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. 33 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 34 [X]
STEIN ROE INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
One South Wacker Drive, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 1-800-338-2550
Jilaine Hummel Bauer Cameron S. Avery
Executive Vice-President Bell, Boyd & Lloyd
& Secretary Three First National Plaza
Stein Roe Income Trust Suite 3300
One South Wacker Drive 70 W. Madison Street
Chicago, Illinois 60606 Chicago, Illinois 60602
(Name and Address of Agents for Service)
It is proposed that this filing will become effective (check
appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on November 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
Registrant has previously elected to register 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 Intermediate Bond Fund, and Stein Roe
High Yield Fund. The Rule 24f-2 Notice for the fiscal year ended
June 30, 1997 was filed on August 27, 1997.
This amendment to the Registration Statement has also been signed
by SR&F Base Trust as it relates to Stein Roe High Yield Fund.
<PAGE>
STEIN ROE INCOME TRUST
CROSS REFERENCE SHEET
ITEM
NO. CAPTION
- ----- -------
PART A (MONEY MARKET FUNDS PROSPECTUS
AND BOND FUNDS PROSPECTUS)
1 Front cover
2 Fee Table; Summary
3 (a) Financial Highlights
(b) Inapplicable
(c) [Money Market Funds] The Funds; [Bond Funds] Investment
Return
(d) [Money Market Funds] Inapplicable; [Bond Funds] Financial
Highlights
4 Organization and Description of Shares; The Funds;
Investment Policies; Investment Restrictions; Risks and
Investment Considerations; Summary--Investment Risks; [Bond
Funds] Portfolio Investments and Strategies
5 (a) Management--Trustees and Investment Adviser
(b) Management--Trustees and Investment Adviser, Fees and
Expenses
(c) [Money Market Funds] Inapplicable; [Bond Funds] Management
--Portfolio Managers
(d) Inapplicable
(e) Management--Transfer Agent
(f) Management--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] Master Fund/Feeder Fund: Structure and Risk
Factors; [Money Market Funds] Inapplicable
7 How to Purchase Shares
(a) Management--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
(g) 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] The Fund; [Intermediate Bond Fund and
Income Fund] Investment Return
(d) [Cash Reserves] Inapplicable; [Intermediate Bond Fund and
Income Fund] Financial Highlights
4 Organization and Description of Shares; The Fund;
Investment Policies; Investment Restrictions; Risks and
Investment Considerations; [Intermediate Bond Fund and
Income Fund] Portfolio Investments and Strategies
5 (a) Management--Trustees and Investment Adviser
(b) Management--Trustees and Investment Adviser,
Fees and Expenses
(c) [Cash Reserves] Inapplicable; [Intermediate Bond Fund and
Income Fund] Management--Portfolio Manager
(d) Inapplicable
(e) Management--Transfer Agent
(f) Management--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--Distributor
(b) How to Purchase Shares; Net Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inapplicable
(g) Inapplicable
8 (a) How to Redeem Shares
(b) How to Purchase Shares
(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, Fee Table
(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>
Stein Roe Mutual Funds
Stein Roe Cash Reserves Fund
Prospectus
Nov. 1, 1997
Cash Reserves Fund seeks to obtain maximum current income
consistent with capital preservation and maintenance of liquidity.
It invests solely in money market instruments maturing in thirteen
months or less from the time of investment.
Cash Reserves is a "no-load" money market fund and attempts
to maintain its net asset value at $1.00 per share. Shares of
Cash Reserves are neither insured nor guaranteed by the U.S.
Government and there can be no assurance that it will be able to
maintain a stable net asset value of $1.00 per share.
There are no sales or redemption charges, and Cash Reserves
has no 12b-1 plan. Cash Reserves is a series of Stein Roe Income
Trust.
This prospectus contains information you should know before
investing in Cash Reserves. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated Nov. 1, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. This
information is available on the SEC's website at
http://www.sec.gov. This prospectus is also available
electronically by using Stein Roe's Internet address:
http://www.steinroe.com. You can get a free paper copy of the
prospectus, the Statement of Additional Information, and the most
recent financial statements by calling 800-338-2550 or by writing
to Stein Roe Funds, Suite 3200, One South Wacker Drive, Chicago,
Illinois 60606.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TABLE OF CONTENTS
Page
Summary................................. 2
Fee Table............ ...................3
Financial Highlights.....................4
The Fund.................................5
Investment Policies..................... 6
Investment Restrictions............ .....7
Risks and Investment Considerations......8
How to Purchase Shares...................9
By Check............................. 9
By Wire...............................9
By Electronic Transfer.............. 10
By Exchange......................... 10
Conditions of Purchase.............. 10
Purchases Through Third Parties......11
Purchase Price and Effective Date... 11
How to Redeem Shares................... 11
By Written Request.................. 11
By Exchange..........................12
Special Redemption Privileges....... 12
General Redemption Policies..........14
Shareholder Services....................15
Net Asset Value.........................17
Distributions and Income Taxes..........18
Management............................. 19
Organization and Description of Shares. 20
Certificate of Authorization........... 22
SUMMARY
Stein Roe Cash Reserves Fund ("Cash Reserves") is a series of
Stein Roe Income Trust, an open-end management investment company
organized as a Massachusetts business trust. Cash Reserves 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
shares of Cash Reserves are not qualified for sale.
Net Asset Value. Cash Reserves attempts to maintain its price per
share at $1.00. There is no assurance that it will always be able
to do so. (See Net Asset Value.)
Investment Objectives and Policies. Cash Reserves is a money
market fund with the objective of seeking maximum current income
consistent with safety of capital and maintenance of liquidity.
Cash Reserves pursues its objective by investing in a wide range
of high-quality U.S. dollar-denominated money market instruments
maturing in thirteen months or less from the date of purchase.
Under normal market conditions, Cash Reserves will invest at least
25% of its total assets in securities of issuers in the financial
services industry. (See Investment Policies.)
Investment Risks. Cash Reserves' policy of normally investing at
least 25% of its assets in securities of issuers in the financial
services industry may cause it to be more adversely affected by
changes in market or economic conditions and other circumstances
affecting the financial services industry. In addition, since
Cash Reserves' investment policy permits it to invest in
securities of foreign branches of U.S. banks, U.S. branches of
foreign banks, and foreign banks and their foreign branches, such
as negotiable certificates of deposit (Eurodollar CDs), and
securities of foreign governments, investment in the Fund might
involve risks that are different in some respects from an
investment in a fund that invests only in debt obligations of U.S.
domestic issuers. (For a discussion of risks, see Risks and
Investment Considerations.)
Purchases. The minimum initial investment is $2,500, and
additional investments must be at least $100 (only $50 for
purchases by electronic transfer). Lower initial investment
minimums apply to IRAs, UGMAs, and automatic investment plans.
Shares may be purchased by check, by bank wire, by electronic
transfer, or by exchange from another Stein Roe Fund. For more
detailed information, see How to Purchase Shares.
Redemptions. For information on redeeming shares, including the
special redemption privileges, see How to Redeem Shares.
Distributions. Dividends are declared each business day and are
paid monthly. Dividends will be reinvested in additional Cash
Reserves shares unless you elect to have them paid in cash,
deposited by electronic transfer into your bank account, or
invested in shares of another Stein Roe Fund. (See Distributions
and Income Taxes and Shareholder Services.)
Adviser and Fees. Stein Roe & Farnham Incorporated (the
"Adviser") provides administrative, management, and investment
advisory services to Cash Reserves. For a description of the
Adviser and its fees, see Management.
If you have any additional questions about Cash Reserves,
please feel free to discuss them with a Stein Roe 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
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management and Administrative Fees)............. 0.50%
12b-1 Fees.......................................None
Other Expenses.................................. 0.27%
-----
Total Fund Operating Expenses....................0.77%
=====
____________________
*There is a $7.00 charge for wiring redemption proceeds to your
bank.
Example. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2) redemption at the
end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$8 $25 $43 $95
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 Cash Reserves. The table
is based upon actual expenses incurred in the last fiscal year.
(Also see Management--Fees and Expenses.)
For purposes of the Example above, the figures assume that
the percentage amounts listed under Annual Fund Operating Expenses
remain the same during each of the periods, that all income
dividends and capital gains distributions are reinvested in
additional shares, and that, for purposes of fee breakpoints, the
net assets remain at the same level as in the most recently
completed fiscal year.
The figures in the Example are not necessarily indicative of
past or future expenses, and actual expenses may be greater or
less than those shown. Although information such as that shown in
the Fee Table and Example is useful in reviewing Cash Reserves'
expenses and in providing a basis for comparison with other mutual
funds, it should not be used for comparison with other investments
using different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of Cash
Reserves on a per-share basis and has been audited by Ernst &
Young LLP, independent auditors. The table should be read in
conjunction with the financial statements and notes thereto, which
may be obtained from the Trust without charge upon request.
<TABLE>
<CAPTION>
Six
Year Months
Ended Ended
Dec. 31, June 30, Years Ended June 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income. 0.060 0.032 0.081 0.079 0.068 0.044 0.028 0.028 0.048 0.050 0.048
Distributions from net
investment income.... (0.060) (0.032) (0.081) (0.079) (0.068) (0.044) (0.028) (0.028) (0.048) (0.050) (0.048)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END
OF PERIOD............. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of expenses to
average net assets... 0.72% *0.70% 0.75% 0.76% 0.78% 0.78% 0.79% 0.79% 0.76% 0.78% 0.77%
Ratio of net investment
income to average
net assets........... 6.02% *6.36% 8.13% 7.94% 6.81% 4.40% 2.81% 2.77% 4.83% 4.98% 4.80%
Total return.......... 6.15% *6.43% 8.41% 8.20% 6.98% 4.49% 2.83% 2.81% 4.96% 5.07% 4.92%
Net assets, end of
period (000 omitted).$962,901 $930,074 $948,018 $949,803 $840,525 $711,087 $627,110 $554,713 $498,163 $476,840 $452,358
<FN>
*Annualized.
</TABLE>
THE FUND
Stein Roe Cash Reserves Fund ("Cash Reserves") is a no-load
"mutual fund." Mutual funds sell their own shares to investors
and use the money they receive to invest in a portfolio of
securities. A mutual fund allows you to pool your money with that
of other investors in order to obtain professional investment
management. Mutual funds generally make it possible for you to
obtain greater diversification of your investments and simplify
your recordkeeping. Because Cash Reserves invests only in money
market instruments, it is called a "money market fund." No-load
funds do not impose commissions or charges when shares are
purchased or redeemed.
