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher rated
categories.
BB, B, CCC, CC, AND C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance
with the terms of the obligation. BB indicates the lowest
degree of speculation and C the highest degree of speculation.
While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no
interest is being paid.
D. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears. The D rating is
also used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories. Foreign debt is rated on the same
basis as domestic debt measuring the creditworthiness of the
issuer; ratings of foreign debt do not take into account
currency exchange and related uncertainties.
<PAGE> 40
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-
credit risks. Examples of such obligations are: securities
whose principal or interest return is indexed to equities,
commodities, or currencies; certain swaps and options; and
interest only and principal only mortgage securities. The
absence of an "r" symbol should not be taken as an indication
that an obligation will exhibit no volatility or variability in
total return.
COMMERCIAL PAPER RATINGS
RATINGS BY MOODY'S
Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its commercial
paper obligations are supported by the credit of another entity
or entities, Moody's, in assigning ratings to such issuers,
evaluates the financial strength of the indicated affiliated
corporations, commercial banks, insurance companies, foreign
governments or other entities, but only as one factor in the
total rating assessment.
RATINGS BY S&P
A brief description of the applicable rating symbols and
their meaning follows:
A. Issues assigned this highest rating are regarded as
having the greatest capacity for timely payment. Issues in this
category are further refined with the designations 1, 2, and 3
to indicate the relative degree of safety.
A-1. This designation indicates that the degree of safety
regarding timely payment is very strong. Those issues
determined to possess overwhelming safety characteristics will
be denoted with a plus (+) sign designation.
BALANCE SHEET
[to be furnished]
<PAGE>
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: None.
2. Financial statements included in Part B of this Amendment:
None.
(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. (a) Agreement and Declaration of Trust as amended through
10/25/94. (Exhibit 1 to PEA #27.)*
(b) Amendment to Agreement and Declaration of Trust dated
11/1/95. (Exhibit 1(b) to PEA #28.)*
2. By-Laws of Registrant as amended through 2/3/93.
3. None.
4. None. Registrant no longer issues share certificates.
5. (a) Management agreement between Registrant and Stein Roe &
Farnham Incorporated (the "Adviser") dated July 1,
1996.
(b) Expense undertakings of the Adviser with respect to
Stein Roe Income Fund dated 10/29/93; and with respect
to Stein Roe Government Income Fund, Stein Roe
Intermediate Bond Fund, Stein Roe Government Reserves
Fund and Stein Roe Limited Maturity Income Fund dated
10/31/95. (Exhibit 5(g) to PEA #28.)*
6. Underwriting agreement between the Stein Roe Funds and
Liberty Securities Corporation as amended through 10/28/92.
7. None.
8. Custodian contract between Registrant and State Street
Bank and Trust Company dated 2/24/86 as amended through
5/8/95. (Exhibit 8 to PEA #27).*
9. (a) Transfer agency agreement dated 8/1/95 between
Registrant and SteinRoe Services Inc. (Exhibit 9(a) to
PEA #27.)*
(b) Accounting and Bookkeeping Agreement between Registrant
and the Adviser dated November 1, 1994.
(c) Administrative Agreement between Registrant and the
Adviser dated July 1, 1996.
10. (a) Opinions and consents of Ropes & Gray.
(b) Opinions and consents of Bell, Boyd & Lloyd with
respect to the series SteinRoe High-Yield Bonds (now
named Stein Roe Income Fund), SteinRoe Cash Reserves,
SteinRoe Government Reserves, SteinRoe Governments Plus
(now named Stein Roe Government Income Fund), SteinRoe
Managed Bonds (now named Stein Roe Intermediate Bond
Fund), and Stein Roe Limited Maturity Income Fund.
11. (a) None.
(b) Consent of Morningstar, Inc.
12. None.
13. Inapplicable.
14. (a) Stein Roe Funds Individual Retirement Account Plan.
(Exhibit 14(a) to PEA #28.)*
(b) Stein Roe & Farnham Prototype Paired Defined
Contribution Plan. (Exhibit 14(b) to PEA #14.)*
15. None.
16. Schedules for computation of yield and total return of
SteinRoe High-Yield Bonds (now named Stein Roe Income
Fund), SteinRoe Governments Plus (now named Stein Roe
Government Income Fund), SteinRoe Managed Bonds (now named
Stein Roe Intermediate Bond Fund), Stein Roe Cash Reserves,
Stein Roe Government Reserves, and Stein Roe Limited
Maturity Income Fund.
17. (a) Financial Data Schedule--Income Fund.
(b) Financial Data Schedule--Government Income Fund.
(c) Financial Data Schedule--Intermediate Bond Fund.
(d) Financial Data Schedule--Cash Reserves Fund.
(e) Financial Data Schedule--Government Reserves Fund.
(f) Financial Data Schedule--Limited Maturity Income
Fund.
18. Inapplicable.
19. (Miscellaneous.)
(a) Fund Application. (Exhibit 19(a) to PEA #28.)*
(b) Automatic Redemption Services Application.
________
*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 5, 1996
--------------- -----------------------
Stein Roe Cash Reserves Fund......................20,810
Stein Roe Government Reserves Fund.................2,092
Stein Roe Income Fund..............................3,461
Stein Roe Government Income Fund...................1,284
Stein Roe Intermediate Bond Fund...................5,039
Stein Roe Limited Maturity Income Fund.............2,094
Stein Roe High Yield Fund ........................ 0
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
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
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
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 investment companies having different investment policies.
For a two-year business history of officers and directors of the
Adviser, please refer to the Form ADV of Stein Roe & Farnham
Incorporated and to the section of the statement of additional
information (part B) entitled "Investment Advisory Services."
Certain directors and officers of the Adviser also serve and have
during the past two years served in various capacities as
officers, directors, or trustees of SSI and of the Registrant,
Stein Roe Investment Trust, Stein Roe Municipal Trust, SR&F Base
Trust, Stein Roe Adviser Trust, Stein Roe Institutional Trust,
Stein Roe Trust, SteinRoe Variable Investment Trust and LFC Utilities
Trust, investment companies managed by the Adviser. (The listed
entities are located at One South Wacker Drive, Chicago, Illinois
60606, except for SteinRoe Variable Investment Trust, which is located
at Federal Reserve Plaza, Boston, MA 02210 and LFC Utilities Trust,
which is located at One Financial Center, Boston, MA 02111.) A list
of such capacities is given below.
POSITION FORMERLY
HELD WITHIN
CURRENT POSITION PAST TWO YEARS
------------------- --------------
STEINROE SERVICES INC.
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President; Secretary
Philip D. Hausken Vice President
Kenneth J. Kozanda Vice President; Treasurer
Kenneth R. Leibler Director
C. Allen Merritt, Jr. Director; Vice President
Hans P. Ziegler Director, President, Vice Chairman
Chairman
SR&F BASE TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Ann H. Benjamin Vice-President
N. Bruce Callow Executive Vice-President
Philip D. Hausken Vice-President
Michael T. Kennedy Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEIN ROE INCOME TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary Vice-President
Ann H. Benjamin Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Philip J. Crosley Vice-President
Philip D. Hausken Vice-President
Michael T. Kennedy Vice-President
Steven P. Luetger Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEIN ROE INVESTMENT TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary Vice-President
Bruno Bertocci Vice-President
David P. Brady Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Daniel K. Cantor Vice-President
Philip J. Crosley Vice-President
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
David P. Harris Vice-President
Philip D. Hausken Vice-President
Harvey B. Hirschhorn Vice-President
Alfred F. Kugel Trustee
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Richard B. Peterson Vice-President
Gloria J. Santella Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE MUNICIPAL TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Joanne T. Costopoulos Vice-President
Philip J. Crosley Vice-President
Philip D. Hausken Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
M. Jane McCart Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEIN ROE TRUST and STEIN ROE ADVISER TRUST
Gary A. Anetsberger Senior Vice-President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary
Bruno Bertocci Vice-President
David P. Brady Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Daniel K. Cantor Vice-President
Philip J. Crosley Vice-President
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
David P. Harris Vice-President
Philip D. Hausken Vice-President
Harvey B. Hirschhorn Vice-President
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Richard B. Peterson Vice-President
Gloria J. Santella Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE INSTITUTIONAL TRUST
Gary A. Anetsberger Senior Vice-President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary
Ann H. Benjamin Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Philip J. Crosley Vice-President
Philip D. Hausken Vice-President
Michael T. Kennedy Vice-President
Steven P. Luetger Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEINROE VARIABLE INVESTMENT TRUST
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President
LFC UTILITIES TRUST
Gary A. Anetsberger Vice President
Ophelia L. Barsketis Vice President
ITEM 29. PRINCIPAL UNDERWRITERS.
Registrant's principal underwriter, Liberty Securities
Corporation, is a wholly owned subsidiary of Liberty Investment
Services, Inc., a wholly owned subsidiary of Liberty Financial
Services, Inc. which, in turn, is a wholly owned subsidiary of
Liberty Financial Companies, Inc. Liberty Financial Companies,
Inc. is a public corporation whose majority shareholder is LFC
Holdings, Inc., a wholly owned subsidiary of Liberty Mutual
Equity Corporation. Liberty Mutual Equity Corporation is a wholly owned
subsidiary of Liberty Mutual Insurance Company.
Liberty Securities Corporation is principal underwriter for the
following investment companies:
Stein Roe Income Trust
Stein Roe Municipal Trust
Stein Roe Investment Trust
Set forth below is information concerning the directors and
officers of Liberty Securities Corporation:
Positions
Positions and Offices and Offices
Name with Underwriter with Registrant
- ------------------ -------------------- ---------------
Porter P. Morgan Chairman of the Board; Director None
Frank L. Tarantino President; Chief Operating
Officer; Director None
Robert L. Spadafora Executive Vice President -
Sales and Marketing None
John T. Treece, Jr. Senior Vice President - Operations None
John W. Reading Senior Vice President and
Assistant Secretary None
Valerie A. Arendell Senior Vice President - Sales None
Gerald H. Stanney, Vice President and Compliance
Jr. Officer (Boston) None
Jilaine Hummel Bauer Vice President and Compliance Exec. V-P &
Officer (Chicago) Secretary
Timothy K. Armour Vice President President,
Trustee
Lindsay Cook Vice President Trustee
Ralph E. Nixon Vice President None
Glenn E. Williams Assistant Vice President None
Philip J. Iudice Treasurer None
John A. Benning Secretary None
John A. Davenport Assistant Secretary None
C. Allen Merritt, Jr. Assistant Treasurer; Assistant
Secretary; Director None
The principal business address of Mr. Armour and Ms. Bauer is One
South Wacker Drive, Chicago, IL 60606; that of Mr. Williams is
Two Righter Parkway, Wilmington, DE 19803; and that of the other
officers is 600 Atlantic Avenue, Boston, MA 02210-2214.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Jilaine Hummel Bauer
Executive Vice-President and Secretary
One South Wacker Drive
Chicago, Illinois 60606
ITEM 31. MANAGEMENT SERVICES.
None.
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.
Registrant hereby undertakes to file a post-effective amendment
relating to the series Stein Roe High Yield Fund using financial
statements, which need not be certified, within four to six
months from the effective date of this Registration Statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused
this 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 16th day of August, 1996.
STEIN ROE 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. ARMOUR President and Trustee August 16, 1996
Timothy K. Armour
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice-President August 16, 1996
Gary A. Anetsberger
Principal Financial Officer
SHARON R. ROBERTSON Controller August 16, 1996
Sharon R. Robertson
Principal Accounting Officer
KENNETH L. BLOCK Trustee August 16, 1996
Kenneth L. Block
WILLIAM W. BOYD Trustee August 16, 1996
William W. Boyd
LINDSAY COOK Trustee August 16, 1996
Lindsay Cook
DOUGLAS A. HACKER Trustee August 16, 1996
Douglas A. Hacker
FRANCIS W. MORLEY Trustee August 16, 1996
Francis W. Morley
CHARLES R. NELSON Trustee August 16, 1996
Charles R. Nelson
THOMAS C. THEOBALD Trustee August 16, 1996
Thomas C. Theobald
GORDON R. WORLEY Trustee August 16, 1996
Gordon R. Worley
*This Registration Statement has also been signed by the above
persons in their capactiies as trustees and officers of SR&F Base
Trust
<PAGE>
STEIN ROE INCOME TRUST
INDEX TO EXHIBITS FILED WITH THIS AMENDMENT
Exhibit
Number Description
- ------- -------------
2 Bylaws
5(a) Management agreement
6 Underwriting agreement
9(b) Accounting and bookkeeping agreement
9(c) Administrative agreement
10(a) Opinions and consents of Ropes & Gray
10(b) Opinions and consents of Bell, Boyd & Lloyd
11(b) Morningstar consent
16 Schedules for computation of yield and total return
17(a) Financial Data Schedule--Stein Roe Income Fund
17(b) Financial Data Schedule--Stein Roe Government Income
Fund
17(c) Financial Data Schedule--Stein Roe Intermediate Bond Fund
17(d) Financial Data Schedule--Stein Roe Cash Reserves Fund
17(e) Financial Data Schedule--Stein Roe Government Reserves Fund
17(f) Financial Data Schedule--Stein Roe Limited Maturity Income
Fund
19(b) Automatic services application
EXHIBIT 2
<PAGE>
STEINROE INCOME TRUST
BY-LAWS
<PAGE>
ARTICLE I. AGREEMENT AND DECLARATION OF TRUST, LOCATION OF
OFFICES AND SEAL
Section 1.01. Agreement and Declaration of Trust........1
Section 1.02. Principal Office..........................1
Section 1.03. Seal......................................1
ARTICLE II. BOARD OF TRUSTEES
Section 2.01. Number and Term of Office.................1
Section 2.02. Power to Declare Dividends................1
Section 2.03. Annual and Regular Meetings...............2
Section 2.04. Special Meetings..........................2
Section 2.05. Notice....................................2
Section 2.06. Waiver of Notice..........................3
Section 2.07. Quorum and Voting.........................3
Section 2.08. Action Without a Meeting..................3
ARTICLE III. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted...........................3
Section 3.02. Powers of the Executive Committee.........3
Section 3.03. Other Committees of the Board of Trustees.3
Section 3.04. Proceedings, Quorum and Manner of Acting..3
Section 3.05. Other Committees..........................4
Section 3.06. Action Without a Meeting..................4
Section 3.07. Waiver of Notice..........................4
ARTICLE IV. OFFICERS
Section 4.01. General...................................4
Section 4.02. Election, Term of Office and
Qualifications............................4
Section 4.03. Resignation...............................5
Section 4.04. Removal...................................5
Section 4.05. Vacancies and Newly Created Offices.......5
Section 4.06. Chairman of the Board.....................5
Section 4.07. President.................................5
Section 4.08. Executive Vice-Presidents and Vice-
Presidents................................5
Section 4.09. Senior Vice-President.....................5
Section 4.10. Treasurer and Assistant Treasurers........6
Section 4.11. Secretary and Assistant Secretaries.......6
Section 4.12. Controller and Assistant Controllers......6
Section 4.13. Subordinate Officers......................6
Section 4.14. Remuneration..............................6
Section 4.15. Surety Bonds..............................6
ARTICLE V. CUSTODY OF SECURITIES
Section 5.01. Employment of a Custodian.................7
Section 5.02. Provisions of Custodian Contract..........7
Section 5.03. Action upon Termination of Custodian
Contract..................................8
ARTICLE VI. EXECUTION OF INSTRUMENTS, RIGHTS AS SECURITY
HOLDER
Section 6.01. General...................................8
Section 6.02. Checks, Notes, Drafts, Etc................8
Section 6.03. Rights as Security Holder.................8
ARTICLE VII. SHARES OF BENEFICIAL INTEREST
Section 7.01. Certificates..............................9
Section 7.02. Uncertificated Shares.....................9
Section 7.03. Transfers of Shares.......................9
Section 7.04. Registered Shareholders...................9
Section 7.05. Transfer Agents and Registrars............9
Section 7.06. Fixing of Record Date....................10
Section 7.07. Lost, Stolen, or Destroyed Certificates..10
Section 7.08. Resumption of Issuance of Certificates/
Cancellation of Certificates.............10
ARTICLE VIII. FISCAL YEAR, ACCOUNTANT
Section 8.01. Fiscal Year..............................10
Section 8.02. Accountants..............................11
ARTICLE IX. AMENDMENTS
Section 9.01. General..................................11
Section 9.02. By Shareholders Only.....................11
ARTICLE X. MISCELLANEOUS
Section 10.01. Restrictions and Limitations............11
<PAGE> 1
STEINROE INCOME TRUST
BY-LAWS
(By-Laws Adopted by Board of Trustees on January 3, 1986
as amended through October 24, 1990)
ARTICLE I. AGREEMENT AND DECLARATION OF TRUST,
LOCATION OF OFFICES AND SEAL
Section 1.01. Agreement and Declaration of Trust.
These By-Laws shall be subject to the Agreement and
Declaration of Trust as now in effect or hereinafter amended
("Declaration of Trust") of SteinRoe Income Trust, a
Massachusetts business trust established by the Declaration
of Trust (the "Trust").
Section 1.02. Principal Office. A principal office of
the Trust shall be located in Boston, Massachusetts. The
Trust may also maintain a principal office in the City of
Chicago, State of Illinois. The Trust may, in addition,
establish and maintain such other offices and places of
business as the Board of Trustees may from time to time
determine.
Section 1.03. Seal. The seal of the Trust shall be
circular in form and shall bear the name of the Trust, the
word "Massachusetts," and the year of its organization. The
form of the seal shall be subject to alteration by the Board
of Trustees and the seal may be used by causing it or a
facsimile to be impressed or affixed or printed or otherwise
reproduced. Any officer or Trustee of the Trust shall have
authority to affix the seal of the Trust to any document
requiring the same. Unless otherwise required by the Board
of Trustees, the seal shall not be necessary to be placed on,
and its absence shall not impair the validity of, any
document, instrument or other paper executed and delivered by
or on behalf of the Trust.
ARTICLE II. BOARD OF TRUSTEES
Section 2.01. Number and Term of Office. The Board of
Trustees shall initially consist of the initial sole Trustee,
which number may be increased or subsequently decreased by a
resolution of a majority of the entire Board of Trustees,
provided that the number of Trustees shall not be less than
one nor more than twenty-one. Each Trustee (whenever
selected) shall hold office until the next meeting of
shareholders and until his successor is elected and qualified
or until his earlier death, resignation, or removal. The
initial Trustee shall be the person designated in the
Declaration of Trust.
Section 2.02. Power to Declare Dividends.
(a) The Board of Trustees, from time to time as it may
deem advisable, may declare and pay dividends to the
shareholders of any series of the Trust in cash or other
property of that series, out of any source available to that
series for dividends, according to the respective rights and
interests of shareholders of that series and in accordance
with the applicable provisions of the Declaration of Trust.
(b) The Board of Trustees may prescribe from time to
time that dividends declared on shares of a series may be
payable at the election of any of the shareholders of that
series (exercisable before the declaration of the dividend),
either in cash or in shares of that series; provided that the
net
<PAGE> 2
asset value of the shares received by a shareholder electing
to receive dividends in shares (determined as of such time as
the Board of Trustees shall have prescribed in accordance
with the Declaration of Trust) shall not exceed the full
amount of cash to which the shareholder would be entitled if
he elected to receive cash.