Cash Reserves is a series of Stein Roe Income Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Although there can be no assurance that it will always be
able to do so, Cash Reserves follows procedures designed to
stabilize its price per share at $1.00. The Statement of
Additional Information describes these procedures.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and recordkeeping and
accounting services to Cash Reserves. The Adviser also manages
several other mutual funds with different investment objectives,
including international funds, equity funds and taxable and tax-
exempt bond funds. To obtain prospectuses and other information
on any of those mutual funds, please call 800-338-2550.
Because Cash Reserves strives to maintain a $1.00 per share
value, its return is usually quoted either as a current seven-day
yield, calculated by totaling the dividends on a share of Cash
Reserves for the previous seven days and restating that yield as
an annual rate; or as an effective yield, calculated by adjusting
the current yield to assume daily compounding. Cash Reserves'
current and effective yields for the seven-day period ended Sept.
30, 1997, were 4.96% and 5.09% respectively. To obtain current
yield information, you may call 800-338-2550.
From time to time, Cash Reserves may also quote total return
figures. The total return from an investment in Cash Reserves is
measured by the distributions received (assuming reinvestment)
plus or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period (including
reinvestment of distributions) by the value of the share at the
beginning of the period and subtracting one. For a given period,
an average annual total return may be calculated by finding the
average annual compounded rate that would equate a hypothetical
$1,000 investment to the ending redeemable value.
Comparison of Cash Reserves' yield or total return with those
of alternative investments should consider differences between
Cash Reserves and the alternative investments, the periods and
methods used in calculation of the return being compared, and the
impact of taxes on alternative investments. Past performance is
not necessarily indicative of future results.
INVESTMENT POLICIES
Cash Reserves seeks to obtain maximum current income consistent
with the preservation of capital and the maintenance of liquidity
by investing all of its assets in U.S. dollar-denominated money
market instruments maturing in thirteen months or less from time
of investment. Each security must be rated (or be issued by an
issuer that is rated with respect to its short-term debt) within
the highest rating category for short-term debt by at least two
nationally recognized statistical rating organizations ("NRSRO")
(or, if rated by only one NRSRO, by that rating agency), or, if
unrated, determined by or under the direction of the Board of
Trustees to be of comparable quality. These securities may
include:
(1) Securities issued or guaranteed by the U.S. Government or by
its agencies or instrumentalities ("U.S. Government
Securities");
(2) Securities issued or guaranteed by the government of any
foreign country that are rated at time of purchase A or better
(or equivalent rating) by at least one NRSRO; /1/
(3) Certificates of deposit, bankers' acceptances and time
deposits of any bank (U.S. or foreign) having total assets in
excess of $1 billion, or the equivalent in other currencies
(as of the date of the most recent available financial
statements) or of any branches, agencies or subsidiaries (U.S.
or foreign) of any such bank;
(4) Commercial paper of U.S. or foreign issuers;
(5) Notes, bonds, and debentures rated at time of purchase A or
better (or equivalent rating) by at least one NRSRO;
(6) Repurchase agreements /2. involving securities listed in (1)
above;
(7) Other high-quality short-term obligations.
- ----------------
/1/ For a description of certain NRSRO commercial paper, note, and
bond ratings, see the Appendix to the Statement of Additional
Information.
/2/ A sale of securities to the Fund in which the seller (a bank
or securities dealer that the Adviser believes to be financially
sound) agrees to repurchase the securities at a higher price,
which includes an amount representing interest on the purchase
price, within a specified time.
- ----------------
In accordance with its investment objectives and policies,
Cash Reserves may invest in variable and floating rate money
market instruments which provide for periodic or automatic
adjustment in coupon interest rates that are reset based on
changes in amount and directions of specified short-term interest
rates.
Under normal market conditions, Cash Reserves will invest at
least 25% of its total assets in securities of issuers in the
financial services industry (which includes, but is not limited
to, banks, personal credit and business credit institutions, and
other financial services institutions).
Cash Reserves maintains a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining a stable net
asset value per share, and not in excess of 90 days. It is a
fundamental policy /3/ that the maturity of any instrument that
grants the holder an optional right to redeem at par plus interest
and without penalty will be deemed at any time to be the next date
provided for payment on exercise of such optional redemption
right.
- -------------
/3/ A fundamental policy may be changed only with the approval of
a "majority of the outstanding voting securities" as defined in
the Investment Company Act of 1940.
- -------------
INVESTMENT RESTRICTIONS
Cash Reserves is diversified as that term is defined in the
Investment Company Act of 1940.
Cash Reserves will not, with respect to 75% of its total
assets, invest more than 5% of its total assets in the securities
of any one issuer--this restriction does not apply to U.S.
Government Securities or repurchase agreements for such
securities./4/ Notwithstanding the limitation on investment in a
single issuer, Cash Reserves may invest all or substantially all
of its assets in another investment company having the identical
investment objective under a master fund/feeder fund structure.
- -------------
/4/ Notwithstanding the foregoing, and in accordance with Rule 2a-
7 of the Investment Company Act of 1940 (the "Rule"), Cash
Reserves will not, immediately after the acquisition of any
security (other than a Government Security or certain other
securities as permitted under the Rule), invest more than 5% of
its total assets in the securities of any one issuer; provided,
however, that it may invest up to 25% of its total assets in First
Tier Securities (as that term is defined in the Rule) of a single
issuer for a period of up to three business days after the
purchase thereof.
- -------------
Cash Reserves may not make loans except that it may (1)
purchase money market instruments and enter into repurchase
agreements; (2) acquire publicly distributed or privately placed
debt securities; and (3) participate in an interfund lending
program with other Stein Roe Funds and Portfolios. Cash Reserves
may not borrow money, except for nonleveraging, temporary, or
emergency purposes or in connection with participation in the
interfund lending program. Neither Cash Reserves' aggregate
borrowings (including reverse repurchase agreements) nor its
aggregate loans at any one time may exceed 33 1/3% of the value of
its total assets. Additional securities may not be purchased when
borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets.
Cash Reserves will not invest more than 10% of its net assets
in illiquid securities, including repurchase agreements maturing
in more than seven days (however, there is otherwise no limitation
on the percentage of assets which may be invested in repurchase
agreements).
The policies described in the second and third paragraphs of
this section, which summarize certain important investment
restrictions of Cash Reserves, and the policy with respect to
concentration of investment in the financial services industry,
can be changed only with the approval of a "majority of the
outstanding voting securities," as defined in the Investment
Company Act of 1940. All of the investment restrictions are set
forth in the Statement of Additional Information.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. There can be no
guarantee that Cash Reserves will achieve its objective or be able
at all times to maintain its net asset value per share at $1.00.
In the event of a bankruptcy or other default of a seller of
a repurchase agreement, Cash Reserves could experience both delays
in liquidating the underlying securities and losses, including:
(a) possible decline in the value of the collateral during the
period in which it seeks to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.
The investment objective of Cash Reserves is not fundamental
and may be changed by the Board of Trustees without a vote of
shareholders. If there is a change in the investment objective,
shareholders should consider whether Cash Reserves remains an
appropriate investment in light of their then-current financial
position and needs.
Cash Reserves' policy of investing at least 25% of its assets
in securities of issuers in the financial services industry may
cause it to be more adversely affected by changes in market or
economic conditions and other circumstances affecting the
financial services industry. Because Cash Reserves' investment
policy permits it to invest in: securities of foreign branches of
U.S. banks (Eurodollars), U.S. branches of foreign banks (Yankee
dollars), and foreign banks and their foreign branches, such as
negotiable certificates of deposit; securities of foreign
governments; and securities of foreign issuers, such as commercial
paper and corporate notes, bonds and debentures, investment in
Cash Reserves might involve risks that are different in some
respects from an investment in a fund that invests only in debt
obligations of U.S. domestic issuers. Such risks may include
future political and economic developments; the possible
imposition of foreign withholding taxes on interest income payable
on securities held in the portfolio; possible seizure or
nationalization of foreign deposits; the possible establishment of
exchange controls; or the adoption of other foreign governmental
restrictions that might adversely affect the payment of principal
and interest on securities in the portfolio. Additionally, there
may be less public information available about foreign banks and
their branches. Foreign banks and foreign branches of foreign
banks are not regulated by U.S. banking authorities, and generally
are not bound by accounting, auditing, and financial reporting
standards comparable to U.S. banks.
Cash Reserves may invest in securities purchased on a when-
issued or delayed-delivery basis. Although the payment terms of
these securities are established at the time Cash Reserves enters
into the commitment, the securities may be delivered and paid for
a month or more after the date of purchase, when their value may
have changed and the yields then available in the market may be
greater. It will make such commitments only with the intention of
actually acquiring the securities, but may sell the securities
before settlement date if it is deemed advisable for investment
reasons.
Cash Reserves may also invest in securities purchased on a
standby commitment basis, which is a delayed-delivery agreement in
which it binds itself to accept delivery of a security at the
option of the other party to the agreement.
Master Fund/Feeder Fund Option. Rather than invest in money
market securities directly, Cash Reserves may in the future seek
to achieve its investment objective by pooling its assets with
those of other investment companies for investment in another
investment company having the same investment objective and
substantially the same investment policies as the Fund. The
purpose of such an arrangement is to achieve greater operational
efficiencies and to reduce costs. It is expected that the assets
of any such investment company would be managed by the Adviser in
substantially the same manner as Cash Reserves. Shareholders will
be given at least 30 days' prior notice of any such investment.
Such investment would be made only if the trustees determine it to
be in the best interests of Cash Reserves and its shareholders.
HOW TO PURCHASE SHARES
You may purchase shares by check, by wire, by electronic transfer,
or by exchange from your account with another Stein Roe Fund. The
initial purchase minimum per 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 and for clients of the
Adviser. Subsequent purchases must be at least $100, or at least
$50 if you purchase by electronic transfer. If you wish to
purchase shares to be held by a tax-sheltered retirement plan
sponsored by the Adviser, you must obtain special forms for those
plans. (See Shareholder Services.)
By Check. To make an initial purchase of shares 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 account confirmation
statement or a note indicating the amount of the purchase, your
account number, and the name in which your account is registered.
Money orders will not be accepted for initial purchases into new
accounts. Each individual check submitted for purchase must be at
least $100, and the Trust generally will not accept cash, drafts,
third or fourth party checks, or checks drawn on banks outside of
the United States. Should an order to purchase shares of Cash
Reserves be cancelled because your check does not clear, you will
be responsible for any resulting loss incurred.
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 Cash Reserves nor the
Trust will be responsible for the consequences of delays,
including delays in the banking or Federal Reserve wire systems.
Your bank must include the full name(s) in which your account is
registered and your 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. 36; Stein Roe Cash Reserves 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. 36; Stein Roe Cash Reserves 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 be cancelled because your
electronic transfer does not clear, you will be responsible for
any resulting loss incurred.
By Exchange. You may purchase shares by exchange of shares from
another Stein Roe Fund account either by phone (if the Telephone
Exchange Privilege has been established on the account from which
the exchange is being made), by mail, in person, or automatically
at regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information under How to
Redeem Shares--By Exchange.
Conditions of Purchase. Each purchase order must be accepted by
an authorized officer of the Trust or its authorized agent and is
not binding until accepted and entered on the books of Cash
Reserves. Once your purchase order has been accepted, you may not
cancel or revoke it; you may, however, redeem the shares. The
Trust reserves the right not to accept any purchase order that it
determines not to be in the best interests of the Trust or Cash
Reserves' shareholders. The Trust also reserves the right to
waive or lower its investment minimums for any reason. The Trust
does not issue certificates for shares.
Purchases Through Third Parties. You may purchase (or redeem)
shares through certain broker-dealers, banks, or other
intermediaries ("Intermediaries"). These Intermediaries may
charge for their services or place limitations on the extent to
which you may use the services offered by the Trust. There are no
charges or limitations imposed by the Trust (other than those
described in this prospectus) if shares are purchased (or
redeemed) directly from the Trust.
An Intermediary, who accepts orders that are processed at the
net asset value next determined after receipt of the order by the
Intermediary, accepts such orders as agent of Cash Reserves. The
Intermediary is required to segregate any orders received on a
business day after the close of regular session trading on the New
York Stock Exchange and transmit those orders separately for
execution at the net asset value next determined after that
business day.
Some Intermediaries that maintain nominee accounts with Cash
Reserves for their clients who are shareholders charge an annual
fee of up to 0.25% of the average net assets held in such accounts
for accounting, servicing, and distribution services they provide
with respect to the underlying shares. The Adviser and the
transfer agent share in the expense of these annual fees, and the
Adviser pays all sales and promotional expenses.
Purchase Price and Effective Date. Each purchase of shares made
directly with Cash Reserves is made at its net asset value (see
Net Asset Value) next determined after receipt of an order in good
form, including receipt of payment as follows:
Check purchases--net asset value next determined after your
check is converted into federal funds (currently one business day
after receipt of your check). Your investment will begin earning
dividends on the day of purchase.
Wire purchases--net asset value next determined after receipt
of the wire. If your wire is received before 11:00 a.m., central
time, your investment will begin earning dividends on the day of
purchase. If your wire is received at or after 11:00 a.m.,
central time, your investment will begin earning dividends on the
following day.
Electronic transfer--net asset value next determined after
Cash Reserves 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. Your investment will begin
earning dividends on the day following the date of purchase.
Each purchase of shares through an Intermediary that is an
authorized agent of the Trust for the receipt of orders is made at
the net asset value next determined after the receipt of the order
by the Intermediary.
HOW TO REDEEM SHARES
By Written Request. You may redeem all or a portion of your
shares 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 the dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The request must be accompanied by any certificates for the
shares, either properly endorsed for transfer, or accompanied
by a stock assignment properly endorsed exactly as the shares
are registered;
(4) The signatures on either the written redemption request or the
certificates (or the accompanying stock power) must be
guaranteed (a signature guarantee is not a notarization, but
is a widely accepted way to protect you and Cash Reserves by
verifying your signature);
(5) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this
prospectus (or a form of resolution acceptable to the Trust);
and
(6) 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 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 Cash Reserves 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 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 shares. The Telephone
Redemption by Check, Telephone Redemption by Wire and Check-
Writing Privileges, and Special Electronic Transfer Redemptions
are not available to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser. (See also General
Redemption Policies.)
Telephone Exchange Privilege. You may use the Telephone
Exchange Privilege to exchange an amount of $50 or more from your
account by calling 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 Cash Reserves may
refuse requests for Telephone Exchanges in excess of four round-
trips (a round-trip being the exchange out of Cash Reserves into
another Stein Roe Fund, and then back to Cash Reserves). In
addition, the Trust's general redemption policies apply to
redemptions of shares by Telephone Exchange. (See General
Redemption Policies.)
The 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. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects Cash
Reserves. Therefore, regardless of the number of telephone
exchange round-trips made by an investor, the Trust generally will
not honor requests for Telephone Exchanges by shareholders
identified by the Trust as "market-timers" if the officers of the
Trust determine the order not to be in the best interests of the
Trust or its shareholders. The Trust generally identifies as a
"market-timer" an investor whose investment decisions appear to be
based on actual or anticipated near-term changes in the securities
markets rather than other investment considerations. Moreover,
the 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 Cash Reserves, the Trust expects that it would
provide shareholders with prior written notice of any such action
unless it appears that the resulting delay in the suspension,
limitation, modification, or termination of the Telephone Exchange
Privilege would adversely affect Cash Reserves. If the Trust were
to suspend, limit, modify, or terminate the Telephone Exchange
Privilege, a shareholder expecting to make a Telephone Exchange
might find that an exchange could not be processed or that there
might be a delay in the implementation of the exchange. (See How
to Redeem Shares--By Exchange.) During periods of volatile
economic and market conditions, you may have difficulty placing
your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange
Privilege to automatically redeem a fixed amount from your 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.
Telephone Redemption by Wire Privilege. You may use this
Privilege to redeem an amount of $1,000 or more from your account
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.
Check-Writing Privilege. You may also redeem shares by
writing special checks in the amounts of $50 or more. Your checks
are drawn against a special checking account maintained with the
First National Bank of Boston, and you will be subject to the
bank's procedures and rules relating to its checking accounts and
to this Privilege.
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 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. The 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. (See Shareholder Services--Tax-Sheltered
Retirement Plans.) The Trust reserves the right to require a
properly completed application before making payment for shares
redeemed.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the net asset value per
share at the time of redemption, it may be more or less than the
price you originally paid for the shares, even though Cash
Reserves attempts to maintain its net asset value at $1.00
(rounded to the nearest one cent), and may result in a realized
capital gain or loss.
The Trust normally intends to pay proceeds of a redemption
within two business days and generally no later than seven days
after proper instructions are received. If a request for
Telephone Redemption by Wire is received before 11:00 a.m.,
central time, the proceeds will be paid on the day the order is
received; proceeds of an order received at or after 11:00 a.m.,
central time, will be paid on the next business day. The Trust
will not be responsible for the consequences of delays, including
delays in the mail, banking, or Federal Reserve wire systems. If
you attempt to redeem shares within 15 days after they have been
purchased by check or electronic transfer, the Trust may delay
payment of the redemption proceeds to you until it can verify that
payment for the purchase of those shares has been (or will be)
collected. To reduce such delays, the Trust recommends that your
purchase be made by federal funds wire through your bank.
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.
The Trust reserves the right at any time without prior notice
to suspend, limit, modify, or terminate any Privilege or its use
in any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. Cash Reserves 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 Cash Reserves
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
Cash Reserves immediately if there is a problem. If Cash Reserves
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.
The Trust reserves the right to redeem shares in any account
and send the proceeds to the owner of record if the shares in the
account do not have a value of at least $1,000. If the value of
the account is more than $10, 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. In
addition, due to the proportionately higher costs of maintaining
small accounts, effective for the first quarter of 1998, the
transfer agent may deduct a $5 per quarter minimum balance fee
from your regular account if its balance is under $2,000 or from
your UGMA account if its balance is under $800. This minimum
balance fee does not apply to Stein Roe IRAs and other Stein Roe
prototype retirement plans, accounts with automatic investment
plans (unless regular investments have been discontinued), and
omnibus and nominee accounts. The Adviser may waive the fee, at
its discretion, in the event of significant market corrections.
Shares in any account you maintain with Cash Reserves 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 Cash Reserves, as well as periodic statements detailing
distributions made by Cash Reserves. Shares purchased by
reinvestment of dividends, by cross-reinvestment of dividends from
another Stein Roe Fund, or through an automatic investment plan
will be confirmed to you quarterly. In addition, the Trust will
send you semiannual and annual reports showing portfolio holdings
and will provide you annually with tax information.
To reduce the volume of mail you receive, only one copy of
certain materials, such as prospectuses and shareholder reports,
will be mailed to your household (same address). Please call 800-
338-2550 if you wish to receive additional copies free of charge.
This policy may not apply if you purchased shares through an
Intermediary.
Funds-on-Call [registered trademark] Automated Telephone Service.
To access Stein Roe Funds-on-Call [registered trademark], just
call 800-338-2550 on any touch-tone telephone and follow the
recorded instructions. Funds-on-Call [registered trademark]
provides yields, prices, latest dividends, account balances, last
transaction, and other information 24 hours a day, seven days a
week. You also may use Funds-on-Call [registered trademark] 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.) Information
regarding your account is available to you via Funds-on-Call
[registered trademark] only after you follow an activation process
the first time you call. Your account information is protected by
a personal identification number (PIN) that you establish.
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 Stein Roe Fund
in which you plan to invest before making your investment.
Individual Retirement Accounts ("IRAs") for employed persons
and their non-employed spouses.
Prototype Money Purchase Pension and Profit-Sharing Plans for
self-employed individuals, partnerships, and corporations.
Simplified Employee Pension Plans permitting employers to
provide retirement benefits to their employees by utilizing IRAs
while minimizing administration and reporting requirements.
Special Services. The following special services are available to
shareholders. Please call 800-338-2550 or write the Trust for
additional information and forms.
Dividend Purchase Option--to diversify your investments by
having distributions from one Stein Roe Fund account automatically
invested in another Stein Roe Fund account. Before establishing
this option, you should obtain and carefully read 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 gains 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 account ($1,000 minimum).
Check-Writing Privilege--to redeem shares by writing special
checks against your Cash Reserves account ($50 minimum per check).
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 shares
at regular intervals directly from your bank account ($50 minimum;
$100,000 maximum).
Special Investments (electronic transfer)--to purchase 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 account and invest it in another Stein Roe
Fund account on a regular basis ($50 minimum; $100,000 maximum).
Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank 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 Cash Reserves' shares is its
net asset value per share. The net asset value of a share is
normally determined twice each day: at 11:00 a.m., central time,
and as of the close of trading on the New York Stock Exchange
("NYSE") (currently 3:00 p.m., central time). The net asset value
per share is computed by dividing the difference between the
values of assets and liabilities by the number of shares
outstanding and rounding to the nearest cent. Net asset value
will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, the net asset value should
be determined on any such day, in which case the determination
will be made at 3:00 p.m., central time.
Cash Reserves attempts to maintain its net asset value at
$1.00 per share. Portfolio securities are valued based on their
amortized cost, which does not take into account unrealized gains
or losses. Other assets and securities for which this valuation
method does not produce a fair value are valued at a fair value
determined by the Board. The extent of any deviation between the
net asset value based upon market quotations or equivalents and
$1.00 per share based on amortized cost will be examined by the
Board of Trustees. If such deviation were to exceed 1/2 of 1%,
the Board would consider what action, if any, should be taken,
including selling portfolio instruments, increasing, reducing or
suspending distributions, or redeeming shares in kind.