(c) The Board of Trustees shall cause any dividend
payment to shareholders of a series to be accompanied by a
written statement if wholly or partly from any source other
than:
(i) such series' accumulated undistributed net income
[determined in accordance with generally accepted
accounting principles and the rules and regulations
then in effect of the Securities and Exchange
Commission or any other governmental body having
similar jurisdiction over the Trust (the "SEC")]
and not including profits or losses realized upon
the sale of securities or other properties of the
series; or
(ii) the series' net income so determined for the
current or preceding fiscal year.
Such statement shall adequately disclose the source or
sources of such payment and the basis of calculation and
shall be in such form as the SEC may prescribe.
Section 2.03. Annual and Regular Meetings. Annual and
regular meetings of the Board of Trustees may be held without
call or notice and at such places at such times as the Board
of Trustees may from time to time determine provided that
notice of the first regular meeting following any such
determination shall be given to absent Trustees. Members of
the Board of Trustees or any committee designated thereby may
participate in a meeting of such Board or committee by means
of a conference telephone or other communications equipment,
by means of which all persons participating in the meeting
can hear each other at the same time. Participation by such
means shall constitute presence in person at a meeting;
provided, however, that the Board of Trustees shall not enter
into, renew, or perform any contract or agreement, written or
oral, whereby a person undertakes regularly to serve or act
as investment adviser with respect to any series of the Trust
unless the terms of such contract or agreement and any
renewal thereof have been approved by the vote of a majority
of Trustees who are not parties to such contract or agreement
or interested persons of any such party, which votes shall be
cast at a meeting called for the purpose of voting on such
approval at which such persons are physically present.
Section 2.04. Special Meetings. Special meetings of
the Board of Trustees shall be held whenever called and at
such place and time determined by the President, Executive
Vice-President or Secretary (or, in the absence or disability
of the President, Executive Vice-President and Secretary, by
any Vice-President), or a majority of the Trustees then in
office, at the time and place specified in the respective
notices or waivers of notice of such meetings.
Section 2.05. Notice. If notice of a meeting of the
Board of Trustees is required or desired to be given, notice
stating the time and place shall be mailed to each Trustee at
his residence or regular place of business at least five days
before the day on which the meeting is to be held or caused
to be delivered to him personally or to be transmitted to him
by telephone, telegraph, cable, or wireless at least one day
before the meeting.
<PAGE> 3
Section 2.06. Waiver of Notice. No notice required or
desired to be given of any meeting need be given to any
Trustee who attends such meeting in person or to any Trustee
who waives notice of such meeting in writing (which waiver
shall be filed with records of such meeting), whether before
or after the time of the meeting.
Section 2.07. Quorum and Voting. At all meetings of
the Board of Trustees, the presence of one-third of the
number of Trustees then in office shall constitute a quorum
for the transaction of business; provided, however, a quorum
shall not be less than the lesser of two Trustees or 100% of
all Trustees then in office. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting
without further notice, from time to time, until a quorum
shall be present. The action of a majority of the Trustees
present at a meeting at which a quorum is present shall be
the action of the Board of Trustees, unless the concurrence
of a greater proportion is required for such action by law,
by the Declaration of Trust, or by these By- Laws.
Section 2.08. Action Without a Meeting. Any action
required or permitted to be taken at any meeting of the Board
of Trustees may be taken without a meeting, if written
consents thereto are signed by a majority of the members of
the Board, unless the consent of a larger number is required
pursuant to applicable law in which case the consents of such
number shall be required, and such written consents are filed
with the minutes of proceedings of the Board of Trustees.
ARTICLE III. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. By resolution adopted
by the Board of Trustees, the Board may designate one or more
committees, including an Executive Committee, each of which
shall consist of at least two Trustees. Each member of a
committee shall be a Trustee and shall hold office during the
pleasure of the Board.
Section 3.02. Powers of the Executive Committee.
Unless otherwise provided by resolution of the Board of
Trustees, the Executive Committee shall have and may exercise
all powers of the Board of Trustees in the management of the
business and affairs of the Trust that may lawfully be
exercised by an executive committee, except the power to
recommend to shareholders any matter requiring shareholder
approval, amend the Declaration of Trust or By-Laws, or
approve any merger or share exchange that does not require
shareholder approval.
Section 3.03. Other Committees of the Board of
Trustees. To the extent provided by resolution of the Board,
other committees of the Board shall have and may exercise any
of the powers that may lawfully be granted to the Executive
Committee.
Section 3.04. Proceedings, Quorum and Manner of Acting.
In the absence of appropriate resolution of the Board of
Trustees, each committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it
shall deem proper and desirable, provided that the quorum
shall not be less than two Trustees except that, in the case
of a committee (other than the Executive Committee)
consisting of two Trustees, one Trustee shall constitute a
quorum unless the Board by resolution specifies that a quorum
for that committee shall consist of two Trustees. In the
absence of any member of any such committee, the members
thereof present at any meeting, whether or not
<PAGE> 4
they constitute a quorum, may appoint a member of the Board
of Trustees to act in the place of such absent member.
Section 3.05. Other Committees. The Board of Trustees
may appoint other committees, each consisting of one or more
persons, who need not be Trustees. Each such committee shall
have such powers and perform such duties as may be assigned
to it from time to time by the Board of Trustees, but shall
not exercise any power which may lawfully be exercised only
by the Board of Trustees or a committee thereof.
Section 3.06. Action Without a Meeting. Any action
required or permitted to be taken at any meeting of any
committee may be taken without a meeting, if written consents
thereto are signed by a majority of the members of the
committee unless the consent of a larger number is required
pursuant to applicable law in which case the consents of such
number shall be required, and such written consents are filed
with the minutes of proceedings of the Board of Trustees or
of the committee.
Section 3.07. Waiver of Notice. Whenever any notice of
the time, place or purpose of any meeting of any committee is
required to be given under the provisions of any applicable
law or under the provisions of the Declaration of Trust or
these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice and filed with the
records of the meeting, whether before or after the holding
of such meeting, or actual attendance at the meeting in
person, shall be deemed equivalent to the giving of such
notice to such persons.
ARTICLE IV. OFFICERS
Section 4.01. General. The officers of the Trust shall
be a President, a Secretary, a Senior Vice-President, a
Treasurer and a Controller, and may include one or more
Executive Vice-Presidents, Vice-Presidents, Assistant
Secretaries, Assistant Treasurers or Assistant Controllers
and such other officers as may be appointed in accordance
with the provisions of Section 4.13 hereof. The Board of
Trustees may elect, but shall not be required to elect, a
Chairman of the Board.
Section 4.02. Election, Term of Office and
Qualifications. The officers of the Trust (except those
appointed pursuant to Section 4.13 hereof) shall be chosen by
the Board of Trustees at its first meeting or such subsequent
meetings as shall be held prior to its first annual meeting
and thereafter annually. If any officers are not chosen at
any annual meeting, such officers may be chosen at any
subsequent regular or special meeting of the Board. Except
as provided in Sections 4.03, 4.04 and 4.05 hereof, each
officer chosen by the Board of Trustees shall hold office
until the next annual meeting of the Board of Trustees and
until his successor shall have been chosen and qualified or
until his earlier death. Any person may hold one or more
offices of the Trust except the offices of President and
Vice-President, but no officer shall execute, acknowledge, or
verify an instrument in more than one capacity, if such
instrument is required by law, by the Declaration of Trust,
or by these By-Laws to be executed, acknowledged or verified
by two or more officers. The Chairman of the Board, if any,
shall be chosen from among the Trustees of the Trust and may
hold such office only so long as he continues to be a
Trustee. No other officer need be a Trustee.
<PAGE> 5
Section 4.03. Resignation. Any officer may resign his
office at any time by delivering a written resignation to the
Board of Trustees, the President, the Secretary, or any
Assistant Secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery.
Section 4.04. Removal. Any officer may be removed from
office, whenever in the Board's judgment the best interest of
the Trust will be served thereby, by the vote of a majority
of the Board of Trustees given at any regular or special
meeting. In addition, any officer or agent appointed in
accordance with the provisions of Section 4.13 hereof may be
removed, either with or without cause, by any officer upon
whom such power of removal shall have been conferred by the
Board of Trustees.
Section 4.05. Vacancies and Newly Created Offices. If
any vacancy shall occur in any office by reason of death,
resignation, removal, disqualification, or other cause, or if
any new office shall be created, such vacancy or newly
created office may be filled by the Board of Trustees at any
regular or special meeting or, in the case of any office
created pursuant to Section 4.13 hereof, by any officer upon
whom such power shall have been conferred by the Board of
Trustees. An officer chosen by the Board of Trustees to fill
a vacancy or a newly created office shall serve until the
next annual meeting of the Board of Trustees and until his
successor shall have been chosen and qualified or until his
earlier death, resignation or removal.
Section 4.06. Chairman of the Board. In the absence or
disability of the President, the Chairman of the Board, if
there be such an officer, shall preside at all shareholders'
meetings and at all meetings of the Board of Trustees. He
shall have such other powers and perform such other duties as
may be assigned to him from time to time by the Board of
Trustees.
Section 4.07. President. The President shall be the
chief executive officer and shall preside at all
shareholders' meetings and at all meetings of the Board of
Trustees. Subject to the supervision of the Board of
Trustees, he shall have the general charge of the business,
affairs and property of the Trust and general supervision
over its other officers, employees and agents.
Section 4.08. Executive Vice-Presidents and Vice-
Presidents. The Board of Trustees may from time to time
elect one or more Executive Vice-Presidents and one or more
Vice-Presidents, who shall have such powers and perform such
duties as from time to time may be assigned to them by the
Board of Trustees or the President. At the request of the
President, the Executive Vice-President, and if no Executive
Vice-President is present or able, the Vice-President may
perform all the duties of the President and, when so acting,
shall have all the powers of and be subject to all the
restrictions upon the President. If there are two or more
Executive Vice-Presidents or Vice-Presidents, the earliest
elected to the more senior office present and able shall
perform the duties of the President in his absence or
disability.
Section 4.09. Senior Vice-President. The Senior Vice-
President shall be the principal financial officer of the
Trust and shall have general charge of the finances and books
of account of the Trust. Except as otherwise provided by the
Board of Trustees, he shall have general supervision of the
funds and property of the Trust and of the performance by the
Custodian of its duties with respect thereto. He shall
render to the Board of Trustees, whenever directed by the
Board, an account of the financial condition of the Trust and
of all his transactions as Senior Vice-President; and as soon
as possible after the close of each fiscal year he shall make
and submit to the Board of Trustees a like report for such
fiscal year. He shall perform all the acts
<PAGE> 6
incidental to the office of Senior Vice-President, subject to
the control of the Board of Trustees. At the request of any
Executive Vice-President, or if no Executive Vice-President
is present or able, the Senior Vice-President may perform all
of the duties of the Executive Vice-President (except to the
extent that such duties have otherwise been delegated by or
pursuant to these By-Laws) and, when so acting, shall have
all the powers of and be subject to all the restrictions upon
the Executive Vice-President.
Section 4.10. Treasurer and Assistant Treasurers. The
Treasurer and any Assistant Treasurer may perform such duties
of the Senior Vice-President as the Senior Vice-President or
the Board of Trustees may assign, and, in the absence of the
Senior Vice-President, may perform all the duties of the
Senior Vice-President.
Section 4.11. Secretary and Assistant Secretaries. The
Secretary shall attend to the giving and serving of all
notices of the Trust and shall record all proceedings of the
meetings of the shareholders, Trustees, the Executive
Committee and other committees, in a book to be kept for that
purpose. He shall keep in safe custody the seal of the
Trust, and shall have charge of the records of the Trust,
including the share books and such other books and papers as
the Board of Trustees may direct and such books, reports,
certificates and other documents required by law to be kept,
all of which shall, at all reasonable times, be open to
inspection by any Trustee. He shall perform all the acts
incidental to the office of Secretary, subject to the control
of the Board of Trustees.
Any Assistant Secretary may perform such duties of the
Secretary as the Secretary or the Board of Trustees may
assign, and, in the absence of the Secretary, he may perform
all the duties of the Secretary.
Section 4.12. Controller and Assistant Controllers.
The Controller shall be the chief accounting officer of the
Trust. He shall direct the preparation and maintenance, on a
current basis, of such accounting books, records and reports
as may be necessary to permit the directors, officers and
executives of the Trust or as may be required by law. He
shall perform all the acts incidental to the office of
Controller, subject to the control of the Board of Trustees,
the Executive Vice-President or the Senior Vice-President.
Any Assistant Controller may perform such duties of the
Controller as the Controller or the Board of Trustees may
assign, of the Controller.
Section 4.13. Subordinate Officers. The Board of
Trustees from time to time may appoint such other officers or
agents as it may deem advisable, each of whom shall have such
title, hold office for such period, have such authority and
perform such duties as the Board of Trustees may determine.
The Board of Trustees from time to time may delegate to one
or more officers or agents the power to appoint any such
subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 4.14. Remuneration. The salaries, if any, or
other compensation of the officers of the Trust shall be
fixed from time to time by resolution of the Board of
Trustees, except that the Board of Trustees may by resolution
delegate to any person or group of persons the power to fix
the salaries or other compensation of any subordinate
officers or agents appointed in accordance with the
provisions of Section 4.13 hereof.
Section 4.15. Surety Bonds. The Board of Trustees may
require any officer or agent of the Trust to execute a bond
to the Trust [including, without
<PAGE> 7
limitation, any bond required by the Investment Company Act
of 1940, or any rule or regulation thereunder, all as now in
effect or as hereafter amended or added (the "1940 Act") and
the rules and regulations of the SEC] in such sum and with
such surety or sureties as the Board of Trustees may
determine, conditioned upon the faithful performance of his
duties to the Trust, including responsibility for negligence
and for the accounting of any of the Trust's property, funds,
or securities that may come into his hands.
ARTICLE V. CUSTODY OF SECURITIES
Section 5.01. Employment of a Custodian. The Trust
shall place and at all times maintain in the custody of a
Custodian (including any sub-custodian for the Custodian) all
securities owned by the Trust and cash representing the
proceeds from sales of securities owned by the Trust and of
capital stock or other units of beneficial interest issued to
the Trust, payments of principal upon securities owned by the
Trust, or capital distribution in respect to capital stock or
other units of beneficial interest owned by the Trust,
pursuant to a written contract with such Custodian. The
Custodian shall be a bank or trust company having not less
than $2,000,000 aggregate capital, surplus and undivided
profits (as shown in its last published report).
Section 5.02. Provisions of Custodian Contract. The
Custodian contract shall be upon such terms and conditions
and may provide for such compensation as the Board of
Trustees deems necessary or appropriate, provided such
contract shall further provide that the Custodian shall
deliver securities owned by the Trust only upon sale of such
securities for the account of the Trust and receipt of
payment therefor by the Custodian or when such securities may
be called, redeemed, retired, or otherwise become payable.
Such limitations shall not prevent:
(a) the delivery of securities for examination to the
broker selling the same in accord with the "street delivery"
custom whereby such securities are delivered to such broker
in exchange for a delivery receipt exchanged on the same day
for an uncertified check of such broker to be presented on
the same day for certification;
(b) the delivery of securities of an issuer in exchange
for or for conversion into other securities alone or cash and
other securities, pursuant to any plan of merger,
consolidation, reorganization, recapitalization, or
readjustment of the securities of such issuer;
(c) the conversion by the Custodian of securities owned
by the Trust, pursuant to the provisions of such securities,
into other securities;
(d) the surrender by the Custodian of warrants, rights,
or similar securities owned by the Trust in the exercise of
such warrants, rights, or similar securities, or the
surrender of interim receipts or temporary securities for
definitive securities;
(e) the delivery of securities as collateral on
borrowing effected by the Trust; or
(f) the delivery of securities owned by the Trust as a
redemption in kind of securities issued by the Trust.
<PAGE> 8
The Custodian shall deliver funds of the Trust for the
purchase of securities for the portfolio of the Trust only
upon the delivery of such securities to the Custodian, but
such limitation shall not prevent the release of funds by the
Custodian for redemption of shares issued by the Trust, for
payment of interest, dividend disbursements, taxes or
management fees, for payments in connection with the
conversion, exchange or surrender of securities owned by the
Trust as set forth in subparagraphs (b), (c) and (d) above or
for operating expenses of the Trust.
The term "security" shall be broadly construed and shall
include, without limitation, the various types of securities
set forth in Section 3(a)(10) of the Securities Exchange Act
of 1934.
Section 5.03. Action upon Termination of Custodian
Contract. The contract of employment of the Custodian may be
terminated by either party on 60 days' written notice to the
other party. Upon termination of the Custodian contract,
resignation of the Custodian, or inability of the Custodian
to continue to serve, the Board of Trustees shall use its
best efforts to obtain a successor custodian. If a successor
custodian is found, the Trust shall require the retiring
Custodian to deliver the cash and securities owned by the
Trust directly to the successor custodian. In the event that
no successor custodian which has the required qualifications
and is willing to serve can be found, the Board of Trustees
shall call a special meeting of the shareholders to submit to
the shareholders, before delivery of the cash and securities
owned by the Trust to other than a successor custodian, the
question of whether the Trust shall function without a
custodian or shall be liquidated.
ARTICLE VI. EXECUTION OF INSTRUMENTS, RIGHTS AS
SECURITY HOLDER
Section 6.01. General. All deeds, documents,
transfers, contracts, agreements and other instruments
requiring execution by the Trust shall be signed by the
President, the Executive Vice-President, the Senior Vice-
President, the Controller, the Secretary, or the Treasurer,
or as the Board of Trustees may otherwise, from time to time,
authorize. Any such authorization may be general or confined
to specific instances.
Section 6.02. Checks, Notes, Drafts, Etc. Except as
otherwise authorized by the Board of Trustees, all checks and
drafts for the payment of money shall be signed in the name
of the Trust by the Custodian, and all requisitions or orders
for the payment of money by the Custodian or for the issue of
checks and drafts therefor, all promissory notes, all
assignments of shares or securities standing in the name of
the Trust and all requisitions or orders for the assignment
of shares or securities standing in the name of the Custodian
or its nominee, or for the execution of powers to transfer
the same, shall be signed in the name of the Trust by not
less than two of its officers. Promissory notes, checks, or
drafts payable to the Trust may be endorsed only to the order
of the Custodian or its agent.
Section 6.03. Rights as Security Holder. Unless
otherwise ordered by the Board of Trustees, any officer shall
have full power and authority on behalf of the Trust to (1)
exercise (or waive) any and all rights, powers and privileges
incident to the ownership of any securities or other
obligations which may be owned by the Trust; and (2) attend
and to act and to vote, or in the name of the Trust to
execute proxies to vote, at any meeting of security holders
of any company in which the Trust may hold securities. At
any such meeting, any officer shall possess and may exercise
(in person or by proxy)
<PAGE> 9
any and all rights, powers and privileges incident to the
ownership of such securities.
ARTICLE VII. SHARES OF BENEFICIAL INTEREST
Section 7.01. Certificates. The Trust shall not issue
share certificates after October 31, 1989. Any certificate
issued by the Trust (or a predecessor to the Trust) to a
shareholder prior to November 1, 1989 shall continue to
represent and certify the number, kind, series and class of
full shares owned by him in the Trust. Each certificate is
valid if signed by the President or a Vice-President and
countersigned by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and sealed with the
seal. The signatures may be either manual or facsimile
signatures and the seal may be either facsimile or any other
form of seal. In case any officer who has signed any
certificate ceases to be an officer of the Trust before the
certificate was issued, the certificate nevertheless has the
same effect as if the officer had not ceased to be such
officer as of the date of its issue.
Section 7.02. Uncertificated Shares. The Trust's share
ledger shall be deemed to represent and certify the number of
full and/or fractional shares of a series owned of record by
a shareholder in those instances where a certificate for such
shares has not been issued.
Section 7.03. Transfers of Shares. Shares of any
series of the Trust shall be transferable on the books of the
Trust at the request of the record holder thereof in person
or by a duly authorized attorney, upon presentation to the
Trust or its transfer agent of a duly executed assignment or
authority to transfer, or proper evidence of succession, and,
if the shares are represented by a certificate, a duly
endorsed certificate or certificates of shares surrendered
for cancellation, and with such proof of the authenticity of
the signatures as the Trust or its transfer agent may
reasonably require, provided, whether or not such shares are
represented by any certificate or certificates of shares,
that:
(a) the Trust has no duty to inquire into adverse claims
or has discharged any such duty;
(b) any applicable law relating to the collection of
taxes has been complied with; and
(c) the transfer is in fact rightful or is to a bona
fide purchaser.
The transfer shall be recorded on the books of the Trust
and the old certificates, if any, shall be cancelled.
Section 7.04. Registered Shareholders. The Trust shall
be entitled to treat the holder of record of shares of each
series as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Commonwealth of
Massachusetts.
Section 7.05. Transfer Agents and Registrars. The
Board of Trustees may, from time to time, appoint or remove
transfer agents and/or registrars of transfers of shares of
the Trust, and it may appoint the same person as both
<PAGE> 10
transfer agent and registrar. Upon any such appointment
being made, all certificates representing shares thereafter
issued shall be countersigned by one of such transfer agents
or by one of such registrars of transfers or by both and
shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one
countersignature by such person shall be required.
Section 7.06. Fixing of Record Date. The Board of
Trustees may fix in advance a date as a record date for the
determination of the shareholders of any series entitled to
notice of or to vote at any meeting of such shareholders or
any adjournment thereof, or to express consent to Trust
action in writing without a meeting, or to receive payment of
any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change,
conversion, or exchange of shares of such series, or for the
purpose of any other lawful action, provided that such record
date shall not be a date more than 60 days, and, in the case
of a meeting of shareholders, not less than 10 days, prior to
the date on which the particular action requiring such
determination of shareholders of such series is to be taken.
In such case only such shareholders as shall be shareholders
of record of such series on the record date so fixed shall be
entitled to such notice of, and to vote at, such meeting or
adjournment, or to give such consent, or to receive payment
of such dividend or other distribution, or to receive such
allotment of rights, or to exercise such rights, or to take
such other action, as the case may be, notwithstanding any
transfer or redemption of any shares of such series on the
books of the Trust after any such record date. If no record
date has been fixed for the determination of shareholders,
the record date for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day on which notice
of the meeting is mailed, which shall not be more than 60
days before the meeting, or, if notice is waived by all
shareholders entitled thereto, at the close of business on
the tenth day before the day on which the meeting is held.
Section 7.07. Lost, Stolen, or Destroyed Certificates.
Before transferring on the books of the Trust shares
represented by a certificate that is alleged to have been
lost, stolen, or destroyed, the Board of Trustees or any
officer authorized by the Board may, in its or his
discretion, require the owner of the lost, stolen, or
destroyed certificate (or his legal representative) to give
the Trust a bond or other indemnity, in such form and in such
amount as of the Board or any such officer may direct and
with such surety or sureties as may be satisfactory to the
Board or any such officer, sufficient to indemnify the Trust
against any claim that may be made against it on account of
the alleged loss, theft, or destruction of any such
certificate.
Section 7.08. Resumption of Issuance of
Certificates/Cancellation of Certificates. The Trustees may
at any time resume the issuance of share certificates. The
Trustees may, by written notice to each shareholder, require
the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not
affect the ownership of shares in the Trust.
ARTICLE VIII. FISCAL YEAR, ACCOUNTANT
Section 8.01. Fiscal Year. The fiscal year of each
series of shares of the Trust shall be established by the
Board of Trustees.
<PAGE> 11
Section 8.02. Accountants. For each series of the
shares of the Trust, the Trust shall employ an independent
public accountant or firm of independent public accountants
as the Accountant for such series to examine and certify or
issue its report on the financial statements of that series
of the Trust. Each Accountant's certificates and reports
shall be addressed both to the Board of Trustees and to the
shareholders of the applicable series.
ARTICLE IX. AMENDMENTS
Section 9.01. General. Except as provided in Section
9.02 hereof, all By-Laws of the Trust, whether adopted by the
Board of Trustees or the shareholders, shall be subject to
amendment, alteration, or repeal, and new By-Laws may be
made, by the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of
the Trust entitled to vote at any meeting, the notice or
waiver of notice of which shall have specified or summarized
the proposed amendment, alteration, repeal, or new By-Law; or
(b) the Trustees, at any regular or special meeting.
Section 9.02. By Shareholders Only.
(a) No amendment of any section of these By-Laws shall
be made except by the shareholders of the Trust, if the By-
Laws provide that such section may not be amended, altered or
repealed except by the shareholders.
(b) From and after the issue of any shares of the Trust
to the public, no amendment of this Article IX or Article X
shall be made except by the shareholders of the Trust.
ARTICLE X. MISCELLANEOUS
Section 10.01. Restrictions and Limitations.
(a) Except as hereinafter provided, no officer or
Trustee of the Trust, no partner (or stockholder of a
partner), officer, director, or stockholder of the investment
adviser of the Trust (as that term is defined in the 1940
Act) or of any underwriter of the Trust, and no investment
adviser or underwriter of the Trust shall take long or short
positions in the securities issued by the Trust. The
foregoing provision shall not prevent the purchase from the
Trust of shares of any series issued by the Trust by any
person at the price available to shareholders of the Trust
generally at the time of such purchase, or as described in
the current Prospectus of the Trust, or prior to commencement
of the public offering of shares of the Trust, at the net
asset value of such shares.
(b) The Trust shall not lend assets of the Trust to any
officer or Trustee of the Trust or to any partner (or
stockholder of any partner), officer, director, or
shareholder of, or person financially interested in, the
investment adviser or any underwriter of the Trust, or to the
investment adviser of the Trust or to any underwriter of the
Trust.
<PAGE> 12
(c) The Trust shall not restrict the transferability or
negotiability of the shares of the Trust, except in
conformity with the statements with respect thereto contained
in the Trust's Registration Statement, and not in
contravention of such rules and regulations as the Securities
and Exchange Commissionmay prescribe.
(d) The Trust shall not permit any officer or Trustee of
the Trust, or any officer, director, or partner (or
stockholder of a partner) of the investment adviser or any
underwriter of the Trust to deal for or on behalf of the
Trust with himself as principal or agent, or with any
partnership, association, or trust in which he has a
financial interest; provided that the foregoing provisions
shall not prevent (1) officers and Trustees of the Trust from
buying, holding, or selling shares in the Trust, or from
being officers or directors of or otherwise financially
interested in the investment adviser or any underwriter of
the Trust; (2) purchases or sales of securities or other
property by the Trust from or to an affiliated person or to
the investment adviser or any underwriter of the Trust, if
such transaction is not exempt from applicable provisions of
the 1940 Act; (3) purchases of investments for the portfolio
of the Trust through a securities dealer who is, or one or
more of whose partners, stockholders, officers, or directors
is, an officer or Trustee of the Trust, if such transactions
are handled in the capacity of broker only and commissions
charged do not exceed customary brokerage charges for such
services; (4) employment of legal counsel, registrar,
transfer agent, dividend disbursing agent, or custodian who
is, or has a partner, stockholder, officer, or director who
is, an officer or Trustee of the Trust, if only customary
fees are charged for services to the Trust; (5) sharing
statistical, research, legal and management expenses and
office hire and expenses with any other investment company in
which an officer or Trustee of the Trust is an officer,
trustee, or director or otherwise financially interested.
END OF BY-LAWS
<PAGE>
C E R T I F I C A T E
I, Jilaine Hummel Bauer, hereby certify that I am the
duly elected and acting Secretary of SteinRoe Income Trust
(the "Trust"), a business trust organized under the laws of
the Commonwealth of Massachusetts, that the following is a
true and correct copy of a resolution adopted by the Board of
Trustees of said Trust at a meeting held on February 3, 1993
in accordance with the By-Laws, and that such resolution is
still in full force and effect.
RESOLVED that Section 2.01 of the By-Laws of the
Trust is amended and restated as follows:
Section 2.01. Number and Term of Office. The Board
of Trustees shall initially consist of the initial
sole Trustee, which number may be increased or
subsequently decreased by a resolution of a
majority of the entire Board of Trustees, provided
that the number of Trustees shall not be less than
one nor more than twenty-one. Each Trustee
(whenever selected) shall hold office until the
next meeting of shareholders and until his
successor is elected and qualified or until his
earlier death, resignation, or removal. Each
Trustee shall retire on December 31 of the year
during which the Trustee becomes age 72; provided,
however, that any Trustee in office and age 70 or
older on February 3, 1993 shall retire on December
31 of the year during which the Trustee becomes age
77. The initial Trustee shall be the person
designated in the Declaration of Trust.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of said Trust this 4th day of February, 1993.
JILAINE HUMMEL BAUER
Secretary
(SEAL)
<PAGE>
Exhibit 5(a)
MANAGEMENT AGREEMENT
BETWEEN
STEIN ROE INCOME TRUST
AND
STEIN ROE & FARNHAM INCORPORATED
STEIN ROE 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 furnish investment advisory and portfolio
management services with respect to the portion of its assets
represented by the shares of beneficial interest issued in each
series listed in Schedule A hereto, as such schedule may be
amended from time to time (each such series hereinafter referred
to as "Fund"). Trust and Manager hereby agree that:
1. INVESTMENT MANAGEMENT SERVICES. Manager shall manage
the investment operations of Trust and each Fund, subject to the
terms of this Agreement and to the supervision and control of
Trust's Board of Trustees ("Trustees"). Manager agrees to
perform, or arrange for the performance of, the following
services with respect to each Fund:
(a) to obtain and evaluate such information relating to
economies, industries, businesses, securities and
commodities markets, and individual securities, commodities
and indices as it may deem necessary or useful in
discharging its responsibilities hereunder;
(b) to formulate and maintain a continuing investment program in
a manner consistent with and subject to (i) Trust's
agreement and declaration of trust and by-laws; (ii) the
Fund's investment objectives, policies, and restrictions as
set forth in written documents furnished by the Trust to
Manager; (iii) all securities, commodities, and tax laws and
regulations applicable to the Fund and Trust; and (iv) any
other written limits or directions furnished by the Trustees
to Manager;
(c) unless otherwise directed by the Trustees, to determine from
time to time securities, commodities, interests or other
investments to be purchased, sold, retained or lent by the
Fund, and to implement those decisions, including the
selection of entities with or through which such purchases,
sales or loans are to be effected;
(d) to use reasonable efforts to manage the Fund so that it will
qualify as a regulated investment company under subchapter M
of the Internal Revenue Code of 1986, as amended;
(e) to make recommendations as to the manner in which voting
rights, rights to consent to Trust or Fund action, and any
other rights pertaining to Trust or the Fund shall be
exercised;
(f) to make available to Trust promptly upon request all of the
Fund's records and ledgers and any reports or information
reasonably requested by the Trust; and
(g) to the extent required by law, to furnish to regulatory
authorities any information or reports relating to the
services provided pursuant to this Agreement.
Except as otherwise instructed from time to time by the
Trustees, with respect to execution of transactions for Trust on
behalf of a Fund, Manager shall place, or arrange for the
placement of, all orders for purchases, sales, or loans with
issuers, brokers, dealers or other counterparties or agents
selected by Manager. In connection with the selection of all
such parties for the placement of all such orders, Manager shall
attempt to obtain most favorable execution and price, but may
nevertheless in its sole discretion as a secondary factor,
purchase and sell portfolio securities from and to brokers and
dealers who provide Manager with statistical, research and other
information, analysis, advice, and similar services. In
recognition of such services or brokerage services provided by a
broker or dealer, Manager is hereby authorized to pay such
broker or dealer a commission or spread in excess of that which
might be charged by another broker or dealer for the same
transaction if the Manager determines in good faith that the
commission or spread is reasonable in relation to the value of
the services so provided.
Trust hereby authorizes any entity or person associated
with Manager that is a member of a national securities exchange
to effect any transaction on the exchange for the account of a
Fund to the extent permitted by and in accordance with Section
11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder. Trust hereby consents to the retention by such
entity or person of compensation for such transactions in
accordance with Rule 11a-2-2(T)(a)(iv).
Manager may, where it deems to be advisable, aggregate
orders for its other customers together with any securities of
the same type to be sold or purchased for Trust or one or more
Funds in order to obtain best execution or lower brokerage
commissions. In such event, Manager shall allocate the shares
so purchased or sold, as well as the expenses incurred in the
transaction, in a manner it considers to be equitable and fair
and consistent with its fiduciary obligations to Trust, the
Funds, and Manager's other customers.
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. ADMINISTRATIVE SERVICES. Manager shall supervise the
business and affairs of Trust and each Fund and shall provide
such services and facilities as may be required for effective
administration of Trust and Funds as are not provided by
employees or other agents engaged by Trust; provided that
Manager shall not have any obligation to provide under this
Agreement any such services which are the subject of a separate
agreement or arrangement between Trust and Manager, any
affiliate of Manager, or any third party administrator
("Administrative Agreements").
3. USE OF AFFILIATED COMPANIES AND SUBCONTRACTORS. In
connection with the services to be provided by Manager under
this Agreement, Manager may, to the extent it deems appropriate,
and subject to compliance with the requirements of applicable
laws and regulations and upon receipt of written approval of the
Trustees, make use of (i) its affiliated companies and their
directors, trustees, officers, and employees and (ii)
subcontractors selected by Manager, provided that Manager shall
supervise and remain fully responsible for the services of all
such third parties in accordance with and to the extent provided
by this Agreement. All costs and expenses associated with
services provided by any such third parties shall be borne by
Manager or such parties.
4. EXPENSES BORNE BY TRUST. Except to the extent
expressly assumed by Manager herein or under a separate
agreement between Trust and Manager and except to the extent
required by law to be paid by Manager, Manager shall not be
obligated to pay any costs or expenses incidental to the
organization, operations or business of the Trust. Without
limitation, such costs and expenses shall include but not be
limited to:
(a) all charges of depositories, custodians and other agencies
for the safekeeping and servicing of its cash, securities,
and other property;
(b) all charges for equipment or services used for obtaining
price quotations or for communication between Manager or
Trust and the custodian, transfer agent or any other agent
selected by Trust;
(c) all charges for administrative and accounting services
provided to Trust by Manager, or any other provider of such
services;
(d) all charges for services of Trust's independent auditors and
for services to Trust by legal counsel;
(e) all compensation of Trustees, other than those affiliated
with Manager, all expenses incurred in connection with their
services to Trust, and all expenses of meetings of the
Trustees or committees thereof;
(f) all expenses incidental to holding meetings of holders of
units of interest in the Trust ("Unitholders"), including
printing and of supplying each record-date Unitholder with
notice and proxy solicitation material, and all other proxy
solicitation expense;
(g) all expenses of printing of annual or more frequent
revisions of Trust prospectus(es) and of supplying each
then-existing Unitholder with a copy of a revised
prospectus;
(h) all expenses related to preparing and transmitting
certificates representing Trust shares;
(i) all expenses of bond and insurance coverage required by law
or deemed advisable by the Board of Trustees;
(j) all brokers' commissions and other normal charges incident
to the purchase, sale, or lending of portfolio securities;
(k) all taxes and governmental fees payable to Federal, state or
other governmental agencies, domestic or foreign, including
all stamp or other transfer taxes;
(l) all expenses of registering and maintaining the registration
of Trust under the 1940 Act and, to the extent no exemption
is available, expenses of registering 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 Trust or its business activities;
(m) all interest on indebtedness, if any, incurred by Trust or a
Fund; and
(n) all fees, dues and other expenses incurred by Trust in
connection with membership of Trust in any trade association
or other investment company organization.
5. ALLOCATION OF EXPENSES BORNE BY TRUST. Any expenses
borne by Trust that are attributable solely to the organization,
operation or business of a Fund shall be paid solely out of Fund
assets. Any expense borne by Trust which is not solely
attributable to a 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.
6. EXPENSES BORNE BY MANAGER. Manager at its own expense
shall furnish all executive and other personnel, office space,
and office facilities required to render the investment
management and administrative services set forth in this
Agreement. Manager shall pay all expenses of establishing,
maintaining, and servicing the accounts of Unitholders in each
Fund listed in Exhibit A. However, Manager shall not be
required to pay or provide any credit for services provided by
Trust's custodian or other agents without additional cost to
Trust.
In the event that Manager pays or assumes any expenses of
Trust or a Fund not required to be paid or assumed by Manager
under this Agreement, Manager shall not be obligated hereby to
pay or assume the same or similar expense in the future;
provided that nothing contained herein shall be deemed to
relieve Manager of any obligation to Trust or a Fund under any
separate agreement or arrangement between the parties.
7. MANAGEMENT FEE. For the services rendered, facilities
provided, and charges assumed and paid by Manager hereunder,
Trust shall pay to Manager out of the assets of each Fund fees
at the annual rate for such Fund as set forth in Schedule B to
this Agreement. For each Fund, the management fee shall accrue
on each calendar day, and shall be payable monthly on the first
business day of the next succeeding calendar month. The daily
fee accrual shall be computed by multiplying the fraction of one
divided by the number of days in the calendar year by the
applicable annual rate of fee, and multiplying this product by
the net assets of the Fund, determined in the manner established
by the Board of Trustees, as of the close of business on the
last preceding business day on which the Fund's net asset value
was determined.
8. RETENTION OF SUB-ADVISER. Subject to obtaining the
initial and periodic approvals required under Section 15 of the
1940 Act, Manager may retain one or more sub-advisers at
Manager's own cost and expense for the purpose of furnishing one
or more of the services described in Section 1 hereof with
respect to Trust or one or more Funds. Retention of a sub-
adviser shall in no way reduce the responsibilities or
obligations of Manager under this Agreement, and Manager shall
be responsible to Trust and its Funds for all acts or omissions
of any sub-adviser in connection with the performance of
Manager's duties hereunder.
9. NON-EXCLUSIVITY. The services of Manager to Trust
hereunder are not to be deemed exclusive and Manager shall be
free to render similar services to others.
10. STANDARD OF CARE. Neither Manager, nor any of its
directors, officers, stockholders, agents or employees shall be
liable to Trust or its Unitholders for any error of judgment,
mistake of law, loss arising out of any investment, or any other
act or omission in the performance by Manager of its duties
under this Agreement, except for loss or liability resulting
from willful misfeasance, bad faith or gross negligence on
Manager's part or from reckless disregard by Manager of its
obligations and duties under this Agreement.
11. AMENDMENT. This Agreement may not be amended as to
Trust or any Fund 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 Trust or, with respect to an amendment
affecting an individual Fund, a "majority of the outstanding
shares" of that Fund. The terms "interested persons" and "vote
of a majority of the outstanding shares" shall be construed in
accordance with their respective definitions in the 1940 Act
and, with respect to the latter term, in accordance with Rule
18f-2 under the 1940 Act.