DISTRIBUTIONS AND INCOME TAXES
Distributions. A dividend from net income of Cash Reserves is
declared each business day to shareholders of record immediately
before 3:00 p.m., central time. (See How to Purchase Shares.)
Dividends are paid monthly and confirmed at least quarterly. If
the net asset value per share were to decline, or were believed
likely to decline, below $1.00 (rounded to the nearest cent), the
Board might temporarily reduce or suspend dividends in an effort
to maintain net asset value at $1.00 per share.
All of your income dividends and capital gains distributions
will be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank account; (3) applied to
purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment
normally occurs on the payable date. The Trust reserves the right
to reinvest the proceeds and future distributions in additional
Cash Reserves 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 Jan. but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates
on income dividends and distributions of net short-term capital
gains. Distributions of net long-term capital gains will be
taxable to you as long-term capital gains regardless of the length
of time you have held your shares.
You will be advised annually as to the source of
distributions. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts. Because
investment income consists primarily of interest, it is expected
that none of the dividends paid by Cash Reserves will qualify
under the Internal Revenue Code for the dividends received
deduction available to corporations.
For federal income tax purposes, Cash Reserves is treated as
a separate taxable entity distinct from the other series of the
Trust.
This section is not intended to be a full discussion of
income tax laws and their effect on shareholders. You may wish to
consult your own tax advisor.
Backup Withholding. The 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 the 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. Cash
Reserves must promptly pay to the IRS all amounts withheld.
Therefore, it is usually not possible for Cash Reserves to
reimburse you for amounts withheld. You may, however, claim the
amount withheld as a credit on your federal income tax return.
MANAGEMENT
Trustees and Investment Adviser. The Board of Trustees of the
Trust has overall management responsibility for the Trust and Cash
Reserves. See the Statement of Additional Information for the
names of and other information about the trustees and officers.
The Adviser, Stein Roe & Farnham Incorporated, One South
Wacker Drive, Chicago, Illinois 60606, is responsible for managing
the investment portfolios and business affairs of Cash Reserves
and the Trust, subject to the direction of the Board. The Adviser
is registered as an investment adviser under the Investment
Advisers Act of 1940. The Adviser and its predecessor have
advised and managed mutual funds since 1949. The Adviser is a
wholly owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
Fees and Expenses. The Adviser provides investment advisory and
administrative services to Cash Reserves under separate management
and administrative agreements. The Adviser is entitled to receive
from Cash Reserves in return for its services, monthly management
and administrative fees, computed and accrued daily, based on
average net assets at the following annual rates:
MANAGEMENT FEE ADMINISTRATIVE FEE TOTAL FEES
- -------------- ------------------------ -------------------------
.250% 250% up to $500 million, .500% up to $500 million,
.200% next $500 million, .450% next $500 million,
.150% thereafter .400% thereafter
The annualized management and administrative fees for Cash
Reserves for the year ended June 30, 1997, amounted to 0.50% of
average net assets.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to Cash
Reserves, including computation of net asset value and calculation
of net income and capital gains and losses on disposition of
assets.
Portfolio Transactions. The Adviser places the orders for the
purchase and sale of portfolio securities. In doing so, the
Adviser seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors.
Transfer Agent. SteinRoe Services Inc., One South Wacker Drive,
Chicago, Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
Distributor. The shares of Cash Reserves are offered for sale
through Liberty Securities Corporation ("Distributor") without any
sales commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned indirect subsidiary of Liberty
Financial. The business address of the Distributor is 100
Manhattanville Road, Purchase, New York 10577; however, all Fund
correspondence (including purchase and redemption orders) should
be mailed 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. 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
Cash Reserves. Foreign securities are maintained in the custody
of foreign banks and trust companies that are members of the
Bank's Global Custody Network or foreign depositories used by such
members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
Jan. 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, four series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some circumstances, be
held personally liable for unsatisfied obligations of the trust.
The Declaration of Trust provides that persons extending credit
to, contracting with, or having any claim against, the Trust or
any particular series shall look only to the assets of the Trust
or of the respective series for payment under such credit,
contract or claim, and that the shareholders, trustees and
officers shall have no personal liability therefor. The
Declaration of Trust requires that notice of such disclaimer of
liability be given in each contract, instrument or undertaking
executed or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any loss
and expense arising from personal liability solely by reason of
being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder
liability is believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust
also is believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to circumstances
in which the other series was unable to meet its obligations.
__________________
<PAGE>
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 ____________________________ (the "Corporation")
(name of Corporation/Association)
and that the following individual(s):
AUTHORIZED PERSONS
_____________________________ __________________________
Name Title
_____________________________ __________________________
Name Title
_____________________________ __________________________
Name Title
is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or
redeem shares of that Fund payable to any person or in any manner,
or to redeem shares of that Fund and apply the proceeds of such
redemption to purchase shares of another Fund (an "exchange"), and
to execute any necessary forms in connection therewith.
Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.
If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that the
Corporation's Charter and 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>
[STEIN ROE MUTUAL FUNDS LOGO]
The Stein Roe Funds
Stein Roe Cash Reserves 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 Growth Opportunities Fund
Stein Roe International Fund
Stein Roe Emerging Markets Fund
Stein Roe Mutual Funds
P. O. Box 8900
Boston, Massachusetts 02205-8900
Financial Advisors call: 1-800-322-0593
Shareholders call 1-800-338-2550
http://www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive,
Suite 3200
Liberty Securities Corporation, Distributor
Member SIPC
<PAGE>
Stein Roe Mutual Funds
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund
Prospectus
Nov. 1, 1997
Intermediate Bond Fund seeks high current income by investing
primarily in marketable debt securities. The dollar-weighted
average life of the Fund's portfolio is expected to be between
three and ten years.
Income Fund seeks high current income by investing principally in
medium-quality debt securities and, to a lesser extent, in lower-
quality securities which may involve greater risk.
High Yield Fund seeks total return by investing for a high level
of current income and capital growth. The Fund seeks to achieve
its objective by investing all of its net investable assets in
SR&F High Yield Portfolio, a portfolio of SR&F Base Trust that has
the same investment objective and substantially the same
investment policies as the Fund. High Yield Portfolio invests
primarily in high-yield, high-risk medium- and lower-quality debt
securities.
Lower-quality securities, commonly known as "junk bonds," are
subject to a greater risk with regard to payment of interest and
return of principal than higher-rated bonds. Investors should
carefully consider the risks associated with junk bonds before
investing. (See Investment Policies, Risks and Investment
Considerations, Master Fund/Feeder Fund: Structure and Risk
Factors, and Appendix--Ratings.)
Each Fund is a "no-load" fund. There are no sales or
redemption charges, and the Funds have no 12b-1 plans. The Funds
are series of the Stein Roe Income Trust, an open-end management
investment company.
This prospectus contains information you should know before
investing in the Funds. Please read it carefully and retain it
for future reference.
A Statement of Additional Information dated Nov. 1, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. This
information is available on the SEC's website at
http://www.sec.gov. This prospectus is also available
electronically by using Stein Roe's Internet address: http://www.
steinroe.com. You can get a free paper copy of the prospectus,
the Statement of Additional Information, and the most recent
financial statements by calling 800-338-2550 or by writing to
Stein Roe Funds, Suite 3200, One South Wacker Drive, Chicago,
Illinois 60606.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TABLE OF CONTENTS
Page
Summary ................................2
Fee Table.............................. 4
Financial Highlights................... 6
The Funds.............................. 7
Investment Policies.................... 8
Intermediate Bond Fund...............8
Income Fund.........................10
High Yield Fund.....................11
Portfolio Investments and Strategies...12
Investment Restrictions................18
Risks and Investment Considerations....19
How to Purchase Shares.................20
By Check............................20
By Wire.............................20
By Electronic Transfer............. 21
By Exchange........................ 21
Conditions of Purchase............. 21
Purchases Through Third Parties.....22
Purchase Price and Effective Date.. 22
How to Redeem Shares.................. 22
By Written Request................. 22
By Exchange........................ 23
Special Redemption Privileges...... 23
General Redemption Policies........ 25
Shareholder Services.................. 26
Net Asset Value....................... 28
Distributions and Income Taxes.........29
Investment Return..................... 30
Management.............................30
Organization and Description of Shares 33
Master Fund/Feeder Fund: Structure and
Risk Factors........................33
Appendix--Ratings......................35
Certificate of Authorization...........39
SUMMARY
Stein Roe Intermediate Bond Fund ("Intermediate Bond Fund"), Stein
Roe Income Fund ("Income Fund"), and Stein Roe High Yield Fund
("High Yield Fund") are series of the Stein Roe Income Trust, an
open-end management investment company organized as a
Massachusetts business trust. Each Fund is a "no-load" fund.
There are no sales or redemption charges. (See The Funds and
Organization and Description of Shares.) This prospectus is not a
solicitation in any jurisdiction in which shares of the Funds are
not qualified for sale.
Investment Objectives and Policies. Intermediate Bond Fund and
Income Fund each seek a high level of current income. High Yield
Fund and High Yield Portfolio each seek total return by investing
for a high level of current income and capital growth. Each Fund
invests as described below. The Funds seek to achieve their
objectives by investing primarily in debt obligations of various
types.
Intermediate Bond Fund pursues a high level of current income,
consistent with capital preservation, by investing primarily in
marketable debt securities. At least 60% of the Fund's assets
will be invested in debt securities rated within the three highest
grades assigned by Moody's or by S&P, or in U.S. Government
Securities, commercial paper, and certain bank obligations. Under
normal market conditions, the Fund invests at least 65% of its
assets in securities with an average life of between three and ten
years, and expects that the dollar-weighted average life of its
portfolio will be between three and ten years.
Income Fund seeks high current income by investing principally in
medium-quality debt securities (such as securities rated A or Baa
by Moody's or A or BBB by S&P), with at least 60% of its assets
invested in medium- or higher-quality debt securities. Medium-
quality debt securities may have some speculative characteristics.
Income Fund may also invest to a lesser extent in securities of
lower quality, which may entail greater risk. Lower-quality
securities are commonly referred to as "junk bonds."
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 the identical investment objective and investment
policies substantially similar 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 debt securities are obligations of
issuers that are considered predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal
according to the terms of the obligation and, therefore, carry
greater investment risk, including the possibility of issuer
default and bankruptcy, and are commonly referred to as "junk
bonds."
For a more detailed discussion of each Fund's investment
objectives and policies, please see Investment Policies and
Portfolio Investments and Strategies. There is, of course, no
assurance that any Fund or High Yield Portfolio will achieve its
investment objective.