12. EFFECTIVE DATE AND TERMINATION. This Agreement shall
become effective as to any Fund as of the effective date for
that Fund specified in Schedule A hereto. This Agreement may be
terminated at any time, without payment of any penalty, as to
any Fund by the Board of Trustees of Trust, or by a vote of a
majority of the outstanding shares of that 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
the 1940 Act). Unless terminated as hereinbefore provided, this
Agreement shall continue in effect with respect to any Fund
until the end of the initial term applicable to that Fund
specified in Schedule A and thereafter from year to year only so
long as such continuance is specifically approved with respect
to that Fund 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
the Fund.
13. OWNERSHIP OF RECORDS; INTERPARTY REPORTING. All
records required to be maintained and preserved by Trust
pursuant to the provisions of rules or regulations of the
Securities and Exchange Commission under Section 31(a) of the
1940 Act or other applicable laws or regulations which are
maintained and preserved by Manager on behalf of Trust and any
other records the parties mutually agree shall be maintained by
Manager on behalf of Trust are the property of Trust and shall
be surrendered by Manager promptly on request by Trust; provided
that Manager may at its own expense make and retain copies of
any such records.
Trust shall furnish or otherwise make available to Manager
such copies of the financial statements, proxy statements,
reports, and other information relating to the business and
affairs of each Unitholder in a Fund as Manager may, at any time
or from time to time, reasonably require in order to discharge
its obligations under this Agreement.
Manager shall prepare and furnish to Trust as to each Fund
statistical data and other information in such form and at such
intervals as Trust may reasonably request.
14. NON-LIABILITY OF TRUSTEES AND UNITHOLDERS. Any
obligation of Trust hereunder shall be binding only upon the
assets of Trust (or the applicable Fund thereof) and shall not
be binding upon any Trustee, officer, employee, agent or
Unitholder of Trust. Neither the authorization of any action by
the Trustees or Unitholders of Trust nor the execution of this
Agreement on behalf of Trust shall impose any liability upon any
Trustee or any Unitholder.
15. USE OF MANAGER'S NAME. Trust may use the name "Stein
Roe Income Trust" and the Fund names listed in Schedule A or any
other name derived from the name "Stein Roe & Farnham" only for
so long as this Agreement or any extension, renewal, or
amendment hereof remains in effect, including any similar
agreement with any organization which shall have succeeded to
the business of Manager as investment adviser. At such time as
this Agreement or any extension, renewal or amendment hereof, or
such other similar agreement shall no longer be in effect, Trust
will cease to use any name derived from the name "Stein Roe &
Farnham" or otherwise connected with Manager, or with any
organization which shall have succeeded to Manager's business as
investment adviser.
16. REFERENCES AND HEADINGS. In this Agreement and in any
such amendment, references to this Agreement and all expressions
such as "herein," "hereof," and "hereunder" shall be deemed to
refer to this Agreement as amended or affected by any such
amendments. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this
Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
Dated: July 1, 1996
STEIN ROE INCOME TRUST
By: /S/ TIMOTHY K. ARMOUR
Timothy K. Armour
President
Attest:
/S/ JILAINE HUMMEL BAUER
Jilaine Hummel Bauer
Secretary
STEIN ROE & FARNHAM INCORPORATED
By: /S/ HANS P. ZIEGLER
Hans P. Ziegler
Chief Executive Officer
Attest:
/S/ JILAINE HUMMEL BAUER
Jilaine Hummel Bauer
Secretary
<PAGE>
STEIN ROE INCOME TRUST
MANAGEMENT AGREEMENT
SCHEDULE A
The Funds of the Trust currently subject to this Agreement are
as follows:
Effective End of
Date Initial Term
--------- ------------
Stein Roe Income Fund 7/1/96 6/30/98
Stein Roe Government Income Fund 7/1/96 6/30/98
Stein Roe Intermediate Bond Fund 7/1/96 6/30/98
Stein Roe Cash Reserves Fund 7/1/96 6/30/98
Stein Roe Government Reserves Fund 7/1/96 6/30/98
Stein Roe Limited Maturity
Income Fund 7/1/96 6/30/98
Dated: July 1, 1996
<PAGE>
STEIN ROE INCOME TRUST
MANAGEMENT AGREEMENT
SCHEDULE B
Compensation pursuant to Section 7 of this Agreement shall be
calculated in accordance with the following schedules applicable
to average daily net assets of the Funds:
Schedule (Stein Roe Cash Reserves Fund, Stein Roe Government
Reserves Fund)
- ------------------------------------------------------------
0.250% of average daily net assets
Schedule (Stein Roe Income Fund)
- --------------------------------
0.500% on first $100 million of average daily net assets
0.475% thereafter
Schedule (Stein Roe Government Income Fund)
- -------------------------------------------
0.450% on first $100 million of average daily net assets
0.425% thereafter
Schedule (Stein Roe Intermediate Bond Fund)
- -------------------------------------------
0.350% of average daily net assets
Schedule (Stein Roe Limited Maturity Income Fund)
- -------------------------------------------------
0.450% on first $100 million of average daily net assets
0.425% on next $100 million of average daily net assets
0.400% thereafter
Dated: July 1, 1996
<PAGE>
EXHIBIT 6
UNDERWRITING AGREEMENT BETWEEN
THE STEINROE MUTUAL FUNDS
AND LIBERTY SECURITIES CORPORATION
THIS UNDERWRITING AGREEMENT ("Agreement"), made as of
the 22nd day of June, 1987 by and between each of the mutual
funds managed by Stein Roe & Farnham Incoprorated set forth
in the attached Exhibit A, each being a corporation organized
and existing under the laws of the State of Maryland except
for SteinRoe High-Yield Bonds, SteinRoe Governments Plus and
SteinRoe Equity Portfolio, each of which is a business trust
organized and existing under the laws of the Commonwealth of
Massachusetts (hereinafter called, collectively, the "Funds"
and, individually, the "Fund"), and Liberty Securities
Corporation, a corporation organized and existing under the
laws of the State of Delaware (hereinafter call the
"Distributor").
WITNESSETH:
WHEREAS, each Fund is engaged in business as an open-end
management investment company registered under the Investment
Company Act of 1940, as amended ("ICA-40"); and
WHEREAS, the Distributor is registered as a broker-
dealer under the Securities Exchange Act of 1934, as amended
("SEA-34") and, the laws of each state (including the
District of Columbia and Puerto Rico) in which it engages in
business to the extent such law requires, and is a member of
the National Association of Securities Dealers ("NASD") (such
registrations and membership are referred to collectively as
the "Registrations"); and
WHEREAS, each Fund desires the Distributor to act as the
distributor in the public offering of its shares of capital
stock or, in the case of a Fund organized as a business
trust, its shares of beneficial interest (hereinafter called
"Shares");
WHEREAS, each Fund shall pay all charges of its
transfer, shareholder recordkeeping, dividend disbursing and
redemption agents, if any; all expenses of notices, proxy
solicitation material and reports to shareholders; all
expenses of preparation and printing of annual or more
frequent revisions of the Fund's Prospectus and Supplemental
Information Statement and of supplying copies thereof to
shareholders; all expenses of registering and maintaining the
registration of such Fund under ICA-40 and of such Fund's
Shares under the Securities Act of 1933, as amended ("SA-
33"); all expenses of qualifying and maintaining
qualification of such Fund and of such Fund's Shares for sale
under securities laws of various states or other
jurisdictions and of registration and qualification of such
Fund under all laws applicable to such Fund or its business
activities;
WHEREAS, Stein Roe & Farnham Incorporated, investment
adviser to the Funds, shall pay all expenses incurred in the
sale and promotion of each Fund;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the
mutual promises hereinafter set forth, the parties hereto
agree as follows:
1. Appointment. Each Fund appoints Distributor to act
as principal underwriter (as such term is defined in Sections
2(a)(29) of ICA-40) of its Shares.
2. Delivery of Fund Documents. Each Fund has furnished
Distributor with properly certified or authenticated copies
of each of the following in effect on the date hereof and
shall furnish Distributor from time to time properly
certified or authenticated copies of all amendments or
supplements thereto:
(a) Articles of Incorporation or, in the case of a Fund
organized as a business trust, Agreement and
Declaration of Trust;
(b) By-Laws;
(c) Resolutions of the Board of Directors or, in the
case of a Fund organized as a business trust, the
Board of Trustees of the Fund (hereinafter referred
to as the "Board") selecting Distributor as
distributor and approving this form of agreement and
authorizing its execution.
Each Fund shall furnish Distributor promptly with copies
of any registration statements filed by it with the
Securities and Exchange Commission ("SEC") under SA-33 or
ICA-40, together with any financial statements and exhibits
included therein, and all amendments or supplements thereto
hereafter filed.
Each Fund also shall furnish Distributor such other
certificates or documents which Distributor may from time to
time, in its discretion, reasonably deem necessary or
appropriate in the proper performance of its duties.
3. Solicitation of Orders for Purchase of Shares.
(a) Subject to the provisions of Paragraphs 4, 5 and 7
hereof, and to such minimum purchase requirements as may from
time to time be indicated in each Fund's Prospectus,
Distributor is authorized to solicit, as agent on behalf of
each Fund, unconditional orders for purchases of such Fund's
Shares authorized for issuance and registered under SA-33,
provided that:
(1) Distributor shall act solely as a disclosed agent
on behalf of and for the account of each Fund;
(2) Each Fund or its transfer agent shall receive
directly from investors all payments for the
purchase of such Fund's Shares and also shall pay
directly to shareholders amounts due to them for
the redemption or repurchase of all such Fund's
Shares with Distributor having no rights or duties
to accept such payment or to effect such
redemptions or repurchases;
<PAGE> 3
(3) Distributor shall confirm all orders received for
purchase of a Fund's Shares which confirmation
shall clearly state (i) that Distributor is acting
as agent of such Fund in the transaction (ii) that
all certificates for redemption, remittances, and
registration instructions should be sent directly
to the Fund, and (iii) the Fund's mailing address;
(4) Distributor shall have no liability for payment for
purchases of a Fund's Shares it sells as agent;
and
(5) Each order to purchase Shares of a Fund received
by Distributor shall be subject to acceptance by an
officer of such Fund in Chicago and entry of the
order on such Fund's records or shareholder
accounts and is not binding until so accepted and
entered.
The purchase price to the public of a Fund's Shares
shall be the public offering price as defined in Paragraph 6
hereof.
(b) In consideration of the rights granted to the
Distributor under this Agreement, Distributor will use its
best efforts (but only in states in which Distributor may
lawfully do so) to solicit from investors unconditional
orders to purchase Shares of each Fund. Each Fund shall make
available to the Distributor without cost to the Distributor
such number of copies of the Fund's currently effective
Prospectus and Supplemental Information Statement and copies
of all information, financial statements and other papers
which the Distributor may reasonably request for use in
connection with the distribution of Shares.
4. Solicitation of Orders to Purchase Shares by Fund.
The rights granted to the Distributor shall be non-exclusive
in that each Fund reserves the right to solicit purchases
from, and sell its Shares to, investors. Further, each Fund
reserves the right to issue Shares in connection with the
merger or consolidation of any other investment company,
trust or personal holding company with such Fund, or such
Fund's acquisition, by the purchase or otherwise, of all or
substantially all of the assets of an investment company,
trust or personal holding company, or substantially all of
the outstanding shares or interests of any such entity. Any
right granted to Distributor to solicit purchases of Shares
will not apply to Shares that may be offered by a Fund to
shareholders by virtue of their being shareholders of such
Fund.
5. Shares Covered by this Agreement. This Agreement
relates to the solicitation of orders to purchase Shares that
are duly authorized and registered and available for sale by
each Fund, including redeemed or repurchased Shares if and to
the extent that they may be legally sold and if, but only if,
a Fund authorizes the Distributor to sell them.
6. Public Offering Price. All solicitations by the
Distributor pursuant to this Agreement shall be for orders to
purchase Shares of a Fund at the public offering price. The
public offering price for each accepted subscription for a
Fund's Shares will be the net asset value per share next
determined by such Fund after it accepts such subscription.
The net asset value per share shall be determined in the
manner provided in such Fund's
<PAGE> 4
Articles of Incorporation or Agreement and Declaration of
Trust as now in effect or as they may be amended, and as
reflected in such Fund's then current Prospectus and
Supplemental Information Statement.
7. Suspension of Sales. If and whenever the
determination of a Fund's net asset value is suspended and
until such suspension is terminated, no further orders for
Shares shall be accepted by the Fund except such
unconditional orders placed with the Fund and accepted by it
before the suspension. In addition, each Fund reserves the
right to suspend sales of Shares if, in the judgement of the
Board of such Fund, it is in the best interest of the Fund to
do so, such suspension to continue for such period as may be
determined by the Board of the Fund; and in that event, (i)
at the direction of the Fund, Distributor shall suspend its
solicitation of orders to purchase Shares of such Fund until
otherwise instructed by such Fund and (ii) no orders to
purchase Shares shall be accepted by the Fund while such
suspension remains in effect unless otherwise directed by its
Board.
8. Authorized Representations. No Fund is authorized
by the Distributor to give on behalf of the Distributor any
information or to make any representations other than the
information and representations contained in such Fund's
registration statement filed with the SEC under SA-33 and/or
ICA-40 as it may be amended from time to time.
Distributor is not authorized by any Fund to give on
behalf of such Fund any information or to make any
representations in connection with the sale of Shares other
than the information and representations contained in such
Fund's registration statement filed with the SEC under SA-33
and/or ICA-40, covering Shares, as such registration
statement or such Fund's prospectus may be amended or
supplemented from time to time, or contained in shareholder
reports or other material that may be prepared by or on
behalf of such Fund or approved by such Fund for the
Distributor's use. No person other than Distributor is
authorized to act as principal underwriter (as such term is
defined in ICA-40, as amended) for the Funds.
9. Registration of Additional Shares. Each Fund hereby
agrees to register either (i) an indefinite number of Shares
pursuant to Rule 24f-2 under ICA-40, or (ii) a definite
number of Shares as such Fund shall deem advisable pursuant
to Rule 24e-2 under ICA-40, as amended. Each Fund will, in
cooperation with the Distributor, take such action as may be
necessary from time to time to qualify the Shares (so
registered or otherwise qualified for sale under SA-33), in
any state mutually agreeable to the Distributor and such
Fund, and to maintain such qualification; provided, however,
that nothing herein shall be deemed to prevent such Fund from
registering its shares without approval of the Distributor in
any state it deems appropriate.
10. Conformity With Law. Distributor agrees that in
soliciting orders to purchase Shares it shall duly conform in
all respects with applicable federal and state laws and the
rules and regulations of the NASD. Distributor will use its
best efforts to maintain its Registrations in good standing
during the term of this Agreement and will promptly notify
the Funds and Stein Roe & Farnham Incorporated in the event
of the suspension or termination of any of the Registrations.
<PAGE> 5
11. Independent Contractor. Distributor shall be an
independent contractor and neither the Distributor, nor any
of its officers, directors, employees, or representatives is
or shall be an employee of any Fund in the performance of
Distributor's duties hereunder. Distributor shall be
responsible for its own conduct and the employment, control,
and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents and
employees and agrees to pay all employee taxes thereunder.
12. Indemnification. Distributor agrees to indemnify
and hold harmless each Fund and each of the members of its
Board and its officers, employees and representatives and
each person, if any, who controls such Fund within the
meaning of Section 15 of SA-33 against any and all losses,
liabilities, damages, claims and expenses (including the
reasonable costs of investigating or defending any alleged
loss, liability, damage, claim or expense and reasonable
legal counsel fees incurred in connection therewith) to which
such Fund or such of the members of its Board and of its
officers, employees, representatives, or controlling person
or persons may become subject under SA-33, under any other
statute, at common law, or otherwise, arising out of the
acquisition of any Shares of such Fund by any person which
(i) may be based upon any wrongful act by Distributor or any
of Distributor's directors, officers, employees or
representatives, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact
contained in a registration statement, Prospectus,
Supplemental Information Statement, shareholder report or
other information covering Shares of such Fund filed or made
public by such Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading if such statement
or omission was made in reliance upon information furnished
to such Fund by Distributor in writing. In no case (i) is
Distributor's indemnity in favor of a Fund, or any person
indemnified, to be deemed to protect such Fund or such
indemnified person against any liability to which such Fund
or such person would otherwise be subject by reason of
willful misfeasance, bad faith, or negligence in the
performance of its or his duties or by reason of its or his
reckless disregard of its or his obligations and duties under
this Agreement or (ii) is Distributor to be liable under its
indemnity agreement contained in this paragraph with respect
to any claim made against a Fund or any person indemnified
unless such Fund or such person, as the case may be, shall
have notified Distributor in writing of the claim within a
reasonable time after the summons, or other first written
notification, giving information of the nature of the claim
served upon such Fund or upon such person (or after such Fund
or such person shall have received notice of such service on
any designated agent). However, failure to notify
Distributor of any such claim shall not relieve Distributor
from any liability which Distributor may have to a Fund or
any person against whom such action is brought otherwise than
on account of Distributor's indemnity agreement contained in
this Paragraph.
Distributor shall be entitled to participate, at its own
expense, in the defense, or, if Distributor so elects, to
assume the defense of any suit brought to enforce any such
claim but, if Distributor elects to assume the defense, such
defense shall be conducted by legal counsel chosen by
Distributor and satisfactory to the persons indemnified who
are defendants in the
<PAGE> 6
suit. In the event that Distributor elects to assume the
defense of any such suit and retain such legal counsel,
persons indemnified who are defendants in the suit shall bear
the fees and expenses of any additional legal counsel
retained by them. If Distributor does not elect to assume
the defense of any such suit, Distributor will reimburse
persons indemnified who are defendants in such suit for the
reasonable fees of any legal counsel retained by them in such
litigation.
Each Fund agrees to indemnify and hold harmless
Distributor and each of its directors, officers, employees,
and representatives and each person, if any, who controls
Distributor within the meaning of Section 15 of SA-33 against
any and all losses, liabilities, damages, claims or expenses
(including the damage, claim or expense and reasonable legal
counsel fees incurred in connection therewith) to which
Distributor or such of its directors, officers, employees,
representatives or controlling person or persons may become
subject under SA-33, under any other statute, at common law,
or otherwise arising out of the acquisition of any Shares by
any person which (i) may be based upon any wrongful act by
such Fund or any of the members of such Fund's Board, or such
Fund's officers, employees or representatives other than
Distributor, or (ii) may be based upon any untrue statement
or alleged untrue statement of a material fact contained in a
registration statement, Prospectus, Supplemental Information
Statement, shareholder report or other information covering
Shares filed or made public by such Fund or any amendment
thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading unless such statement or omission was made in
reliance upon information furnished by Distributor to such
Fund. In no case (i) is such Fund's indemnity in favor of
the Distributor or any person indemnified to be deemed to
protect the Distributor or such indemnified person against
any liability to which Distributor or such indemnified person
would otherwise be subject by reason of willful misfeasance,
bad faith, or negligence in the performance of its or his
duties or by reason of its or his reckless disregard of its
or his obligations and duties under this Agreement, or (ii)
is the Fund to be liable under its indemnity agreement
contained in this Paragraph with respect to any claim made
against Distributor or any person indemnified unless
Distributor, or such person, as the case may be, shall have
notified the Fund in writing of the claim within a reasonable
time after the summons, or other first written notification,
giving information of the nature of the claim served upon
Distributor or upon such person (or after Distributor or such
person shall have received notice of such service on any
designated agent). However, failure to notify a Fund of any
such claim shall not relieve such Fund from any liability
which such Fund may have to Distributor or any person against
whom such action is brought otherwise than on account of such
Fund's indemnity agreement contained in this Paragraph.
Each Fund shall be entitled to participate, at its own
expense, in the defense or, if the Fund so elects, to assume
the defense of any suit brought to enforce such claim but, if
the Fund elects to assume the defense, such defense shall be
conducted by legal counsel chosen by the Fund and
satisfactory to the persons indemnified who are defendants in
the suit. In the event that a Fund elects to assume the
defense of any such suit and retain such legal counsel, the
persons indemnified who are defendants in the suit
<PAGE> 7
shall bear the fees and expenses of any additional legal
counsel retained by them. If a Fund does not elect to assume
the defense of any such suit, the Fund will reimburse the
persons indemnified who are defendants in such suit for the
reasonable fees and expenses of any legal counsel retained by
them in such litigation.
13. Duration and Termination of this Agreement. With
respect to each Fund and the Distributor, this Agreement
shall become effective upon its execution ("Effective Date")
and unless terminated as provided herein, shall remain in
effect through June 22, 1989, and from year to year
thereafter, but only so long as such continuance is
specifically approved at least annually (a) by a vote of
majority of the members of the Board of such Fund who are not
interested persons of the Distributor or of the Fund, voting
in person at a meeting called for the purpose of voting on
such approval, and (b) by the vote of either the Board of
such Fund or a majority of the outstanding shares of such
Fund. This Agreement may be terminated by and between an
individual Fund and Distributor at any time, without the
payment of any penalty (a) on 60 days' written notice, by the
Board of such Fund or by a vote of a majority of the
outstanding Shares of such Fund, or by Distributor, or (b)
immediately, on written notice by the Board of such Fund, in
the event of termination or suspension of any of the
Registrations. This Agreement will automatically terminate
in the event of its assignment. In interpreting the
provisions of this Paragraph 13, the definitions contained in
Section 2(a) of ICA-40 (particularly the definitions of
"interested person", "assignment", and "majority of the
outstanding shares") shall be applied.
14. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged, or terminated
orally, but only by an instrument in writing signed by each
party against which enforcement of the change, waiver,
discharge, or termination is sought. If a Fund should at any
time deem it necessary or advisable in the best interests of
such Fund that any amendment of this Agreement be made in
order to comply with the recommendations or requirements of
the SEC or any other governmental authority or to obtain any
advantage under state or Federal tax laws and notifies
Distributor of the form of such amendment, and the reasons
therefore, and if Distributor should decline to assent to
such amendment, such Fund may terminate this Agreement
forthwith. If Distributor should at any time request that a
change be made in a Fund's Articles of Incorporation or
Agreement and Declaration of Trust or By-Laws or in its
methods of doing business, in order to comply with any
requirements of Federal law or regulations of the SEC, or of
a national securities association of which Distributor is or
may be a member, relating to the sale of Shares, and such
Fund should not make such necessary changes within a
reasonable time, Distributor may terminate this Agreement
forthwith.
15. Liability. It is understood and expressly
stipulated that neither the shareholders of a Fund nor the
members of the Board of such Fund shall be personally liable
hereunder. The obligations of a Fund are not personally
binding upon, nor shall resort to the private property of,
any of the members of the Board of such Fund, nor of the
shareholders, officers, employees or agents of such Fund, but
only such Fund's property shall be bound.
16. Miscellaneous. The captions in this Agreement are
included for convenience or reference only, and in no way
define or limit any of the
<PAGE> 8
provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
17. Notice. Any notice required or permitted to be
given by a party to this Agreement or to any other party
hereunder shall be deemed sufficient if delivered in person
or sent by registered or certified mail, postage prepaid,
addressed by the party giving notice to each such other party
at the address provided below or to the last address
furnished by each such other party to the party giving
notice.
If to a Fund: 300 West Adams Street
Chicago, Illinois 60606
Attn: Secretary
If to Distributor: 600 Atlantic Avenue
Boston, Massachusetts 02212
Attn: Secretary
If to Stein Roe & Farnham
Incorporated: 1 South Wacker Drive
Chicago, Illinois 60606
Attn: Secretary
LIBERTY SECURITIES CORPORATION
By: JOHN T. TREECE
Vice President
ATTEST:
JOHN A. BENNING
Secretary
STEINROE MUTUAL FUNDS*
By: JAMES D. WINSHIP
Executive Vice President
ATTEST:
JILAINE HUMMEL BAUER
Secretary
ACKNOWLEDGED BY: STEIN ROE & FARNHAM INCORPORATED
By: JAMES D. WINSHIP
Executive Vice President
*See Exhibit A
ATTEST:
JAMES W. ATKINSON
Secretary
<PAGE>
Revised Exhibit A to Distribution Agreement
Between the Stein Roe Mutual Funds and
Liberty Securities Corporation
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe High Yield Fund
STEIN ROE INVESTMENT TRUST
Stein Roe Growth & Income Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Special Venture Fund
Stein Roe Balanced Fund
Stein Roe Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
11/96
<PAGE>
FIRST AMENDMENT TO
UNDERWRITING AGREEMENT
BETWEEN
THE STEINROE MUTUAL FUNDS
AND LIBERTY SECURITIES CORPORATION
This amendment, made this 28th day of October, 1992 (the
"First Amendment"), amends the Underwriting Agreement dated
June 22, 1987 (the "Agreement") by and among Stein Roe Income
Trust and Stein Roe Investment Trust (the "Funds"), each a
Massachusetts business trust, and Liberty Securities
Corporation (the "Distributor"), a Delaware Corporation.
WHEREAS, each of the Funds wishes to authorize the
Distributor to enter into agreements with other broker-
dealers providing for the sale of shares of beneficial
interest of the Fund;
NOW, THEREFORE, the Agreement is hereby amended by
adding the following after Section 3:
"Section 3.A. Selling Agreements. Distributor is
authorized, as agent on behalf of each Fund, to enter into
agreements with other broker-dealers providing for the
solicitation of unconditional orders for purchases of Fund's
Shares authorized for issuance and registered under the
Securities Act of 1933. All such agreements shall be either
in the form of agreement attached hereto or in such other
form as may be approved by the officers of the Fund ("Selling
Agreement"). All solicitations made by other broker-dealers
pursuant to a Selling Agreement shall be subject to the same
terms of this Agreement which apply to solicitations made by
Distributor."
Except as otherwise expressly amended herein, the
provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this First
Amendment to be executed as of the day and year first written
above.
STEINROE MUTUAL FUNDS*
BY: LAWRENCE R. MAFFIA
ATTEST: Title: Senior Vice-President
BY: JILAINE HUMMEL BAUER
Secretary
LIBERTY SECURITIES CORPORATION
BY: JOHN T. TREECE
ATTEST: Sr. VP & Treasurer
BY: JOHN DAVENPORT
*SteinRoe Income Trust
SteinRoe Investment Trust
<PAGE>
Date _____________
LIBERTY SECURITIES CORPORATION
STEINROE GOVERNMENT RESERVES
SELLING AGREEMENT
Dear Sirs:
As the principal underwriter of SteinRoe Government
Reserves (the "Fund"), a series of SteinRoe Income Trust (the
"Trust"), a Massachusetts business trust registered under the
Investment Company Act of 1940 as an open-end investment
company, we invite you as agent for your customer to
participate in the distribution of shares of beneficial
interest in the Fund ("Shares"), subject to the following
terms and conditions:
1. We hereby grant to you the right to make Shares
available to, and to solicit orders to purchase Shares by,
the public, subject to applicable federal and state law, the
Agreement and Declaration of Trust and By-laws of the Trust,
and the current Prospectus and Statement of Additional
Information relating to the Fund attached hereto (the
"Prospectus"). You will forward to us or to the Trust's
transfer agent, as we may direct from time to time, all
orders for the purchase of Shares obtained by you, subject to
such terms and conditions as to the form of payment, minimum
initial and subsequent purchase and otherwise, and in
accordance with such procedures and directions, as we may
specify from time to time. All orders are subject to
acceptance by an authorized officer of the Trust in Chicago
and the Trust reserves the right in its sole discretion to
reject any order. Share purchases are not binding on the
Trust until accepted and entered on the books of the Fund.
No Share purchase shall be effective until payment is
received by the Trust in the form of Federal funds. If a
Share purchase by check is cancelled because the check does
not clear, you will be responsible for any loss to the Fund
or to us resulting therefrom.
2. The public offering price of the Shares shall be the
net asset value per share of the outstanding Shares
determined in accordance with the then current Prospectus.
No sales charge shall apply.
3. As used in this Agreement, the term "Registration
Statement" with regard to the Fund shall mean the
Registration Statement most recently filed by the Trust with
the Securities and Exchange Commission and effective under
the Securities Act of 1933, as such Registration Statement is
amended by any amendments thereto at the time in effect, and
the terms "prospectus" and "statement of additional
information" with regard to the Fund shall mean the form of
prospectus and statement of additional information relating
to the Fund as attached hereto filed by the Trust as part of
the Registration Statement, as such form of prospectus and
statement of additional information may be amended or
supplemented from time to time.
4. You hereby represent that you are and will remain
during the term of this Agreement duly registered as a
broker-dealer under the Securities Exchange Act of 1934 and
under the securities laws of each state where your activities
require such registration, and that you are and will remain
during the term of this Agreement a member in good standing
of the National Association of Securities Dealers, Inc.
("NASD"). In the conduct of your activities hereunder, you
will abide by all applicable rules and regulations of the
NASD, including, without limitation, Rule 26 of the Rules of
Fair Practice of the NASD as in effect form time to time, and
all applicable federal and state securities laws, including
without limitation, the prospectus delivery requirements of
the Securities Act of 1933.
5. This Agreement is subject to the right of the Trust
at any time to withdraw all offerings of the Shares by
written notice to us at our principal office. You
acknowledge that the Trust will not issue certificates
representing Shares.
6. Your obligations under this Agreement are not to be
deemed exclusive, and you shall be free to render similar
services to others so long as your services hereunder are not
impaired thereby.
7. You will sell Shares only to residents of states or
other jurisdictions where we have notified you that the
Shares have been registered or qualified for sale to the
public or are exempt from such qualification or registration.
Neither we nor the Trust will have any obligation to register
or qualify the Shares in any particular jurisdiction. We
shall not be liable or responsible for the issue, form
validity, enforceability or value of the Shares or for any
matter in connection therewith, except lack of good faith on
our part, and no obligation not expressly assumed by us in
this Agreement shall be implied therefrom. Nothing herein
contained, however, shall be deemed to be a condition,
stipulation or provision binding any person acquiring any
Shares to waive compliance with any provision of the
Securities Act of 1933, or to relieve the parties hereto from
any liability arising thereunder.
8. You are not authorized to make any representations
concerning the Fund, the Trust or the Shares except those
contained in the then current prospectus and statement of
additional information relating to the Fund, or printed
information issued by the Trust or by us as information
supplemental to such prospectus and statement of additional
information. We will supply you with a reasonable number of
copies of the then current prospectus and statement of
additional information of the Fund, and reasonable quantities
of any supplemental sales literature, sales bulletins, and
additional information as may be issued by us or the Trust.
You will not use any advertising or sales material relating
to the Fund other than materials supplied by the Trust or us,
unless such other material is approved in writing by us in
advance of such use.
9. You will not have any authority to act as agent for
the Trust, for us or for any other dealer. All transactions
between you and us contemplated by this Agreement shall be as
agents.
10. Either party to this Agreement may terminate this
Agreement by giving written notice to the other. Such notice
shall be deemed to have been given on the date on which it is
either delivered personally to the other party, is mailed
postpaid or delivered by telecopier to the other party at its
address listed below. This Agreement may be amended by us at
any time, and your placing of an order after the effective
date of any such amendment shall constitute your acceptance
thereof.
Liberty Securities Corporation Dealer
600 Atlantic Avenue ________________
Boston, Massachusetts 02210 ________________
Attention: ________________ ________________
Telecopier: _______________
with copy to:
SteinRoe Income Trust
300 West Adams Street
Chicago, Illinois 60606
Attention: Secretary
Telecopier: 312/368-2506
11. This Agreement constitutes the entire agreement
between you and us relating to the subject matter hereof and
supersedes all prior or written agreements between us. This
Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts and shall be binding upon
both parties hereto when signed by us and accepted by you in
the space provided below.
Very truly yours,
LIBERTY SECURITIES CORPORATION
BY: ____________________
The undersigned hereby accepts your invitation to
participate in the distribution of Shares and agrees to each
of the terms and conditions set forth in this letter.
___________________________
Dealer
Date: ____________________ By: _______________________
(Signature of Officer)
Pay Office of Dealer:
__________________________ ___________________________
Street Address (Print Name of Officer)
__________________________
City/State/Zip
__________________________
Telephone Number
Exhibit 9(b)
<PAGE> 1
STEINROE FUNDS
ACCOUNTING AND BOOKKEEPING AGREEMENT
(NOVEMBER 1,1994)
This Agreement is made this 1st day of November. 1994, by
and between SteinRoe Income Trust, a Massachusetts common
law trust, (hereinafter referred to as the "Trust") and Stein
Roe & Farnham Incorporated ("SteinRoe"), a Delaware corporation.
1. Appointment. Each Trust hereby appoints SteinRoe to act as
its agent to perform the services described herein with respect
to each series of shares of the Trust (the "Series") identified
in and beginning on the date specified on Appendix I to this
Agreement, as may be amended from time to time. SteinRoe
hereby accepts appointment as each Trust's agent and agrees to
perform the services described herein.
2. Accounting.
(a) Pricing. For each Series of the Trust, SteinRoe shall
value all securities and other assets of the Series,
and compute the net asset value per share of such
Series, at such times and dates and in the manner and
by such methodology as is specified in the then
currently effective prospectus and statement of
additional information for such Series, and pursuant
to such other written procedures or instructions
furnished to SteinRoe by the Trust. To the extent
procedures or instructions used to value securities
or other assets of a Series under this Agreement are
at any time inconsistent with any applicable law or
regulation, the Trust shall provide SteinRoe with
written instructions for valuing such securities or
assets in a manner which the Trust represents to be
consistent with applicable law and regulation.
(b) Net Income. SteinRoe shall calculate with such
frequency as the Trust shall direct, the net income
of each Series of the Trust for dividend purposes and
on a per share basis. Such calculation shall be at
such times and dates and in such manner as the Trust
shall instruct SteinRoe in writing. For purposes of
such calculation, SteinRoe shall not be responsible
for determining whether any dividend or interest
accruable to the Trust is or will be actually paid,
but will accrue such dividend and interest unless
otherwise instructed by the Trust.
(c) Capital Gains and Losses. SteinRoe shall calculate
gains or losses of each Series of the Trust from the
sale or other disposition of assets of that Series as
the Trust shall direct.
<PAGE> 2
(d) Yields. At the request of the Trust, SteinRoe shall
compute yields for each Series of the Trust for such
periods and using such formula as shall be instructed
by the Trust.
(e) Communication of Information. SteinRoe shall provide
the Trust, the Trust's transfer agent and such other
parties as directed by the Trust with the net asset
value per share, the net income per share and yields
for each Series of the Trust at such time and in such
manner and format and with such frequency as the
parties mutually agree.
(f) Information Furnished by the Trust. The Trust shall
furnish SteinRoe with any and all instructions,
explanations, information, specifications and
documentation deemed necessary by SteinRoe in the
performance of its duties hereunder, including,
without limitation, the amounts and/or written
formula for calculating the amounts, and times of
accrual of liabilities and expenses of each Series of
the Trust. The Trust shall also at any time and from
time to time furnish SteinRoe with bid, offer and/or
market values of securities owned by the Trust if the
same are not available to SteinRoe from a pricing or
similar service designated by the Trust for use by
SteinRoe to value securities or other assets.
SteinRoe shall at no time be required to commence or
maintain any utilization of, or subscriptions to, any
such service which shall be the sole responsibility
and expense of the Trust.
3. Recordkeeping.
(a) SteinRoe shall, as agent for the Trust, maintain and
keep current and preserve the general ledger and
other accounts, books, and financial records of the
Trust relating to activities and obligations under
this Agreement in accordance with the applicable
provisions of Section 31(a) of the General Rules and
Regulations under the Investment Company Act of 1940,
as amended (the "Rules").
(b) All records maintained and preserved by SteinRoe
pursuant to this Agreement which the Trust is
required to maintain and preserve in accordance with
the Rules shall be and remain the property of the
Trust and shall be surrendered to the Trust promptly
upon request in the form in which such records have
been maintained and preserved.
(c) SteinRoe shall make available on its premises during
regular business hours all records of a Trust for
reasonable audit, use
<PAGE> 3
and inspection by the Trust, its agents and any
regulatory agency having authority over the Trusts.
4. Instructions, Opinion of Counsel, and Signatures.
(a) At any time Stein Roe may apply to a duly authorized
agent of the Trust for instructions regarding the
Trust, and may consult counsel for such 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. SteinRoe
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 SteinRoe 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 such Trust.
(b) SteinRoe may receive and accept a certified copy of a
vote of the Board of Trustees of the Trust as
conclusive evidence of (i) the authority of any
person to act in accordance with such vote or (ii)
any determination or any action by the Board of
Trustees pursuant to its Agreement and Declaration of
Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt
by SteinRoe of written notice to the contrary.
5. Compensation. The Trust shall reimburse SteinRoe from the
assets of the respective applicable Series of the Trust, for
any and all out-of-pocket expenses and charges in performing
services under this Agreement and such compensation as is
provided in Appendix II to this Agreement, as amended from time
to time. SteinRoe shall invoice the Trust as soon as
practicable after the end of each calendar month, with
allocation among the respective Series and full detail, and the
Trust shall promptly pay SteinRoe the invoiced amount.
6. Confidentiality of Records. SteinRoe agrees not to
disclose any information received from the Trust to any other
client of SteinRoe or to any other person except its employees
and agents, and shall use its best efforts to maintain such
information as confidential. Upon termination of this
Agreement, SteinRoe shall return to each Trust all records in
the possession and control of SteinRoe related to such Trust's
activities, other than SteinRoe's own business records, it
being also understood and agreed that any programs and systems
used by SteinRoe to provide the services rendered hereunder
will not be given to any Trust.
<PAGE> 4
7. Liability and Indemnification.
(a) SteinRoe shall not be liable to any Trust for any
action taken or thing done by it or its employees or
agents on behalf of the 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 SteinRoe, its employees or agents.
(b) Each Trust shall indemnify and hold SteinRoe, and its
controlling persons, if any, harmless from any and
all claims, actions, suits, losses, costs, damages,
and expenses, including reasonable expenses for
counsel, incurred by it in connection with its
acceptance of this Agreement, in connection with any
action or omission by it or its employees or agents
in the performance of its duties hereunder to the
Trust, or as a result of acting upon instructions
believed by it to have been executed by a duly
authorized agent of the Trust or as a result of
acting upon information provided by the Trust in form
and under policies agreed to by SteinRoe and the
Trust, provided that: (i) to the extent such claims,
actions, suits, losses, costs, damages, or expenses
relate solely to one or more Series, 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 on
the part of SteinRoe or its employees or agents,
including but not limited to willful misfeasance, bad
faith, or gross negligence in the performance of
their duties, or reckless disregard of their
obligations and duties under this Agreement; and
(iii) SteinRoe shall give the Trust prompt notice and
reasonable opportunity to defend against any such
claim or action in its own name or in the name of
SteinRoe.