Investment Risks. The risks inherent in each Fund and High Yield
Portfolio depend primarily upon the term and quality of the
obligations in its portfolio, as well as on market conditions.
Interest rate fluctuations will affect its net asset value, but
not the income received by a Fund or High Yield Portfolio from its
portfolio securities. However, because yields on debt securities
available for purchase vary over time, no specific yield on shares
of a Fund can be assured. Intermediate Bond Fund is appropriate
for investors who seek high income with less net asset value
fluctuation from interest rate changes than that of a longer-term
fund and who can accept greater levels of credit and other risks
associated with securities that are rated below investment grade.
Income Fund and High Yield Fund are designed for investors who
seek a higher level of income and who can accept greater levels of
credit and other risks associated with securities of medium or
lower quality. Although both Income Fund and High Yield Fund
invest in medium- and lower-quality debt securities, High Yield
Fund is designed for investors who can accept the heightened level
of risk and principal fluctuation inherent in a portfolio that
invests at least 65% of its assets in medium- and lower-quality
debt securities, while Income Fund, which invests up to 60% of its
assets in high- and medium-quality debt securities, can invest
only up to 40% of its assets in such securities. The Funds may
invest in foreign securities, which may entail a greater degree of
risk than investing in securities of domestic issuers. Please see
Investment Restrictions and Risks and Investment Considerations
for further information.
Purchases. The minimum initial investment for each Fund is
$2,500. Additional investments must be at least $100 (only $50
for purchases by electronic transfer). Lower initial investment
minimums apply to IRAs, UGMAs, and automatic investment plans.
Shares may be purchased by check, by bank wire, by electronic
transfer, or by exchange from another Stein Roe Fund. (See How to
Purchase Shares.)
Redemptions. For information on redeeming Fund shares, including
the special redemption privileges, please see How to Redeem
Shares.
Distributions. Dividends are declared each business day and are
paid monthly. Dividends will be reinvested in additional Fund
shares unless you elect to have them paid in cash, deposited by
electronic transfer into your bank account, or invested in shares
of another Stein Roe Fund. (See Distributions and Income Taxes
and Shareholder Services.)
Management and Fees. Stein Roe & Farnham Incorporated (the
"Adviser") is investment adviser to Intermediate Bond Fund, Income
Fund, and High Yield Portfolio. In addition, it provides
administrative and bookkeeping and accounting services to each
Fund and High Yield Portfolio. For a description of the Adviser
and its fees, see Management.
If you have any additional questions about the Funds or High
Yield Portfolio, please feel free to discuss them with a Stein Roe
account representative by calling 800-338-2550.
FEE TABLE
Inter-
mediate High
Bond Income Yield
Fund Fund Fund
----- ------- ----
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None
Sales Load Imposed on Reinvested
Dividends None None None
Deferred Sales Load None None None
Redemption Fees* None None None
Exchange Fees None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets; after fee waiver, if
applicable)
Management and Administrative Fees
(after fee waiver, if applicable) 0.50% 0.61% 0.00%
12b-1 Fees None None None
Other Expenses (after fee waiver,
if applicable) 0.25% 0.24% 1.00%
----- ----- -----
Total Fund Operating Expenses
(after fee waiver, if applicable) 0.75% 0.85% 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 5 years 10 years
------ ------- ------- --------
Intermediate Bond Fund $8 $24 $42 $93
Income Fund 9 27 47 105
High Yield Fund 10 32 55 122
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will bear
directly or indirectly as an investor in a Fund. The information
in the table is based upon actual expenses incurred in the last
fiscal year. The figures in the Examples assume that the
percentage amounts listed for the respective Funds under Annual
Fund Operating Expenses remain the same during each of the
periods, that all income dividends and capital gains distributions
are reinvested in additional Fund shares, and that, for purposes
of fee breakpoints, if any, the Funds' respective net assets
remain at the same levels as in the most recently completed fiscal
year.
From time to time, the Adviser may voluntarily waive a
portion of its fees payable by a Fund. The Adviser has agreed to
voluntarily waive such fees to the extent ordinary operating
expenses exceed 1% of High Yield Fund's annual average net assets.
This commitment expires on Oct. 31, 1998, subject to earlier
review and possible termination by the Adviser on 30 days' notice
to the Fund. Absent such expense undertaking, Management and
Administrative Fees, Other Expenses and Total Fund Operating
Expenses would have been 0.65%, 1.64% and 2.29%, respectively.
Any such reimbursement will lower the Fund's overall expense ratio
and increase its overall return to investors. (Also see
Management--Fees and Expenses.)
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. The Fund bears
its proportionate share of Portfolio fees and expenses. The
trustees of Income Trust have considered whether the annual
operating expenses of the Fund, including its proportionate share
of the expenses of High Yield Portfolio, would be more or less
than if the Fund invested directly in the securities held by High
Yield Portfolio, and concluded that the 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 the Funds'
expenses and in providing a basis for comparison with other mutual
funds, it should not be used for comparison with other investments
using different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The tables below reflect the results of operations of the Funds on
a per-share basis and have been audited by Ernst & Young LLP,
independent auditors. All of the auditors' reports related to
information for these periods were unqualified. These tables
should be read in conjunction with the respective Fund's financial
statements and notes thereto. The Funds' annual report, which may
be obtained from Income Trust without charge upon request,
contains additional performance information.
INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>
Years Ended June 30,
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
----- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $8.77 $8.51 $8.65 $8.38 $8.53 $8.99 $9.26 $8.44 $8.67 $8.58
---- ------ ------ ------ ------ ------ ------ ------ ------ -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income........ .68 .74 .73 .69 .69 .65 .56 .58 .59 .60
Net realized and unrealized
gains (losses) on
investments............... (.12) .14 (.28) .16 .46 .27 (.59) .23 (.10) .17
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from investment
operations................. .56 .88 .45 .85 1.15 .92 (.03) .81 .49 .77
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
DISTRIBUTIONS
Net investment income....... (.68) (.74) (.72) (.70) (.69) (.65) (.56) (.58) (.58) (.61)
Net realized capital gains.. (.14) -- -- -- -- -- (.08) -- -- --
In excess of realized gains. -- -- -- -- -- -- (.15) -- -- --
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
Total distributions....... (.82) (.74) (.72) (.70) (.69) (.65) (.79) (.58) (.58) (.61)
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
NET ASSET VALUE, END
OF PERIOD................ $8.51 $8.65 $8.38 $8.53 $8.99 $9.26 $8.44 $8.67 $8.58 $8.74
===== ====== ====== ====== ====== ====== ====== ====== ====== =====
Ratio of net expenses to
average net assets (a)... 0.73% 0.73% 0.74% 0.73% 0.70% 0.67% 0.70% 0.70% 0.70% 0.73%
Ratio of net investment
income to average net
assets (b). ............. 7.97% 8.71% 8.60% 8.17% 7.87% 7.22% 6.20% 6.94% 6.79% 6.97%
Portfolio turnover rate... 273% 197% 296% 239% 202% 214% 206% 162% 202% 210%
Total return (b).......... 6.92% 10.97% 5.33% 10.62% 14.02% 10.59% (0.47%) 10.11% 5.76% 9.31%
Net assets, end of
period (000 omitted)....$162,225 $165,056 $161,439 $184,444 $242,948 $311,728 $302,507 $301,733 $298,112 $328,784
</TABLE>
INCOME FUND
<TABLE>
<CAPTION>
Years Ended June 30,
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
----- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 9.71 $ 9.60 $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36 $9.79 $9.63
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income..... .95 .95 .92 .80 .76 .75 .69 .71 .71 .70
Net realized and
unrealized gains (losses)
on investments........... (.11) .05 (.70) -- .56 .59 (.74) .43 (.16) .25
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from investment
operations............... .84 1.00 .22 .80 1.32 1.34 (.05) 1.14 .55 .95
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS FROM NET
INVESTMENT INCOME......... (.95) (.95) (.92) (.80) (.76) (.75) (.69) (.71) (.71) (.70)
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
NET ASSET VALUE, END OF
PERIOD................... $ 9.60 $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36 $ 9.79 $9.63 $9.88
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Ratio of net expenses to
average net assets (a)... 0.91% 0.90% 0.93% 0.95% 0.90% 0.82% 0.82% 0.82% 0.82% 0.84%
Ratio of net investment
income to average net
assets (b)............... 10.08% 9.97% 10.02% 8.98% 8.20% 7.62% 6.94% 7.55% 7.26% 7.26%
Portfolio turnover rate... 158% 94% 90% 77% 76% 39% 53% 64% 135% 138%
Total return (b).......... 9.38% 11.06% 2.48% 9.30% 15.30% 14.64% (0.69%) 12.79% 5.70% 10.34%
Net assets, end of
period (000 omitted).... $96,611 $110,376 $89,023 $93,952 $112,706 $151,594 $158,886 $174,327 $309,564 $375,272
</TABLE>
HIGH YIELD FUND
Period Ended
June 30, 1997(c)
----------------
Net Asset Value, Beginning of Period........$10.00
------
Income from Investment Operations
Net investment income...........................52
Net realized and unrealized gains (losses)
on investments........................... .54
------
Total from investment operations.............1.06
Distributions from net investment income.... (.52)
------
Net Asset Value, End of Period..............$10.54
======
Ratio of expenses to average net assets (a).*1.00%
Ratio of net investment income to average
net assets (b)............................*8.05%
Total return (b) .........................**10.88%
Net assets, end of period (000 omitted) ...$13,482
- --------------
*Annualized.
**Not annualized.
(a) If the Funds had paid all of their expenses and there had been
no reimbursement of expenses by the Adviser, these ratios
would have been: for Intermediate Bond Fund, 0.71%, 0.75% and
0.75% for the years ended June 30, 1995 through June 30, 1997,
respectively; for Income Fund, 0.83%, 0.85%, 0.88% and 0.85%
for the years ended June 30, 1994 through June 30, 1997,
respectively; and for High Yield Fund, 2.29% for the period
ended June 30, 1997.
(b) Computed giving effect to the Adviser's fee waiver.
(c) High Yield Fund commenced operations on Nov. 1, 1996.
THE FUNDS
The mutual funds offered by this prospectus are Stein Roe
Intermediate Bond Fund ("Intermediate Bond Fund"), Stein Roe
Income Fund ("Income Fund"), and Stein Roe High Yield Fund ("High
Yield Fund") (collectively, the "Funds"). Each of the Funds is a
no-load "mutual fund." No-load funds do not impose commissions or
charges when shares are purchased or redeemed. Mutual funds sell
their own shares to investors and invest the proceeds in a
portfolio of securities. A mutual fund allows you to pool your
money with that of other investors in order to obtain professional
investment management. Mutual funds generally make it possible
for you to obtain greater diversification of your investments and
simplify your recordkeeping.
The Funds are series of the Stein Roe Income Trust ("Income
Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series of Income Trust other than High Yield Fund
invests in a separate portfolio of securities and other assets,
with its own objectives and policies. High Yield Fund invests all
of its net investable assets in SR&F High Yield Portfolio ("High
Yield Portfolio"), which is a series of SR&F Base Trust ("Base
Trust").
Stein Roe & Farnham Incorporated (the "Adviser") provides
portfolio management, administrative, and accounting and
bookkeeping services to the Funds and High Yield Portfolio. The
Adviser also manages several other mutual funds with different
investment objectives, including equity funds, international
funds, tax-exempt bond funds, and money market funds. To obtain
prospectuses and other information on any of those mutual funds,
please call 800-338-2550.
Rather than invest in securities directly, each Fund may seek
to achieve its investment objective by converting to a "master
fund/feeder fund" structure. Under that structure, the Fund and
other investment companies with the same investment objective
would invest their assets in another investment company having the
same investment objective and substantially the same investment
policies as the Fund. The purpose of such an arrangement is to
achieve greater operational efficiencies and reduce costs. It is
expected that the assets of any such investment company would be
managed by the Adviser in substantially the same manner as the
Fund. The only Fund currently operating under the master
fund/feeder fund structure is High Yield Fund. If another Fund
were to convert to the master fund/feeder fund structure, it would
require the approval of the Board of Trustees of Income Trust, and
shareholders of that Fund would be given at least 30 days' prior
notice. Such investment would be made only if the Trustees
determine it to be in the best interests of a Fund and its
shareholders. (See Master Fund/Feeder Fund: Structure and Risk
Factors.)
INVESTMENT POLICIES
Intermediate Bond Fund and Income Fund each seek a high level of
current income. High Yield Fund and High Yield Portfolio each
seek total return by investing for a high level of current income
and capital growth. Each Fund invests as described below.
Further information on portfolio investments and strategies may be
found under Portfolio Investments and Strategies in this
prospectus and in the Statement of Additional Information.
Intermediate Bond Fund. This Fund's investment objective is to
provide a high level of current income, consistent with the
preservation of capital, by investing primarily in marketable debt
securities. Under normal market conditions, the Fund will invest
at least 65% of the value of its total assets (taken at market
value at the time of investment) in convertible and non-
convertible bonds and debentures, and at least 60% of its assets
will be invested in the following:
(1) Marketable straight-debt securities of domestic issuers, and
of foreign issuers payable in U.S. dollars, rated at time of
purchase within the three highest grades assigned by Moody's
Investors Service, Inc. ("Moody's") or by Standard & Poor's
Corporation ("S&P");
(2) U.S. Government Securities;
(3) Commercial paper rated Prime-1 by Moody's or A-1 by S&P at
time of purchase, or, if unrated, issued or guaranteed by a
corporation with any outstanding debt rated Aa or better by
Moody's or AA or better by S&P; and
(4) Bank obligations, including repurchase agreements, of banks
having total assets in excess of $1 billion.
Under normal market conditions, the Fund invests at least 65%
of its assets in securities with an average life of between three
and ten years, and expects that the dollar-weighted average life
of its portfolio will be between three and ten years. Average
life is the weighted average period over which the Adviser expects
the principal to be paid, and differs from stated maturity in that
it estimates the effect of expected principal prepayments and call
provisions. With respect to GNMA securities and other mortgage-
backed securities, average life is likely to be substantially less
than the stated maturity of the mortgages in the underlying pools.
With respect to obligations with call provisions, average life is
typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an average life equal to their
stated maturity. During periods of rising interest rates, the
average life of mortgage-backed securities and callable
obligations may increase substantially because they are not likely
to be prepaid, which may result in greater net asset value
fluctuation.
The Fund also may invest in other debt securities (including
those convertible into or carrying warrants to purchase common
stocks or other equity interests, and privately placed debt
securities), preferred stocks, and marketable common stocks that
the Adviser considers likely to yield relatively high income in
relation to cost.
The Fund may invest up to 35% of its total assets in debt
securities that are rated below investment grade (with no minimum
permitted rating) and that, on balance, are considered
predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal according to the terms of the
obligation and, therefore, carry greater investment risk,
including the possibility of issuer default and bankruptcy. (See
Portfolio Investments and Strategies and Risks and Investment
Considerations for more information on the risks associated with
investing in debt securities rated below investment grade.)
For the fiscal year ended June 30, 1997, Intermediate Bond
Fund's portfolio was invested, on average, as follows: high-
quality short-term instruments, 6.3%; U.S. Government Securities,
10.9%; AAA, 10.3%; AA, 8.9%; A, 24.1%; BBB, 29.3%; and BB, 10.2%.
The ratings are based on a dollar-weighted average, computed
monthly, and reflect the higher of S&P or Moody's ratings. The
ratings do not necessarily reflect the current or future
composition of the Fund.
Income Fund. The investment objective of Income Fund is to
provide a high level of current income. Consistent with that
investment objective, capital preservation and capital
appreciation are regarded as secondary objectives.
Income Fund attempts to achieve its objective by investing
principally in medium-quality debt securities, which are
obligations of issuers that the Adviser believes possess adequate,
but not outstanding, capacities to service their debt securities,
such as securities rated A or Baa by Moody's or A or BBB by S&P.
The Adviser generally attributes to medium-quality securities the
same characteristics as rating services.
Although Income Fund will invest at least 60% of its assets
in medium- or higher-quality debt securities, it may also invest
to a lesser extent in debt securities of lower quality (in the
case of rated securities, having a rating by Moody's or S&P of not
less than C). Although the Fund can invest up to 40% of its
assets in lower-quality securities, it does not intend to invest
more than 35% in lower-quality securities. Lower-quality debt
securities are obligations of issuers that are considered
predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal according to the terms of the
obligation and, therefore, carry greater investment risk,
including the possibility of issuer default and bankruptcy, and
are commonly referred to as "junk bonds." Income Fund may invest
in lower-quality debt securities; for example, if the Adviser
believes the financial condition of the issuers or the protection
offered to the particular obligations is stronger than is
indicated by low ratings or otherwise. (See Portfolio Investments
and Strategies and Risks and Investment Considerations for more
information on the risks associated with investing in medium- and
lower-quality debt securities.) Income Fund may invest in higher-
quality securities; for example, under extraordinary economic or
financial market conditions, or when the spreads between the
yields on medium- and high-quality securities are relatively
narrow.
Some issuers of debt securities choose not to have their
securities rated by a rating service, and Income Fund may invest
in unrated securities that the Adviser believes are suitable for
investment.
Under normal market conditions, Income Fund will invest at
least 65% of the value of its total assets (taken at market value)
in convertible and non-convertible bonds and debentures. Such
securities may be accompanied by the right to acquire equity
securities evidenced by warrants attached to the security or
acquired as part of a unit with the security. Equity securities
acquired by conversion or exercise of such a right may be retained
by Income Fund for a sufficient time to permit orderly disposition
thereof or to establish long-term holding periods for federal
income tax purposes.
Income Fund may invest up to 35% of its total assets in other
debt securities, marketable preferred and common stocks, and
foreign and municipal securities that the Adviser considers likely
to yield relatively high income in relation to costs, and rights
to acquire such securities. (Municipal securities are securities
issued by or on behalf of state and local governments, the
interest on which is generally exempt from federal income tax.)
Any assets not otherwise invested may be invested in money market
instruments.
For the fiscal year ended June 30, 1997, Income Fund's
portfolio was invested, on average, as follows: high-quality
short-term instruments, 3.7%; U.S. Government Securities, 1.7%;
AA, 6.3%; A, 22.8%; BBB, 35.5%; BB, 19.8%; B, 9.6%; and unrated,
0.6%. The ratings are based on a dollar-weighted average,
computed monthly, and reflect the higher of S&P or Moody's
ratings. The ratings do not necessarily reflect the current or
future composition of Income Fund.
High Yield Fund. High Yield Fund seeks to achieve its objective
by investing all of its net investable assets in High Yield
Portfolio. The investment policies of High Yield Portfolio are
substantially 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
invests normally offer a current yield or yield to maturity that
is significantly higher than the yield from securities rated in
the three highest categories assigned by rating services such as
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 lower than Baa by
Moody's and lower than BBB by S&P, or equivalent ratings as
determined by other rating agencies or unrated securities that the
Adviser determines to be of comparable quality. Medium-quality
debt securities, although considered investment grade, have some
speculative characteristics. Lower-quality debt securities are
obligations of issuers that are considered predominantly
speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation and,
therefore, carry greater investment risk, including the
possibility of issuer default and bankruptcy, and are commonly
referred to as "junk bonds." Some issuers of debt securities
choose not to have their securities rated by a rating service, and
High Yield Portfolio may invest in unrated securities that the
Adviser has researched and 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 assets. (See Portfolio Investments and
Strategies and Risks and Investment Considerations for more
information on the risks associated with investing in medium- and
lower-quality debt securities.)
High Yield Portfolio may invest up to 35% of its total assets
in other securities including, but not limited to, pay-in-kind
bonds, securities issued in private placements, bank loans, zero
coupon bonds, foreign securities, convertible securities, futures,
and options. 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.
For the fiscal year ended June 30, 1997, High Yield
Portfolio's investment portfolio was invested, on average, as
follows: high-quality short-term instruments, 3.2%; BBB, 1.3%;
BB, 25.0%; B, 64.1%; and unrated, 6.4%. The ratings are based on
a dollar-weighted average, computed monthly, and reflect the
higher of S&P or Moody's ratings. The ratings do not necessarily
reflect the current or future composition of High Yield Portfolio.
PORTFOLIO INVESTMENTS AND STRATEGIES
For purposes of discussion under Portfolio Investments and
Strategies, Investment Restrictions and Risks and Investment
Considerations, the term "Fund" refers to Intermediate Bond Fund,
Income Fund, High Yield Fund, and High Yield Portfolio.
U.S. Government Securities. U.S. Government Securities include:
(i) bills, notes, bonds, and other debt securities, differing as
to maturity and rates of interest, that are issued by and are
direct obligations of the U.S. Treasury; and (ii) other securities
that are issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies or instrumentalities and that
include, but are not limited to, Government National Mortgage
Association ("GNMA"), Federal Farm Credit Banks, Federal Home Loan
Banks, Farmers Home Administration, Federal Home Loan Mortgage
Corporation ("FHLMC"), and Federal National Mortgage Association
("FNMA"). U.S. Government Securities are generally viewed by the
Adviser as being among the safest of debt securities with respect
to the timely payment of principal and interest (but not with
respect to any premium paid on purchase), but generally bear a
lower rate of interest than corporate debt securities. However,
they are subject to market risk like other debt securities, and
therefore the Funds' shares can be expected to fluctuate in value.