(c) SteinRoe shall indemnify and hold harmless each Trust
from and against any and all claims, demands,
expenses and liabilities which such Trust may sustain
or incur arising out of, or incurred because of, the
negligence or misconduct of SteinRoe or its agents or
contractors, or the breach by SteinRoe of its
obligations under this Agreement, provided that: (i)
this indemnification shall not apply to actions or
omissions constituting negligence or misconduct on
the part of such Trust or its other agents or
contractors and (ii) such Trust shall give SteinRoe
prompt notice and reasonable opportunity to defend
against any such claim or action in its own name or
in the name of such Trust.
<PAGE> 5
8. Further Assurances. Each party agrees to perform such
further acts and execute such further documents as are
necessary to effectuate the purposes hereof.
9. Dual Interests. It is understood and agreed that some
person or persons may be trustees, officers, or shareholders of
both the Trusts and SteinRoe, and that the existence of any
such dual interest shall not affect the validity hereof or of
any transactions hereunder except as otherwise provided by
specific provision of applicable law.
10. Amendment and Termination. This Agreement may be modified
or amended from time to time, or terminated, by mutual
agreement between the parties hereto and may be terminated by
at least one hundred eighty (180) days' written notice given by
one party to the other. Upon termination hereof, each Trust
shall pay to SteinRoe such compensation as may be due from it
as of the date of such termination, and shall reimburse
SteinRoe 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 SteinRoe hereunder is designated by a
Trust by written notice to SteinRoe, SteinRoe shall promptly
upon such termination and at the expense of such Trust, deliver
to such successor all relevant books, records, and data
established or maintained by SteinRoe under this Agreement and
shall cooperate in the transfer of such duties and
responsibilities, including provision, at the expense of such
Trust, for assistance from SteinRoe personnel in the
establishment of books, records, and other data by such
successor.
11. Assignment. Any interest of SteinRoe under this Agreement
shall not be assigned or transferred either voluntarily or
involuntarily, by operation of law or otherwise, without prior
written notice to each Trust.
12. 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 each Trust and SteinRoe is One South Wacker
Drive, Chicago, Illinois 60606, Attention: Secretary.
13. Non-Liability of Trustees and Shareholders. Any
obligation of the Trust hereunder shall be binding only upon
the assets of that Trust (or the applicable Series thereof), as
provided in the Agreement and Declaration of Trust of that
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 the 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
<PAGE> 6
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. In connection with the discharge and
satisfaction of any claim made by SteinRoe against the Trust
involving more than one Series, the Trust shall have the
exclusive right to determine the appropriate allocations of
liability for any such claim between or among the Series.
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 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.
15. Governing Law. This Agreement shall be governed by the
laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed as of the day and year first above written.
STEINROE INCOME TRUST
By: TIMOTHY K. ARMOUR
President
Attest:
JILAINE HUMMEL BAUER
Secretary
STEIN ROE & FARNHAM INCORPORATED
By: TIMOTHY K. ARMOUR
President - Fund Division
Attest:
JILAINE HUMMEL BAUER
Assistant Secretary
<PAGE>
APPENDIX I
FUND EFFECTIVE DATE
- --------- --------------
STEIN ROE INCOME TRUST
Stein Roe Income Fund November 1, 1994
Stein Roe Government Income Fund November 1, 1994
Stein Roe Intermediate Bond Fund November 1, 1994
Stein Roe Cash Reserves November 1, 1994
Stein Roe Government Reserves November 1, 1994
Stein Roe Limited Maturity Income Fund November 1, 1994
Stein Roe High Yield Fund November 1, 1996
<PAGE>
APPENDIX II
For the services provided under the Accounting Agreement
(the "Agreement"), the Trust shall pay SteinRoe an annual fee
with respect to each Fund, calculated and paid monthly, equal to
$25,000 plus .0025 percent per annum of the average daily net
assets of the Fund in excess of $50 million. Such fee shall be
paid within thirty days after receipt of monthly invoice.
<PAGE>
EXHIBIT 9(c)
ADMINISTRATIVE AGREEMENT
BETWEEN
STEIN ROE INCOME TRUST
AND
STEIN ROE & FARNHAM INCORPORATED
STEIN ROE INCOME TRUST, a Massachusetts business trust
registered under the Securities Act of 1933 ("1933 Act") and the
Investment Company Act of 1940 ("1940 Act") (the "Trust"), hereby
appoints STEIN ROE & FARNHAM INCORPORATED, a Delaware
corporation, of Chicago, Illinois ("Administrator"), to furnish
certain administrative services with respect to the Trust and the
series of the Trust listed in Schedule A hereto, as such schedule
may be amended from time to time (each such series hereinafter
referred to as "Fund").
The Trust and Administrator hereby agree that:
1. ADMINISTRATIVE SERVICES. Subject to the terms of this
Agreement and the supervision and control of the Trust's Board of
Trustees ("Trustees"), Administrator shall provide the following
services with respect to the Trust:
(a) Preparation and maintenance of the Trust's registration
statement with the Securities and Exchange Commission
("SEC");
(b) Preparation and periodic updating of the prospectus and
statement of additional information for the Fund
("Prospectus");
(c) Preparation, filing with appropriate regulatory authorities,
and dissemination of various reports for the Fund, including
but not limited to semiannual reports to shareholders under
Section 30(d) of the 1940 Act, annual and semiannual reports
on Form N-SAR, and notices pursuant to Rule 24f-2;
(d) Arrangement for all meetings of shareholders, including the
collection of all information required for preparation of
proxy statements, the preparation and filing with appropriate
regulatory agencies of such proxy statements, the supervision
of solicitation of shareholders and shareholder nominees in
connection therewith, tabulation (or supervision of the
tabulation) of votes, response to all inquiries regarding
such meetings from shareholders, the public and the media,
and preparation and retention of all minutes and all other
records required to be kept in connection with such meetings;
(e) Maintenance and retention of all Trust charter documents and
the filing of all documents required to maintain the Trust's
status as a Massachusetts business trust and as a registered
open-end investment company;
(f) Arrangement and preparation and dissemination of all
materials for meetings of the Board of Trustees and
committees thereof and preparation and retention of all
minutes and other records thereof;
(g) Preparation and filing of the Trust's Federal, state, and
local income tax returns and calculation of any tax required
to be paid in connection therewith;
(h) Calculation of all Trust and Fund expenses and arrangement
for the payment thereof;
(i) Calculation of and arrangement for payment of all income,
capital gain, and other distributions to shareholders of each
Fund;
(j) Determination, after consultation with the officers of the
Trust, of the jurisdictions in which shares of beneficial
interest of each Fund ("Shares") shall be registered or
qualified for sale, or may be sold pursuant to an exemption
from such registration or qualification, and preparation and
maintenance of the registration or qualification of the
Shares for sale under the securities laws of each such
jurisdiction;
(k) Provision of the services of persons who may be appointed as
officers of the Trust by the Board of Trustees (it is agreed
that some person or persons may be officers of both the Trust
and the Administrator, and that the existence of any such
dual interest shall not affect the validity of this Agreement
except as otherwise provided by specific provision of
applicable law);
(l) Preparation and, subject to approval of the Trust's Chief
Financial Officer, dissemination of the Trust's and each
Fund's quarterly financial information to the Board of
Trustees and preparation of such other reports relating to
the business and affairs of the Trust and each Fund as the
officers and Board of Trustees may from time to time
reasonably request;
(m) Administration of the Trust's Code of Ethics and periodic
reporting to the Board of Trustees of Trustee and officer
compliance therewith;
(n) Provision of internal legal, accounting, compliance, audit,
and risk management services and periodic reporting to the
Board of Trustees with respect to such services;
(o) Negotiation, administration, and oversight of third party
services to the Trust including, but not limited to, custody,
tax, transfer agency, disaster recovery, audit, and legal
services;
(p) Negotiation and arrangement for insurance desired or required
of the Trust and administering all claims thereunder;
(q) Response to all inquiries by regulatory agencies, the press,
and the general public concerning the business and affairs of
the Trust, including the oversight of all periodic
inspections of the operations of the Trust and its agents by
regulatory authorities and responses to subpoenas and tax
levies;
(r) Handling and resolution of any complaints registered with the
Trust by shareholders, regulatory authorities, and the
general public;
(s) Monitoring legal, tax, regulatory, and industry developments
related to the business affairs of the Trust and
communicating such developments to the officers and Board of
Trustees as they may reasonably request or as the
Administrator believes appropriate;
(t) Administration of operating policies of the Trust and
recommendation to the officers and the Board of Trustees of
the Trust of modifications to such policies to facilitate the
protection of shareholders or market competitiveness of the
Trust and Fund and to the extent necessary to comply with new
legal or regulatory requirements;
(u) Responding to surveys conducted by third parties and
reporting of Fund performance and other portfolio
information; and
(v) Filing of claims, class actions involving portfolio
securities, and handling administrative matters in connection
with the litigation or settlement of such claims.
2. USE OF AFFILIATED COMPANIES AND SUBCONTRACTORS. In
connection with the services to be provided by Administrator
under this Agreement, Administrator may, to the extent it deems
appropriate, and subject to compliance with the requirements of
applicable laws and regulations and upon receipt of approval of
the Trustees, make use of (i) its affiliated companies and their
directors, trustees, officers, and employees and (ii)
subcontractors selected by Administrator, provided that
Administrator shall supervise and remain fully responsible for
the services of all such third parties in accordance with and to
the extent provided by this Agreement. All costs and expenses
associated with services provided by any such third parties shall
be borne by Administrator or such parties.
3. INSTRUCTIONS, OPINIONS OF COUNSEL, AND SIGNATURES. At
any time Administrator may apply to a duly authorized agent of
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. Administrator 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 Administrator to be genuine and to have been signed
by the proper person or persons and shall not be held to have
notice of any change of authority of any officer or agent of the
Trust, until receipt of written notice thereof from the Trust.
4. EXPENSES BORNE BY TRUST. Except to the extent expressly
assumed by Administrator herein or under a separate agreement
between the Trust and Administrator and except to the extent
required by law to be paid by Administrator, the Trust shall pay
all costs and expenses incidental to its organization, operations
and business. Without limitation, such costs and expenses shall
include but not be limited to:
(a) All charges of depositories, custodians and other agencies
for the safekeeping and servicing of its cash, securities,
and other property;
(b) All charges for equipment or services used for obtaining
price quotations or for communication between Administrator
or the Trust and the custodian, transfer agent or any other
agent selected by the Trust;
(c) All charges for investment advisory, portfolio management,
and accounting services provided to the Trust by the
Administrator, or any other provider of such services;
(d) All charges for services of the Trust's independent auditors
and for services to the Trust by legal counsel;
(e) All compensation of Trustees, other than those affiliated
with Administrator, all expenses incurred in connection with
their services to the Trust, and all expenses of meetings of
the Trustees or committees thereof;
(f) All expenses incidental to holding meetings of shareholders,
including printing and of supplying each record-date
shareholder with notice and proxy solicitation material, and
all other proxy solicitation expenses;
(g) All expenses of printing of annual or more frequent revisions
of the Trust's prospectus(es) and of supplying each then-
existing shareholder with a copy of a revised prospectus;
(h) All expenses related to preparing and transmitting
certificates representing the Trust's shares;
(i) All expenses of bond and insurance coverage required by law
or deemed advisable by the Board of Trustees;
(j) All brokers' commissions and other normal charges incident to
the purchase, sale, or lending of Fund securities;
(k) All taxes and governmental fees payable to Federal, state or
other governmental agencies, domestic or foreign, including
all stamp or other transfer taxes;
(l) All expenses of registering and maintaining the registration
of the Trust under the 1940 Act and, to the extent no
exemption is available, expenses of registering the Trust's
shares under the 1933 Act, of qualifying and maintaining
qualification of the Trust and of the Trust's shares for sale
under securities laws of various states or other
jurisdictions and of registration and qualification of the
Trust under all other laws applicable to the Trust or its
business activities;
(m) All interest on indebtedness, if any, incurred by the Trust
or a Fund; and
(n) All fees, dues and other expenses incurred by the Trust in
connection with membership of the Trust in any trade
association or other investment company organization.
5. ALLOCATION OF EXPENSES BORNE BY TRUST. Any expenses
borne by the Trust that are attributable solely to the
organization, operation or business of a Fund shall be paid
solely out of Fund assets. Any expense borne by the Trust which
is not solely attributable to a Fund, nor solely to any other
series of shares of the Trust, shall be apportioned in such
manner as Administrator determines is fair and appropriate, or as
otherwise specified by the Board of Trustees.
6. EXPENSES BORNE BY ADMINISTRATOR. Administrator at its
own expense shall furnish all executive and other personnel,
office space, and office facilities required to render the
services set forth in this Agreement. However, Administrator
shall not be required to pay or provide any credit for services
provided by the Trust's custodian or other agents without
additional cost to the Trust.
In the event that Administrator pays or assumes any expenses
of the Trust or a Fund not required to be paid or assumed by
Administrator under this Agreement, Administrator shall not be
obligated hereby to pay or assume the same or similar expense in
the future; provided that nothing contained herein shall be
deemed to relieve Administrator of any obligation to the Trust or
a Fund under any separate agreement or arrangement between the
parties.
7. ADMINISTRATION FEE. For the services rendered,
facilities provided, and charges assumed and paid by
Administrator hereunder, the Trust shall pay to Administrator out
of the assets of each Fund fees at the annual rate for such Fund
as set forth in Schedule B to this Agreement. For each Fund, the
administrative fee shall accrue on each calendar day, and shall
be payable monthly on the first business day of the next
succeeding calendar month. The daily fee accrual shall be
computed by multiplying the fraction of one divided by the number
of days in the calendar year by the applicable annual rate of
fee, and multiplying this product by the net assets of the Fund,
determined in the manner established by the Board of Trustees, as
of the close of business on the last preceding business day on
which the Fund's net asset value was determined.
8. STATE EXPENSE LIMITATION. If for any fiscal year of a
Fund, its aggregate operating expenses ("Aggregate Operating
Expenses") exceed the applicable percentage expense limit imposed
under the securities law and regulations of any state in which
Shares of the Fund are qualified for sale (the "State Expense
Limit"), the Administrator shall pay such Fund the amount of such
excess. For purposes of this State Expense Limit, Aggregate
Operating Expenses shall (a) include (i) any fees or expense
reimbursements payable to Administrator pursuant to this
Agreement and (ii) to the extent the Fund invests all or a
portion of its assets in another investment company registered
under the 1940 Act, the pro rata portion of that company's
operating expenses allocated to the Fund, and (iii) any
compensation payable to Administrator pursuant to any separate
agreement relating to the Fund's investment operations and
portfolio management, but (b) exclude any interest, taxes,
brokerage commissions, and other normal charges incident to the
purchase, sale or loan of securities, commodity interests or
other investments held by the Fund, litigation and
indemnification expense, and other extraordinary expenses not
incurred in the ordinary course of business. Except as otherwise
agreed to by the parties or unless otherwise required by the law
or regulation of any state, any reimbursement by Administrator to
a Fund under this section shall not exceed the administrative fee
payable to Administrator by the Fund under this Agreement.
Any payment to a Fund by Administrator hereunder shall be
made monthly, by annualizing the Aggregate Operating Expenses for
each month as of the last day of the month. An adjustment for
payments made during any fiscal year of the Fund shall be made on
or before the last day of the first month following such fiscal
year of the Fund if the Annual Operating Expenses for such fiscal
year (i) do not exceed the State Expense Limitation or (ii) for
such fiscal year there is no applicable State Expense Limit.
9. NON-EXCLUSIVITY. The services of Administrator to the
Trust hereunder are not to be deemed exclusive and Administrator
shall be free to render similar services to others.
10. STANDARD OF CARE. Neither Administrator, nor any of
its directors, officers or stockholders, agents or employees
shall be liable to the Trust, any Fund, or its shareholders for
any action taken or thing done by it or its subcontractors or
agents on behalf of the Trust or the Fund in carrying out the
terms and provisions of this Agreement if done in good faith and
without negligence or misconduct on the part of Administrator,
its subcontractors, or agents.
11. INDEMNIFICATION. The Trust shall indemnify and hold
Administrator and its controlling persons, if any, harmless from
any and all claims, actions, suits, losses, costs, damages, and
expenses, including reasonable expenses for counsel, incurred by
it in connection with its acceptance of this Agreement, in
connection with any action or omission by it or its agents or
subcontractors in the performance of its duties hereunder to the
Trust, or as a result of acting upon any instruction believed by
it to have been executed by a duly authorized agent of the Trust
or as a result of acting upon information provided by the Trust
in form and under policies agreed to by Administrator and the
Trust, provided that: (i) to the extent such claims, actions,
suits, losses, costs, damages, or expenses relate solely to a
particular Fund or group of Funds, such indemnification shall be
only out of the assets of that Fund or group of Funds; (ii) this
indemnification shall not apply to actions or omissions
constituting negligence or misconduct of Administrator or its
agents or subcontractors, including but not limited to willful
misfeasance, bad faith, or gross negligence in the performance of
their duties, or reckless disregard of their obligations and
duties under this Agreement; and (iii) Administrator shall give
the Trust prompt notice and reasonable opportunity to defend
against any such claim or action in its own name or in the name
of Administrator.
Administrator shall indemnify and hold harmless the Trust
from and against any and all claims, demands, expenses and
liabilities which such Trust may sustain or incur arising out of,
or incurred because of, the negligence or misconduct of
Administrator or its agents or subcontractors, provided that such
Trust shall give Administrator prompt notice and reasonable
opportunity to defend against any such claim or action in its own
name or in the name of such Trust.
12. EFFECTIVE DATE, AMENDMENT, AND TERMINATION. This
Agreement shall become effective as to any Fund as of the
effective date for that Fund specified in Schedule A hereto and,
unless terminated as hereinafter provided, shall remain in effect
with respect to such Fund thereafter from year to year so long as
such continuance is specifically approved with respect to that
Fund at least annually by a majority of the Trustees who are not
interested persons of Trust or Administrator.
As to any Trust or Fund of that Trust, this Agreement may be
modified or amended from time to time by mutual agreement between
the Administrator and the Trust and may be terminated by
Administrator or Trust by at least sixty (60) days' written
notice given by the terminating party to the other party. Upon
termination as to any Fund, the Trust shall pay to Administrator
such compensation as may be due under this Agreement as of the
date of such termination and shall reimburse Administrator for
its costs, expenses, and disbursements payable under this
Agreement to such date. In the event that, in connection with a
termination, a successor to any of the duties or responsibilities
of Administrator hereunder is designated by the Trust by written
notice to Administrator, upon such termination Administrator
shall promptly, and at the expense of the Trust or Fund with
respect to which this Agreement is terminated, transfer to such
successor all relevant books, records, and data established or
maintained by Administrator under this Agreement and shall
cooperate in the transfer of such duties and responsibilities,
including provision, at the expense of such Fund, for assistance
from Administrator personnel in the establishment of books,
records, and other data by such successor.
13. ASSIGNMENT. Any interest of Administrator under this
Agreement shall not be assigned either voluntarily or
involuntarily, by operation of law or otherwise, without the
prior written consent of Trust.