Medium- and Lower-Quality Debt Securities. Investment in medium-
or lower-quality debt securities involves greater investment risk,
including the possibility of issuer default or bankruptcy. A Fund
seeks to reduce investment risk through diversification, credit
analysis, and evaluation of developments in both the economy and
financial markets.
An economic downturn could severely disrupt the high-yield
market and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest. In
addition, lower-quality bonds are less sensitive to interest rate
changes than higher-quality instruments (see Risks and Investment
Considerations) and generally are more sensitive to adverse
economic changes or individual corporate developments. During a
period of adverse economic changes, including a period of rising
interest rates, issuers of such bonds may experience difficulty in
servicing their principal and interest payment obligations.
Lower-quality debt securities are obligations of issuers that
are considered predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal according to
the terms of the obligation and, therefore, carry greater
investment risk, including the possibility of issuer default and
bankruptcy, and are commonly referred to as "junk bonds." The
lowest rating assigned by Moody's is for bonds that can be
regarded as having extremely poor prospects of ever attaining any
real investment standing.
Achievement of the investment objective will be more
dependent on the Adviser's credit analysis than would be the case
if a Fund were investing in higher-quality debt securities. Since
the ratings of rating services (which evaluate the safety of
principal and interest payments, not market risks) are used only
as preliminary indicators of investment quality, the Adviser
employs its own credit research and analysis, from which it has
developed a 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 a Fund may have greater difficulty selling its
portfolio securities. (See Net Asset Value.) The market value of
these securities and their liquidity may be affected by adverse
publicity and investor perceptions.
Derivatives. Consistent with its objective, each Fund may invest
in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange traded
options, futures contracts, futures options, securities
collateralized by underlying pools of mortgages or other
receivables, and other instruments, the value of which is
"derived" from the performance of an underlying asset or a
"benchmark" such as a security index, an interest rate, or a
currency ("Derivatives"). No Fund expects to invest more than 5%
of its net assets in any type of Derivative except: for each Fund,
options, futures contracts, and futures options; and for
Intermediate Bond Fund, mortgage or other asset-backed securities.
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 exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
Mortgage and Other Asset-Backed Debt Securities.
Intermediate Bond Fund and High Yield Portfolio each may invest in
securities secured by mortgages or other assets such as automobile
or home improvement loans and credit card receivables. These
instruments may be issued or guaranteed by the U.S. Government or
by its agencies or instrumentalities or by private entities such
as commercial, mortgage and investment banks and financial
companies or financial subsidiaries of industrial companies.
Securities issued by GNMA represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the
Farmers Home Administration, or guaranteed by the Veterans
Administration. Securities issued by FNMA and FHLMC, U.S.
Government-sponsored corporations, also represent an interest in a
pool of mortgages.
The timely payment of principal and interest on GNMA
securities is guaranteed by GNMA and backed by the full faith and
credit of the U.S. Treasury. FNMA guarantees full and timely
payment of interest and principal on FNMA securities. FHLMC
guarantees timely payment of interest and ultimate collection of
principal on FHLMC securities. FNMA and FHLMC securities are not
backed by the full faith and credit of the U.S. Treasury.
Mortgage-backed debt securities, such as those issued by
GNMA, FNMA, and FHLMC, are of the "modified pass-through type,"
which means the interest and principal payments on mortgages in
the pool are "passed through" to investors. Mortgage-backed
securities provide either a pro rata interest in underlying
mortgages or an interest in collateralized mortgage obligations
("CMOs"), which represent a right to interest and/or principal
payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities and are usually issued in multiple classes, each
of which has different payment rights, prepayment risks, and yield
characteristics.
Mortgage-backed securities involve the risk of prepayment of
the underlying mortgages at a faster or slower rate than the
established schedule. Prepayments generally increase with falling
interest rates and decrease with rising rates, but they also are
influenced by economic, social, and market factors. If mortgages
are prepaid during periods of declining interest rates, there
would be a resulting loss of the full-term benefit of any premium
paid by the Fund on purchase of the securities, and the proceeds
of prepayment would likely be invested at lower interest rates.
Each Fund tends to invest in CMOs of classes known as planned
amortization classes ("PACs") which have prepayment protection
features tending to make them less susceptible to price
volatility.
Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to support payments on
the underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.
Asset-backed securities tend to experience greater price
volatility than straight debt securities.
REMICs. Each Fund may invest in real estate mortgage
investment conduits ("REMICs"). REMICs, which were authorized
under the Tax Reform Act of 1986, are private entities formed for
the purpose of holding a fixed pool of mortgages secured by an
interest in real property. REMICs are similar to CMOs in that
they issue multiple classes of securities. A REMIC is a CMO that
qualifies for special tax treatment under the Internal Revenue
Code and invests in certain mortgages principally secured by
interests in real property. Investors may purchase beneficial
interests in REMICs, which are known as "regular" interests, or
"residual" interests. Guaranteed REMIC pass-through certificates
("REMIC Certificates") issued by FNMA or FHLMC represent
beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA-, FHLMC- or GNMA-guaranteed
mortgage pass-through certificates. For FHLMC REMIC Certificates,
FHLMC guarantees the timely payment of interest and also
guarantees the payment of principal as payments are required to be
made on the underlying mortgage participation certificates. FNMA
REMIC Certificates are issued and guaranteed as to timely
distribution and principal and interest by FNMA.
Floating Rate Instruments. Each Fund may also invest in
floating rate instruments which provide for periodic adjustments
in coupon interest rates that are automatically reset based on
changes in amount and direction of specified market interest
rates. In addition, the adjusted duration of some of these
instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with an
adjusted duration of 2 would increase by approximately 2%. Income
Fund and High Yield Portfolio do not intend to invest more than 5%
of net assets in floating rate instruments. Intermediate Bond
Fund does not intend to invest more than 10% of net assets in
floating rate instruments.
Futures and Options. Each Fund may purchase and write both
call options and put options on securities, indexes and foreign
currencies, and enter into interest rate, index and foreign
currency futures contracts. Each Fund may also write options on
such futures contracts and purchase other types of forward or
investment contracts linked to individual securities, indexes or
other benchmarks, consistent with its investment objective, in
order to provide additional revenue, or to hedge against changes
in security prices, interest rates, or currency fluctuations.
Each Fund may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit from
increases in market value of the security covering the call option
above the sum of the premium and the exercise price of the call.
There can be no assurance that a liquid market will exist when a
Fund seeks to close out a position. 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. Each Fund may invest in foreign securities,
but will not invest in a foreign security if, as a result of such
investment, more than 25% of its total assets would be invested in
foreign securities. For purposes of this restriction, foreign
debt securities do not include securities represented by American
Depositary Receipts ("ADRs"), foreign debt securities denominated
in U.S. dollars, or securities guaranteed by a U.S. person such as
a corporation domiciled in the United States that is a parent or
affiliate of the issuer of the securities being guaranteed. The
Funds may invest in sponsored or unsponsored ADRs. In addition
to, or in lieu of, such direct investment, a Fund may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Funds may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
At June 30, 1997, no portion of any Fund's assets was invested in
foreign securities as defined above, and no Fund intends to invest
more than 5% of its net assets in foreign securities. (See Risks
and Investment Considerations.)
Lending of Portfolio Securities. Subject to certain restrictions,
each Fund may lend its portfolio securities to broker-dealers and
banks. Any such loan must be continuously secured by collateral
in cash or cash equivalents maintained on a current basis in an
amount at least equal to the market value of the securities loaned
by the Fund. The Fund would continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities
loaned, and would also receive an additional return that may be in
the form of a fixed fee or a percentage of the collateral. The
Fund would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five
business days. In the event of bankruptcy or other default of the
borrower, the Fund could experience both delays in liquidating the
loan collateral or recovering the loaned securities and losses
including (a) possible decline in the value of the collateral or
in the value of the securities loaned during the period while the
Fund seeks to enforce its rights thereto; (b) possible subnormal
levels of income and lack of access to income during this period;
and (c) expenses of enforcing its rights. The Funds may
participate in an interfund lending program, subject to certain
restrictions described in the Statement of Additional Information.
When-Issued and Delayed-Delivery Securities; Standby Commitments.
Each Fund's assets may include securities purchased on a when-
issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time the
purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. A Fund makes such commitments
only with the intention of actually acquiring the securities, but
may sell the securities before settlement date if the Adviser
deems it advisable for investment reasons. Securities purchased
in this manner involve a risk of loss if the value of the security
purchased declines before the settlement date.
When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that a Fund will sell
securities with a commitment to purchase similar, but not
identical, securities at a future date. Generally, the securities
are repurchased at a price lower than the sales price. Dollar
roll transactions involve the risk of restrictions on the Fund's
ability to repurchase the security if the counterparty becomes
insolvent; an adverse change in the price of the security during
the period of the roll or that the value of the security
repurchased will be less than the security sold; and transaction
costs exceeding the return earned by the Fund on the sales
proceeds of the dollar roll.
Each Fund may also invest in securities purchased on a
standby commitment basis, which is a delayed-delivery agreement in
which the Fund binds itself to accept delivery of a security at
the option of the other party to the agreement.
PIK and Zero Coupon Bonds. Each Fund may invest in both zero
coupon bonds and bonds the interest on which is payable in kind
("PIK bonds"). A zero coupon bond is a bond that does not pay
interest for its entire life. A PIK bond pays interest in the
form of additional securities. The market prices of both zero
coupon and PIK bonds are affected to a greater extent by changes
in prevailing levels of interest rates and thereby tend to be more
volatile in price than securities that pay interest periodically
and in cash. In addition, because a Fund accrues income with
respect to these securities prior to the receipt of such interest
in cash, it may have to dispose of portfolio securities under
disadvantageous circumstances in order to obtain cash needed to
pay income dividends in amounts necessary to avoid unfavorable tax
consequences. High Yield Portfolio may invest up to 20% of its
total assets in PIK and zero coupon bonds.
Short Sales Against the Box. Each Fund may sell short securities
the Fund 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.
Rule 144A Securities. Each Fund may purchase securities that have
been privately placed but that are eligible for purchase and sale
under Rule 144A under the Securities Act of 1933 ("1933 Act").