14. BOOKS AND RECORDS. Administrator shall maintain, or
oversee the maintenance by such other persons as may from time to
time be approved by the Board of Trustees to maintain, the books,
documents, records, and data required to be kept by the Trust
under the 1940 Act, the laws of the Commonwealth of Massachusetts
or such other authorities having jurisdiction over the Trust or
the Fund or as may otherwise be required for the proper operation
of the business and affairs of the Trust or the Fund (other than
those required to be maintained by any investment adviser
retained by the Trust on behalf of a Fund in accordance with
Section 15 of the 1940 Act).
Administrator will periodically send to the Trust all books,
documents, records, and data of the Trust and each of its Funds
listed in Schedule A that are no longer needed for current
purposes or required to be retained as set forth herein.
Administrator shall have no liability for loss or destruction of
said books, documents, records, or data after they are returned
to such Trust.
Administrator agrees that all such books, documents,
records, and data which it maintains shall be maintained in
accordance with Rule 31a-3 of the 1940 Act and that any such
items maintained by it shall be the property of the Trust.
Administrator further agrees to surrender promptly to the Trust
any such items it maintains upon request, provided that the
Administrator shall be permitted to retain a copy of all such
items. Administrator agrees to preserve all such items
maintained under Rule 31a-1 for the period prescribed under Rule
31a-2 of the 1940 Act.
Trust shall furnish or otherwise make available to
Administrator such copies of the financial statements, proxy
statements, reports, and other information relating to the
business and affairs of each Fund of the Trust as Administrator
may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
15. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any
obligation of Trust hereunder shall be binding only upon the
assets of Trust (or the applicable Fund 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.
16. USE OF ADMINISTRATOR'S NAME. The Trust may use its
name and the names of its Funds listed in Schedule A or any other
name derived from the name "Stein Roe & Farnham" only for so long
as this Agreement or any extension, renewal, or amendment hereof
remains in effect, including any similar agreement with any
organization which shall have succeeded to the business of
Administrator as it relates to the services it has agreed to
furnish under this Agreement. At such time as this Agreement or
any extension, renewal or amendment hereof, or such other similar
agreement shall no longer be in effect, Trust will cease to use
any name derived from the name "Stein Roe & Farnham" or otherwise
connected with Administrator, or with any organization which
shall have succeeded to Administrator's business herein
described.
17. REFERENCES AND HEADINGS. In this Agreement and in any
such amendment, references to this Agreement and all expressions
such as "herein," "hereof," and "hereunder" shall be deemed to
refer to this Agreement as amended or affected by any such
amendments. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this Agreement.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
Dated: July 1, 1996
STEIN ROE INCOME TRUST
By: /S/ TIMOTHY K. ARMOUR
Timothy K. Armour
President
Attest:
/S/ JILAINE HUMMEL BAUER
Jilaine Hummel Bauer
Secretary
STEIN ROE & FARNHAM INCORPORATED
By: /S/ HANS P. ZIEGLER
Hans P. Ziegler
Chief Executive Officer
Attest:
/S/ JILAINE HUMMEL BAUER
Jilaine Hummel Bauer
Secretary
<PAGE>
STEIN ROE INCOME TRUST
ADMINISTRATIVE AGREEMENT
SCHEDULE A
The Funds of the Trust currently subject to this Agreement are as
follows:
Effective Date
---------------
Stein Roe Income Fund July 1, 1996
Stein Roe Government Income Fund July 1, 1996
Stein Roe Intermediate Bond Fund July 1, 1996
Stein Roe Cash Reserves Fund July 1, 1996
Stein Roe Government Reserves Fund July 1, 1996
Stein Roe Limited Maturity Income Fund July 1, 1996
Stein Roe High Yield Fund November 1, 1996
Dated: November 1, 1996
STEIN ROE INCOME TRUST
By: _______________________
Timothy K. Armour
President
Attest:
_____________________
Jilaine Hummel Bauer
Secretary
STEIN ROE & FARNHAM INCORPORATED
By: _______________________________
Hans P. Ziegler
Chief Executive Officer
Attest:
______________________
Jilaine Hummel Bauer
Secretary
<PAGE>
STEIN ROE INCOME TRUST
ADMINISTRATIVE AGREEMENT
SCHEDULE B
Compensation pursuant to Section 7 of this Agreement shall be
calculated with respect to each Fund in accordance with the
following schedule applicable to average daily net assets of the
Fund:
Fund Administrative Fee Schedule
Stein Roe Cash Reserves Fund 0.250% of first $500 million,
Stein Roe Government Reserves Fund 0.200% of next $500 million,
0.150% thereafter
Fund Administrative Fee Schedule
Stein Roe Income Fund 0.150% of first $100 million,
Stein Roe Government Income Fund 0.125% thereafter
Fund Administrative Fee Schedule
Stein Roe Intermediate Bond Fund 0.150%
Fund Administrative Fee Schedule
Stein Roe Limited Maturity 0.150% of first $100 million,
Income Fund 0.125% of next $100 million,
0.100% thereafter
Fund Administrative Fee Schedule
Stein Roe High Yield Fund 0.150% of first $500 million,
0.125% thereafter
Dated: November 1, 1996
STEIN ROE INCOME TRUST
By: _______________________
Timothy K. Armour
President
Attest:
_____________________
Jilaine Hummel Bauer
Secretary
STEIN ROE & FARNHAM INCORPORATED
By: _______________________________
Hans P. Ziegler
Chief Executive Officer
Attest:
____________________
Jilaine Hummel Bauer
Secretary
EXHIBIT 10(a)
<PAGE>
ROPES & GRAY
225 Franklin Street
Boston, Massachusetts 02110
(617) 423-6100
February 12, 1986
SteinRoe High-Yield Bonds
P.O. Box 1162
Chicago, Illinois 60690
Gentlemen:
We are furnishing this opinion with respect to the proposed
offer and sale from time to time of an indefinite number of shares
of beneficial interest (the "Shares") of SteinRoe High-Yield Bonds
(the "Trust"), being registered under the Securities Act of 1933 by
a Registration Statement on Form N-1A.
We have acted as Massachusetts counsel for the Trust in
connection with its organization and are familiar with the action
taken by its trustees to authorize the issuance of the Shares. We
have examined its by-laws and its Agreement and Declaration of
Trust on file at the Office of the Secretary of the Commonwealth
of Massachusetts and we have also examined such other documents as
we deem necessary for the purpose of this opinion.
We assume that appropriate action will be taken to register
or qualify the sale of the Shares under any applicable state and
federal laws regulating sales and offerings of securities and that
upon sales of the Shares the Trust will receive the net asset
value thereof.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a legally organized and validly existing
unincorporated voluntary association under the laws of The
Commonwealth of Massachusetts which, unless terminated as provided
in its Agreement and Declaration of Trust, shall continue in
existence without limitation of time.
2. The Trust is authorized to issue an unlimited number
of Shares and upon the issue of any thereof at net asset value and
receipt by the Trust of the authorized consideration therefor,
the Shares so issued will be validly issued, fully paid and
nonassessable by the Trust (although shareholders of the
Trust may be subject to liability under certain circumstances
as described in the Prospectus included in the Registration
Statement of the Trust referred to above under the caption
"Organization and Description of Shares").
3. Under Massachusetts law, shareholders of the Trust will
not be liable personally for contract claims made under any
agreement, obligation or undertaking governed by Massachusetts law
and containing a disclaimer of such liability or when adequate
notice is otherwise given.
We consent to the filing of this opinion with and as part of
the Registration Statement of the Trust referred to above.
Very truly yours,
ROPES & GRAY
<PAGE>
ROPES & GRAY
225 Franklin Street
Boston, Massachusetts 02110
(617) 423-6100
December 1, 1987
SteinRoe High-Yield Bonds
P.O. Box 1162
Chicago, Illinois 60690
Gentlemen:
We are furnishing this opinion with respect to the proposed
offer and sale from time to time of an indefinite number of shares
of beneficial interest (the "Shares") of SteinRoe Cash Reserves,
SteinRoe Government Reserves, SteinRoe Governments Plus and
SteinRoe Managed Bonds (each a "Portfolio"), each a series of
SteinRoe High-Yeld Bonds (the "Trust") being registered under the
Securities Act of 1933 by a Post-Effective Amendment to the
Registration Statement of the Trust on Form N-1A.
We have acted as Massachusetts counsel for the Trust in
connection with its organization and are familiar with the action
taken by its trustees to authorize the issuance of the Shares. We
have examined its by-laws and its Agreement and Declaration of
Trust on file at the Office of the Secretary of the Commonwealth
of Massachusetts and we have also examined such other documents as
we deem necessary for the purpose of this opinion.
We assume that appropriate action will be taken to register
or qualify the sale of the Shares under any applicable state and
federal laws regulating sales and offerings of securities and that
upon sales of the Shares the Portfolio issuing the Shares will
receive the net asset value thereof.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a legally organized and validly existing
unincorporated voluntary association under the laws of The
Commonwealth of Massachusetts which, unless terminated as provided
in its Agreement and Declaration of Trust, shall continue in
existence without limitation of time.
2. Each Portfolio is authorized to issue an unlimited number
of Shares and upon the issue of any thereof at net asset value and
receipt by the Portfolio issuing the Shares of the authorized
consideration therefor, the Shares so issued will be validly
issued, fully paid and nonassessable by the Portfolio (although
shareholders of the Portfolio may be subject to liability under
certain circumstances as described in the Prospectus included in
the Post-Effective Amendment to the Registration Statement of the
Trust referred to above under the caption "Organization and
Description of Shares").
3. Under Massachusetts law, shareholders of the Trust will
not be liable personally for contract claims made under any
agreement, obligation or undertaking governed by Massachusetts law
and containing a disclaimer of such liability or when adequate
notice is otherwise given.
We consent to the filing of this opinion with and as part of
the Post-Effective Amendment to the Registration Statement of the
Trust referred to above.
Very truly yours,
ROPES & GRAY
EXHIBIT 10(b)
<PAGE>
BELL, BOYD & LLOYD
a partnership including professional corporations
Three First National Plaza
Suite 3200
70 West Madison Street
Chicago, Illinois 60602
Telephone (312) 372-1121
TWX/Telex (910) 221-1220
February 25, 1986
SteinRoe High-Yield Bonds
P.O. Box 1162
Chicago, Illinois 60690
Ladies and Gentlemen:
Shares of Beneficial Interest
Without Par Value
-----------------------------
We have acted as counsel for SteinRoe High-Yield Bonds
(Fund) in connection with the registration under the
Securities Act of 1933 (Act) of an indefinite number of
shares of beneficial interest, without par value (shares), in
the Fund's registration statement no. 33-02633 on form N-1A
(registration statement). In this connection, we have
examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents, records,
certificates and other papers as we deemed it necessary to
examine for the purpose of this opinion, including the
Agreement and Declaration of Trust and bylaws of the Fund,
actions of its trustees authorizing the issuance of shares,
the form of certificates to evidence the shares, and the
registration statement.
Based on the foregoing examination, we are of the
opinion that:
1. The Fund is an unincorporated voluntary
association dully organized and legally existing in good
standing under the laws of the Commonwealth of
Massachusetts.
2. Upon the issuance and delivery of the shares in
accordance with the Agreement and Declaration of Trust of
the Fund and the actions of the trustees authorizing the
issuance of its shares, and the receipt by the Fund of a
purchase price of not less than the net asset value per
share, the shares will be legally issued and outstanding,
fully paid and nonassessable (although shareholders of the
Fund may be subject to liability under certain circumstances
as described in the prospectus of the Fund (included as
Part A of the registration statement) under the caption
"Organization and Description of Shares - High-Yield Bonds
and Governments Plus").
In giving this opinion we have relied upon the opinion
of Ropes & Gray to you dated February 12, 1986.
We consent to the filing of this opinion as an exhibit
to the registration statement. In giving this consent, we do
not admit that we are in the category of persons whose
consent is required under section 7 of the Act.
Very truly yours,
BELL, BOYD & LLOYD
CSA:gf
<PAGE>
BELL, BOYD & LLOYD
a partnership including professional corporations
Three First National Plaza, Suite 3200
70 West Madison Street
Chicago, Illinois 60602
Telephone (312) 372-1121
TWX/Telex (910) 221-1220
December 20, 1987
SteinRoe High-Yield Bonds
P.O. Box 1162
Chicago, Illinois 60690
Ladies and Gentlemen:
Shares of Beneficial Interest
Without Par Value
-----------------------------
We have acted as counsel for SteinRoe High-Yield Bonds
(Trust) in connection with the registration under the
Securities Act of 1933 (Act) of an indefinite number of
shares of beneficial interest, without par value, of each of
the following series of the Trust (Series):
SteinRoe Cash Reserves
SteinRoe Government Reserves
SteinRoe Governments Plus
SteinRoe Managed Bonds
in the Trust's registration statement no. 33-02633 on form N-1A
(Registration Statement).
In this connection we have examined originals, or copies
certified or otherwise identified to our satisfaction, of
such documents, records, certificates and other papers as we
deemed it necessary to examine for the purpose of this
opinion, including the Agreement and Declaration of Trust
(Trust Agreement) and bylaws of the Trust, actions of the
board of trustees of the Trust authorizing the issuance of
shares of the respective Series, the form of certificates to
evidence such shares, and the Registration Statement.
Based on the foregoing examination, we are of the
opinion that:
1. The Trust is an unincorporated voluntary
association legally organized and validly existing under
the laws of the Commonwealth of Massachusetts.
2. Upon the issuance and delivery of the shares of
each Series in accordance with the Trust Agreement and
the actions of the trustees authorizing the issuance of
such shares, and the receipt by the Trust of the authorized
consideration therefor, the shares so issued will be
validly issued and outstanding, fully paid and
nonassessable (although shareholders of such Series may
be subject to liability under certain circumstances as
described in the prospectus of the Trust included as
Part A of the Registration Statement under the caption
"Organization and Description of Shares").
In giving this opinion we have relied upon the opinion
of Ropes & Gray to you dated December 1, 1987.
We consent to the filing of this opinion as an exhibit
to the registration statement. In giving this consent, we do
not admit that we are in the category of persons whose
consent is required under section 7 of the Act.
Very truly yours,
BELL, BOYD & LLOYD
CSA gf
<PAGE>
BELL, BOYD & LLOYD
Three First National Plaza
70 West Madison Street, Suite 3200
Chicago, Illinois 60602-4207
312 372-1121
FAX 312 372-2098
February 19, 1993
SteinRoe Income Trust
300 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
SteinRoe Limited Maturity Income Fund
-------------------------------------
We have acted as counsel for SteinRoe Income Trust,
a Massachusetts business trust (the "Trust"), in connection
with the registration under the Securities Act of 1933 (the
"Act") of an indefinite number of shares of beneficial
interest (the "Shares"), of the series of the Trust designated
SteinRoe Limited Maturity Income Fund (the "Fund") pursuant
to the Trust's registration statement no. 33-02633 on form N-
1A (the "Registration Statement"). In this connection, we
have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents, corporate
and other records, certificates and other papers as we deemed
it necessary to examine for the purpose of this opinion,
including the agreement and declaration of trust and bylaws
of the Trust, resolutions of the board of trustees
authorizing the issuance of the Shares and the Registration
Statement.
Based on the foregoing examination, we are of the
opinion that:
1. The Trust is a business trust duly organized and
legally existing under the laws of Massachusetts.
2. Upon the issuance and delivery of the Shares in
accordance with the agreement and declaration of trust
and by-laws of the Trust and the resolutions of the
board of trustees authorizing the issuance of the Shares
and the receipt by the Fund of a purchase price equal to
the net asset value thereof, the Shares will be validly
issued, fully paid and nonassessable by the Trust.
Under Massachusetts law, shareholders of the Trust
could, under certain circumstances, be held personally liable
for the obligations of the Trust. However, the agreement and
declaration of trust of the Trust disclaims shareholder
liability for acts or obligations of the Trust and requires
that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the
Trust or the trustees. The agreement and declaration of
trust provides for indemnification out of the Trust's
property for all loss and expense of any shareholder held
personally liable solely by reason of being or having been a
shareholder. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited
to circumstances in which the Trust itself would be unable to
meet its obligations.
We consent to the filing of this opinion as an exhibit
to the Registration Statement. In giving this consent, we do
not admit that we are in the category of persons whose
consent is required under section 7 of the Act.
Very truly yours,
BELL, BOYD & LLOYD
<PAGE>
EXHIBIT 11(b)
CONSENT
We hereby consent to the use of the name Morningstar, Inc.
and to the inclusion or reference of any Morningstar, Inc.
mutual fund ratings, rankings and other information in or
made a part of the Registration Statement of the SteinRoe
Income Trust on Form N-1A or in any advertisement under
Rule 482 under the Securities Act of 1933.
1/16/92 [SIGNATURE OF PRESIDENT]
Date Signature
President
Title
<PAGE>
EXHIBIT 16
HIGH-YIELD BONDS
As of June 30, 1987
Initial
Investment TOTAL
Total Return Date DIST +/- APP (DEPR) = RETURN + PRINC = ERV
- ------------- ------------ -------- ------------ ------- ------ -----
1 Year 06/30/86 $102.30 (25.27) 77.03 1,000.00 1,077.03
Inception 03/05/86 $134.98 (31.91) 103.07 1,000.00 1,103.07
- --------------------------------------------------------------------------------
Initial TR%
Total Return Investment
Percentage Date ERV PRINC (ERV/PRINC)-1
- ------------- ------------ ------ ------ -------------
1 Year 06/30/86 1,077.03 $1,000.00 7.70%
Inception 03/05/86 1,103.07 $1,000.00 10.31%
- --------------------------------------------------------------------------------
Average Initial AATR%
Annual Total Investment n
Return % Date P T n P(1+T) = ERV
- ------------ ----------- ---------- --------- ------ -------------
1 Year 06/30/86 $1,000.00 7.70% 1 $1,077.03
Inception 03/05/86 $1,000.00 7.65% 1.323 $1,103.07
- --------------------------------------------------------------------------------
<PAGE>
GOVERNMENTS PLUS
As of June 30, 1987
Initial
Investment TOTAL
Total Return Date DIST +/- APP (DEPR) = RETURN + PRINC = ERV
- ------------- ------------ -------- ------------ ------- ------ -----
1 Year 06/30/86 $73.42 (33.31) 40.11 1,000.00 1,040.11
Inception 03/05/86 $99.47 (24.47) 75.00 1,000.00 1,075.00
- --------------------------------------------------------------------------------
Initial TR%
Total Return Investment
Percentage Date ERV PRINC (ERV/PRINC)-1
- ------------- ------------ ------ ------ -------------
1 Year 06/30/86 1,040.11 $1,000.00 4.01%
Inception 03/05/86 1,075.00 $1,000.00 7.50%
- --------------------------------------------------------------------------------
Average Initial AATR%
Annual Total Investment n
Return % Date P T n P(1+T) = ERV
- ------------ ----------- ---------- --------- ------ -------------
1 Year 06/30/86 $1,000.00 4.01% 1 $1,040.11
Inception 03/05/86 $1,000.00 5.59% 1.323 $1,075.00
- --------------------------------------------------------------------------------
<PAGE>
MANAGED BONDS
As of June 30, 1987
Initial
Investment TOTAL
Total Return Date DIST +/- APP (DEPR) = RETURN + PRINC = ERV
- ------------- ------------ -------- ------------ ------- ------ -----
1 Year 06/30/86 $155.84 (121.82) 34.02 1,000.00 1,034.02
5 Year 06/30/82 $903.70 97.55 1,001.25 1,000.00 2,001.25
Inception 12/05/78 $1,500.39 (122.83) 1,377.56 1,000.00 2,377.56
- --------------------------------------------------------------------------------
Initial TR%
Total Return Investment
Percentage Date ERV PRINC (ERV/PRINC)-1
- ------------- ------------ ------ ------ -------------
1 Year 06/30/86 1,034.02 $1,000.00 3.40%
5 Year 06/30/82 2,001.25 $1,000.00 100.13%
Inception 12/05/78 2,377.56 $1,000.00 137.76%
- --------------------------------------------------------------------------------
Average Initial AATR%
Annual Total Investment n
Return % Date P T n P(1+T) = ERV
- ------------ ----------- ---------- --------- ------ -------------
1 Year 06/30/86 $1,000.00 3.40% 1 $1,034.02
5 Year 06/30/82 $1,000.00 14.88% 5 $2,001.25
Inception 12/05/78 $1,000.00 10.62% 8.57 $2,377.56
- --------------------------------------------------------------------------------
<PAGE>
CASH RESERVES
As of June 30, 1988
Initial
Investment TOTAL
Total Return Date DIST +/- APP (DEPR) = RETURN + PRINC = ERV
- ------------- ------------ -------- ------------ ------- ------ -----
Quarter 03/31/88 $15.78 0.00 15.78 $1,000.00 1,015.78
1 Year 06/30/87 $65.54 0.00 65.54 $1,000.00 1,065.54
5 Year 06/30/83 $446.25 0.00 446.25 $1,000.00 1,446.25
10 Year 06/30/78 $1,582.52 0.00 1,582.52 $1,000.00 2,582.52
Inception 10/02/76 $1,844.57 0.00 1,844.57 $1,000.00 2,844.57
- --------------------------------------------------------------------------------
Initial TR%
Total Return Investment
Percentage Date ERV PRINC (ERV/PRINC)-1
- ------------- ------------ ------ ------ -------------
Quarter 03/31/88 1,105.78 $1,000.00 1.58%
1 Year 06/30/87 1,065.54 $1,000.00 6.55%
5 Year 06/30/83 1,446.25 $1,000.00 44.63%
10 Year 06/30/78 2,582.52 $1,000.00 158.25%
Inception 10/02/76 2,884.57 $1,000.00 184.46%
- --------------------------------------------------------------------------------
Average Initial AATR%
Annual Total Investment n
Return % Date P T n P(1+T) = ERV
- ------------ ----------- ---------- --------- ------ -------------
1 Year 06/30/87 $1,000.00 6.55% 1 $1,065.54
5 Year 06/30/83 $1,000.00 7.66% 5 $1,446.25
10 Year 06/30/78 $1,000.00 9.95% 10 $2,582.52
Inception 10/02/76 $1,000.00 9.30% 11.745 $2,844.57
- --------------------------------------------------------------------------------
<PAGE>
GOVERNMENT RESERVES
As of June 30, 1988
Initial
Investment TOTAL
Total Return Date DIST +/- APP (DEPR) = RETURN + PRINC = ERV
- ------------- ------------ -------- ------------ ------- ------ -----
Quarter 03/31/88 $15.35 0.00 15.35 1,000.00 1,015.35
1 Year 06/30/87 $59.01 0.00 59.01 1,000.00 1,059.01
5 Year 06/30/83 $399.69 0.00 399.69 1,000.00 1,399.69
Inception 09/20/82 $482.21 0.00 482.21 1,000.00 1,482.21
- --------------------------------------------------------------------------------
Initial TR%
Total Return Investment
Percentage Date ERV PRINC (ERV/PRINC)-1
- ------------- ------------ ------ ------ -------------
Quarter 03/31/88 1,015.35 $1,000.00 1.54%
1 Year 06/30/87 1,059.01 $1,000.00 5.90%
5 Year 06/30/83 1,399.69 $1,000.00 39.97%
Inception 09/20/82 1,482.21 $1,000.00 48.22%
- --------------------------------------------------------------------------------
Average Initial AATR%
Annual Total Investment n
Return % Date P T n P(1+T) = ERV
- ------------ ----------- ---------- --------- ------ -------------
1 Year 06/30/87 $1,000.00 5.90% 1 $1,059.01
5 Year 06/30/83 $1,000.00 6.96% 5 $1,399.69
Inception 09/20/82 $1,000.00 7.04% 5.778 $1,482.21
- --------------------------------------------------------------------------------
<PAGE>
SteinRoe Cash Reserves
Current & Effective Yield Computations
12/31/87
Dividend
Declared
Date Per Share
- -------------------- ----------
December 31, 1987 0.000181589
December 30, 1987 0.000182416
December 29, 1987 0.000180844
December 28, 1987 0.000188011
December 25-27, 1987 0.000562393
-----------
Seven Day Total 0.001295253
-----------
-----------
Computations:
0.001295253 365
Current Yield = ----------- x ---- = 6.75%
1 7
365/7
Effective Yield = 1 + .001295253
-------------- - 1 = 6.98%
1
<PAGE>
SteinRoe Government Reserves
Current & Effective Yield Computations
6/30/87
Dividend
Declared
Date Per Share
- -------------------- ----------
June 30, 1987 0.000141748
June 29, 1987 0.000141238
June 27-28, 1987 0.000289027
June 26, 1987 0.000144147
June 25, 1987 0.000143584
June 24, 1987 0.000140247
-----------
Seven Day Total 0.000999991
-----------
-----------
Computations:
0.000999991 365
Current Yield = ----------- x ---- = 5.21%
1 7
365/7
Effective Yield = 1 + .000999991
-------------- - 1 = 5.35%
1
<PAGE>
SteinRoe Income Trust
Yield Calculation
June 30, 1988
The Yield formula is as follows:
6
YIELD = 2[(a-b/cd) +1) -1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the ending net asset value of the Fund for the period.
Notes (1) Interest earned during the period is calculated in accordance with
the methods described under Item 22(b)(ii) of Form N-1A. For this
purpose, the Fund will recalculate the yield to maturity based on
market value of each obligation (except for mortgage-backed
securities subject to monthly paydowns) on each business day on
which the net asset value is calculated. For each obligation
with a call provision(s), yields are based on the lower of the
calculated yield to call or yield to maturity. Also, for
mortgage-backed securities subject to monthly paydowns,
interest earned is based on actual book income during the
period including paydown adjustments.
(2) Yields for the Funds' will be computed on each business day.
The yields of the Funds for the 30-day period ended June 30, 1988 were
computed as follows:
6
Governments Plus Yield = 2[(194,522 - 21,764/2,783,178 * 9.59) - 1] = 7.89%
6
Managed Bonds Yield = 2[(1,211,950 - 91,812/19,129,451 * 8.51) - 1] = 8.40%
6
High-Yield Bonds Yield = 2[(862,221 - 58,952/9,885,934 * 9.60) - 1] = 10.37%
<PAGE>
SteinRoe Limited Maturity Income Fund
Total Return Calculation
June 30, 1994
TOTAL RETURN
Distributions
Initial +/- Total
Investment Appreciation/ Return %
Period Date Depreciation Principal = ERV ERV/Princ.-1
- ------------- ------------ ------------ ------------ ----- ------------
Quarter 03/31/94 ($5.90) $1,000.00 $994 -0.59%
1 Year 06/30/94 $6.60 $1,000.00 $1,007 0.66%
Inception 03/11/93 $21.10 $1,000.00 $1,021 2.11%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
Initial
Investment n
Period Date P T n P(1+T) = ERV
- ------------ ----------- ---------- --------- ------ -------------
1 Year 06/30/94 $1,000.00 0.66% 1 $1,007
Inception 03/11/93 $1,000.00 1.61% 1.3 $1,016
- --------------------------------------------------------------------------------
<PAGE>
SteinRoe Limited Maturity Income Fund
Yield Calculation
June 30, 1994
The Yield formula is as follows:
6
YIELD = 2[(a-b/cd) +1) -1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends
d = the ending net asset value of the Fund for the period.
Notes (1) Interest earned during the period is calculated in accordance with
the methods described under Item 22(b)(ii) of Form N-1A. For this
purpose, the Fund will recalculate the yield to maturity based on
market value of each obligation (except for mortgage-backed
securities subject to monthly paydowns) on each business day on
which the net asset value is calculated. For each obligation with
a call provision(s), yields are based on the lower of the
calculated yield to call or yield to maturity. Also, for
mortgage-backed securities subject to monthly paydowns,
interest earned is based on actual book income during the
period including paydown adjustments.
(2) Yields for the Fund will be computed on each business day.
The yield of SteinRoe Limited Maturity Income Fund for the 30-day period ended
June 30, 1994 was computed as follows:
Limited Maturity Income Fund Yield =
6
2[($146,473 - $11,342/3,190,743 * $9.61)+1) -1] = 5.35%
The Yield for Limited Maturity Income Fund at June 30, 1994, excluding the
expense reimbursement would have been 4.59%
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STEIN ROE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 309,949
<INVESTMENTS-AT-VALUE> 306,448
<RECEIVABLES> 15,818
<ASSETS-OTHER> 362
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 322,628
<PAYABLE-FOR-SECURITIES> 11,964
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,100
<TOTAL-LIABILITIES> 13,064
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 319,189
<SHARES-COMMON-STOCK> 32,129
<SHARES-COMMON-PRIOR> 17,807
<ACCUMULATED-NII-CURRENT> 78
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,202)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,501)
<NET-ASSETS> 309,564
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,271
<OTHER-INCOME> 0
<EXPENSES-NET> 1,953
<NET-INVESTMENT-INCOME> 17,318
<REALIZED-GAINS-CURRENT> 1,846
<APPREC-INCREASE-CURRENT> (10,391)
<NET-CHANGE-FROM-OPS> 8,773
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (17,246)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 216,512
<NUMBER-OF-SHARES-REDEEMED> (85,588)
<SHARES-REINVESTED> 12,786
<NET-CHANGE-IN-ASSETS> 135,237
<ACCUMULATED-NII-PRIOR> 6
<ACCUMULATED-GAINS-PRIOR> (8,047)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,483
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,103
<AVERAGE-NET-ASSETS> 238,704
<PER-SHARE-NAV-BEGIN> 9.79
<PER-SHARE-NII> .71
<PER-SHARE-GAIN-APPREC> (.16)
<PER-SHARE-DIVIDEND> (.71)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.63
<EXPENSE-RATIO> 0.82
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> STEIN ROE GOVERNMENT INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 37,717
<INVESTMENTS-AT-VALUE> 38,454
<RECEIVABLES> 488
<ASSETS-OTHER> 100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,042
<PAYABLE-FOR-SECURITIES> 1,718
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114
<TOTAL-LIABILITIES> 1,832
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,533
<SHARES-COMMON-STOCK> 3,836
<SHARES-COMMON-PRIOR> 3,786
<ACCUMULATED-NII-CURRENT> 14
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,074)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 737
<NET-ASSETS> 37,210
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,610
<OTHER-INCOME> 0
<EXPENSES-NET> 365
<NET-INVESTMENT-INCOME> 2,245
<REALIZED-GAINS-CURRENT> 186
<APPREC-INCREASE-CURRENT> (656)
<NET-CHANGE-FROM-OPS> 1,775
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,231)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,176
<NUMBER-OF-SHARES-REDEEMED> (12,453)
<SHARES-REINVESTED> 1,663
<NET-CHANGE-IN-ASSETS> (70)
<ACCUMULATED-NII-PRIOR> 1,393
<ACCUMULATED-GAINS-PRIOR> (2,260)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 219
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 426
<AVERAGE-NET-ASSETS> 36,649
<PER-SHARE-NAV-BEGIN> 9.85
<PER-SHARE-NII> .61
<PER-SHARE-GAIN-APPREC> (.15)
<PER-SHARE-DIVIDEND> (.61)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.70
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> STEIN ROE INTERMEDIATE BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 297,399
<INVESTMENTS-AT-VALUE> 294,505
<RECEIVABLES> 4,861
<ASSETS-OTHER> 255
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 299,621
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,509
<TOTAL-LIABILITIES> 1,509
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 313,998
<SHARES-COMMON-STOCK> 34,729
<SHARES-COMMON-PRIOR> 34,787
<ACCUMULATED-NII-CURRENT> 327
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13,319)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,894)
<NET-ASSETS> 298,112
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 22,971
<OTHER-INCOME> 0
<EXPENSES-NET> 2,147
<NET-INVESTMENT-INCOME> 20,824
<REALIZED-GAINS-CURRENT> 3,857
<APPREC-INCREASE-CURRENT> (7,549)
<NET-CHANGE-FROM-OPS> 17,132
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,525)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 91,892
<NUMBER-OF-SHARES-REDEEMED> (108,873)
<SHARES-REINVESTED> 16,753
<NET-CHANGE-IN-ASSETS> (3,621)
<ACCUMULATED-NII-PRIOR> 28
<ACCUMULATED-GAINS-PRIOR> (17,176)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,533
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,304
<AVERAGE-NET-ASSETS> 306,770
<PER-SHARE-NAV-BEGIN> 8.67
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> (.09)
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.58
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> STEIN ROE CASH RESERVES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 471,553
<INVESTMENTS-AT-VALUE> 471,553
<RECEIVABLES> 786
<ASSETS-OTHER> 7,385
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 479,724
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,884
<TOTAL-LIABILITIES> 2,884
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 476,704
<SHARES-COMMON-STOCK> 476,757
<SHARES-COMMON-PRIOR> 498,080
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 136
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 476,840
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 28,020
<OTHER-INCOME> 0
<EXPENSES-NET> 3,783
<NET-INVESTMENT-INCOME> 24,237
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 24,237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (24,237)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 711,619
<NUMBER-OF-SHARES-REDEEMED> (755,339)
<SHARES-REINVESTED> 22,397
<NET-CHANGE-IN-ASSETS> (21,323)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 136
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,432
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,783
<AVERAGE-NET-ASSETS> 486,402
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> STEIN ROE GOVERNMENT RESERVES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 66,259
<INVESTMENTS-AT-VALUE> 66,259
<RECEIVABLES> 345
<ASSETS-OTHER> 496
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67,100
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 172
<TOTAL-LIABILITIES> 172
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,968
<SHARES-COMMON-STOCK> 66,967
<SHARES-COMMON-PRIOR> 93,360
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (40)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 66,928
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,804
<OTHER-INCOME> 0
<EXPENSES-NET> 594
<NET-INVESTMENT-INCOME> 4,210
<REALIZED-GAINS-CURRENT> 3
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,213
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,210)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 60,169
<NUMBER-OF-SHARES-REDEEMED> (90,299)
<SHARES-REINVESTED> 3,737
<NET-CHANGE-IN-ASSETS> (26,390)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (42)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 425
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 699
<AVERAGE-NET-ASSETS> 85,243
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.05)
<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> 6
<NAME> STEIN ROE LIMITED MATURITY INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 25,738
<INVESTMENTS-AT-VALUE> 25,337
<RECEIVABLES> 373
<ASSETS-OTHER> 61
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 25,771
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 162
<TOTAL-LIABILITIES> 162
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,963
<SHARES-COMMON-STOCK> 2,669
<SHARES-COMMON-PRIOR> 2,877
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (954)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (401)
<NET-ASSETS> 25,609
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,149
<OTHER-INCOME> 0
<EXPENSES-NET> 185
<NET-INVESTMENT-INCOME> 1,964
<REALIZED-GAINS-CURRENT> (204)
<APPREC-INCREASE-CURRENT> (135)
<NET-CHANGE-FROM-OPS> 1,625
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,974)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23,254
<NUMBER-OF-SHARES-REDEEMED> (26,694)
<SHARES-REINVESTED> 1,491
<NET-CHANGE-IN-ASSETS> (2,298)
<ACCUMULATED-NII-PRIOR> 11
<ACCUMULATED-GAINS-PRIOR> (751)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 190
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 392
<AVERAGE-NET-ASSETS> 31,525
<PER-SHARE-NAV-BEGIN> 9.70
<PER-SHARE-NII> .61
<PER-SHARE-GAIN-APPREC> (.11)
<PER-SHARE-DIVIDEND> (.61)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.59
<EXPENSE-RATIO> 0.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 19(b)
[SteinRoe Mutual Funds Logo]
AUTOMATIC REDEMPTION SERVICES APPLICATION
This service allows for regularly scheduled redemption of
shares from a SteinRoe Fund account.
1-800-338-2550
Liberty Securities Corporation,
Distributor
Member of SIPC
<PAGE>
1 ACCOUNT REGISTRATION
Please print or type all information Also, be sure to obtain
a signature guarantee in Section 5.
__________________________________
Name of fund
__________________________________
Account number
__________________________________
Name (write exactly as it appears on your account statement)
__________________________________
Additional name if applicable
__________________________________
Address (write exactly as it appears on your account
statement)
__________________________________
__________________________________
City State Zip code
__________________________________
Daytime telephone
__________________________________
Evening telephone
2 AUTOMATIC REDEMPTION PLAN
You may have your automatic redemption proceeds: (A)
deposited directly into your checking account by electronic
transfer or (B) sent by check to the address you specify.
Complete one of the following options:
A. Deposit directly to my checking account. This option
allows you to redeem a fixed dollar amount on a schedule you
select (also complete Section 3).
Redeem ___________________________ on or about the
Amount ($50 min/$50,000 max)
[ ] 10th or [ ] 25th day of the month
every: [ ] Month [ ] Quarter [ ] Six months [ ] Year
Please begin: Immediately or ______________
(specify month)
<PAGE>
B. Check by mail. These redemptions will begin on or about
the 25th day of the month. Redeem (check one option):
[ ] $____ amount for each payment ($50 minimum)
[ ] _____ number of shares for each payment
[ ] _____% (annual rate) of my account for each payment
[ ] total account in ___ payments
every: [ ] Month [ ] Quarter [ ] Six months [ ] Year
Please begin: Immediately or ______________
(specify month)
and send the proceeds to (check one option):
[ ] (1) Address on my account registration
[ ] (2) My checking account (also complete Section 3)
[ ] (3) Other address (indicate below)
_______________________________________
Address
_______________________________________
_______________________________________
City State Zip code
3 BANK INFORMATION
Please complete this section if you chose option 2A or 2B(2).
_______________________________________
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 cheek below and verify the above information
with your bank.)
Attach voided check here.
<PAGE>
4 SIGNATURES
By signing this form, you acknowledge that you have received
the current prospectus for your Fund and the SteinRoe
Services brochure and agree to be bound by their terms as
governed by Illinois law. Officers who sign must also
complete and attach the Certificate of Authorization on the
last page of the prospectus. Options you elect on this form
supersede prior elections.
__________________________________
Signature Date
__________________________________
Title (if owner is an organization)
__________________________________
Signature Date
__________________________________
Title (if owner is an organization)
5 SIGNATURE GUARANTEE
A signature guarantee is required for all options in this
application. We are unable to accept notarizations.
Signature(s) Guaranteed By:
__________________________________
Name of institution
__________________________________
Name of authorized officer
__________________________________
Signature of authorized officer
Guarantor's stamp
Please return your completed application in the enclosed
postage-paid envelope.
0892 02118