That Rule permits certain qualified institutional buyers, such as
the Funds, to trade in privately placed securities that have not
been registered for sale under the 1933 Act. The Adviser, under
the supervision of the Board of Trustees, will consider whether
securities purchased under Rule 144A are illiquid and thus subject
to the Funds' restriction of investing no more than 10% of net
assets in illiquid securities. A determination of whether a Rule
144A security is liquid or not is a question of fact. In making
this determination, the Adviser will consider the trading markets
for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Adviser could
consider the (1) frequency of trades and quotes, (2) number of
dealers and potential purchasers, (3) dealer undertakings to make
a market, and (4) nature of the security and of marketplace trades
(e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity
of Rule 144A securities would be monitored and if, as a result of
changed conditions, it is determined that a Rule 144A security is
no longer liquid, a 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 a Fund's assets
invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities. No Fund expects to
invest as much as 5% of its total assets in Rule 144A securities
that have not been deemed to be liquid by the Adviser.
Portfolio Turnover. In attempting to attain its objective, each
Fund may sell portfolio securities without regard to the period of
time they have been held. Further, the Adviser may purchase and
sell securities for the portfolios of Income Fund and High Yield
Portfolio with a view to maximizing current return, even if
portfolio changes would cause the realization of capital gains.
Although the average stated maturity of the portfolio of Income
Fund generally will exceed ten years and the average stated
maturity of High Yield Portfolio will be from five to ten years,
the Adviser may adjust the average effective maturity of an
investment portfolio from time to time, depending on its
assessment of the relative yields available on securities of
different maturities and its expectations of future changes in
interest rates. As a result, the turnover rate of the Funds may
vary from year to year. The turnover rate for 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 Financial
Highlights and Distributions and Income Taxes.)
INVESTMENT RESTRICTIONS
Each Fund is diversified as that term is defined in the Investment
Company Act of 1940.
No Fund may invest in a security if, as a result of such
investment: (1) with respect to 75% of its assets, more than 5% of
its total assets would be invested in the securities of any one
issuer, except for U.S. Government Securities or repurchase
agreements /1/ for such securities; or (2) 25% or more of its
total assets would be invested in the securities of a group of
issuers in the same industry, except that this restriction does
not apply to U.S. Government Securities. Notwithstanding these
limitations, each Fund, but not High Yield Portfolio, may invest
all of its assets in another investment company having the
identical investment objective under a master fund/feeder fund
structure.
- -----------
/1/ A repurchase agreement involves a sale of securities to a Fund
with the concurrent agreement of the seller (bank or securities
dealer) to repurchase the securities at the same price plus an
amount equal to an agreed-upon interest rate within a specified
time. In the event of a bankruptcy or other default of a seller
of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying securities and losses. A Fund may not
invest more than 10% of its net assets in repurchase agreements
maturing in more than seven days and other illiquid securities.
- -----------
No Fund may make loans except that each Fund may (1) purchase
money market instruments and enter into repurchase agreements; (2)
acquire publicly distributed or privately placed debt securities;
(3) lend portfolio securities under certain conditions; and (4)
participate in an interfund lending program with other Stein Roe
Funds and Portfolios. A Fund may not borrow money, except for
nonleveraging, temporary, or emergency purposes or in connection
with participation in the interfund lending program. Neither a
Fund's aggregate borrowings (including reverse repurchase
agreements) nor its aggregate loans at any one time may exceed 33
1/3% of the value of its total assets. Additional securities may
not be purchased when borrowings, less proceeds receivable from
sales of portfolio securities, exceed 5% of total assets.
The policies set forth in the second and third paragraphs
under Investment Restrictions (but not the footnote) are
fundamental policies of each Fund./2/ The Statement of
Additional Information contains all of the investment
restrictions.
- ---------------
/2/ A fundamental policy may be changed only with the approval of
a "majority of the outstanding vote securities" of a Fund as
defined in the Investment Company Act.
- ---------------
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although each Fund
seeks to reduce risk by investing in a diversified portfolio, this
does not eliminate all risk. The risks inherent in each Fund
depend primarily upon the term and quality of the obligations in
that Fund's portfolio, as well as on market conditions.
A decline in prevailing levels of interest rates generally
increases the value of securities in a Fund's portfolio, while an
increase in rates usually reduces the value of those securities.
As a result, interest rate fluctuations will affect a Fund's net
asset value, but not the income received by the Fund from its
portfolio securities. (Because yields on debt securities
available for purchase vary over time, no specific yield on shares
of a Fund can be assured.) In addition, if the bonds in a Fund's
portfolio contain call, prepayment or redemption provisions,
during a period of declining interest rates, these securities are
likely to be redeemed, and the Fund will probably be unable to
replace them with securities having as great a yield.
Intermediate Bond Fund is appropriate for investors who seek
high income with less net asset value fluctuation from interest
rate changes than that of a longer-term fund, and who can accept
greater levels of credit and other risks associated with
securities that are rated below investment grade. Income Fund and
High Yield Fund are designed for investors who seek a higher level
of income and who can accept greater levels of credit and other
risks associated with securities of medium or lower quality.
Although both Income Fund and High Yield Fund invest in medium-
and lower-quality debt securities, 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, while Income Fund, which invests up to 60% of its
assets in high- and medium-quality bonds, can invest only up to
40% of its assets in such securities.
Investments in foreign securities, including ADRs, represent
both risks and opportunities not typically associated with
investments in domestic issuers. Risks of foreign investing
include currency risk, less complete financial information on
issuers, different accounting, auditing and financial reporting
standards, different settlement practices, less market liquidity,
more market volatility, less well-developed and regulated markets,
and greater political instability. In addition, various
restrictions by foreign governments on investments by nonresidents
may apply, including imposition of exchange controls and
withholding taxes on dividends, and seizure or nationalization of
investments owned by nonresidents. Foreign investments also tend
to involve higher transaction and custody costs.
Each Fund may enter into foreign currency forward contracts
and use options and futures contracts, as described elsewhere in
this prospectus, to limit or reduce foreign currency risk.
There can be no assurance that a Fund will achieve its
objective, nor can a Fund assure that payments of interest and
principal on portfolio securities will be made when due. If,
after purchase by a Fund, the rating of a portfolio security is
lost or reduced, the Fund would not be required to sell the
security, but the Adviser would consider such a change in deciding
whether to retain the security in the portfolio.
The investment objective of each Fund is not fundamental and
may be changed by the Board of Trustees without a vote of
shareholders. If there were a change in a Fund's investment
objective, such change may result in the Fund having an investment
objective different from the objective that the shareholder
considered appropriate at the time of investment in the Fund.
HOW TO PURCHASE SHARES
You may purchase shares of any of the Funds by check, by wire, by
electronic transfer, or by exchange from your account with another
Stein Roe Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
("UGMA") accounts is $1,000; the minimum for accounts established
under an 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 a 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.
Money orders will not be accepted for initial purchases into new
accounts. Each individual check submitted for purchase must be at
least $100, and Income Trust generally will not accept cash,
drafts, third or fourth party checks, or checks drawn on banks
outside of the United States. Should an order to purchase shares
of a Fund be cancelled because your check does not clear, you will
be responsible for any resulting loss incurred by that Fund.
By Wire. You 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 the Funds 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 _____ Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Fund Numbers:
35--Intermediate Bond Fund
09--Income Fund
15--High Yield Fund
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 _____ 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 a Fund be cancelled because
your electronic transfer does not clear, you will be responsible
for any resulting loss incurred by that Fund.
By Exchange. You may purchase shares by exchange of shares from
another Stein Roe Fund account either by phone (if the Telephone
Exchange Privilege has been established on the account from which
the exchange is being made), by mail, in person, or automatically
at regular intervals (if you have elected the Automatic Exchange
Privilege). Restrictions apply; please review the information
under How to Redeem Shares--By Exchange.
Conditions of Purchase. Each purchase order for a 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 that 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
interests of Income Trust or of a 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 certain broker-dealers, banks, or other
intermediaries ("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.
An Intermediary, who accepts orders that are processed at the
net asset value next determined after receipt of the order by the
Intermediary, accepts such orders as agent of the Fund. The
Intermediary is required to segregate any orders received on a
business day after the close of regular session trading on the New
York Stock Exchange and transmit those orders separately for
execution at the net asset value next determined after that
business day.
Some Intermediaries that maintain nominee accounts with the
Funds for their clients who are Fund shareholders charge an annual
fee of up to 0.25% of the average net assets held in such accounts
for accounting, servicing, and distribution services they provide
with respect to the underlying Fund shares. The Adviser and the
Funds' transfer agent share in the expense of these annual fees,
and the Adviser pays all sales and promotional expenses.
Purchase Price and Effective Date. Each purchase of a Fund's
shares made directly with the Fund is made at that Fund's net
asset value (see Net Asset Value) next determined after receipt of
an order in good form, including 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.
Each purchase of Fund shares through an Intermediary that is
an authorized agent of the Trust for the receipt of orders is made
at the net asset value next determined after the receipt of the
order by the Intermediary.
HOW TO REDEEM SHARES
By Written Request. You may redeem all or a portion of your
shares of a Fund by submitting a written request in "good order"
to 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 the dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The request must be accompanied by any certificates for the
shares, either properly endorsed for transfer, or accompanied
by a stock assignment properly endorsed exactly as the shares
are registered;
(4) The signatures on either the written redemption request or the
certificates (or the accompanying stock power) must be
guaranteed (a signature guarantee is not a notarization, but
is a widely accepted way to protect you and the Funds by
verifying your signature);
(5) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this
prospectus (or a form of resolution acceptable to 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 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 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.)
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 the Funds may refuse
requests for Telephone Exchanges in excess of four round-trips (a
round-trip being the exchange out of a Fund into another Stein Roe
Fund, and then back to that Fund). 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 the
Funds. Therefore, regardless of the number of telephone exchange
round-trips made by an investor, Income Trust generally will not
honor requests for Telephone Exchanges by shareholders identified
by the Trust as "market-timers" if the officers of the Trust
determine the order not to be in the best interests of the Trust
or its shareholders. Income Trust generally identifies as a
"market-timer" an investor whose investment decisions appear to be
based on actual or anticipated near-term changes in the securities
markets rather than other investment considerations. 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 the Funds, 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 the Funds. 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 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 that Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
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, Income 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. The Funds
employ procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Funds and
their transfer agent to tape-record all instructions to redeem.
In addition, callers are asked to identify the account number and
registration, and may be required to provide other forms of
identification. Written confirmations of transactions are mailed
promptly to the registered address; a legend on the confirmation
requests that the shareholder review the transactions and inform
the Fund immediately if there is a problem. If a Fund does not
follow reasonable procedures for protecting shareholders against
loss on telephone transactions, it may be liable for any losses
due to unauthorized or fraudulent instructions.
Income Trust reserves the right to redeem shares in any
account and send the proceeds to the owner of record if the shares
in the account do not have a value of at least $1,000. If the
value of the account is more than $10, 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. In addition, due to the proportionately higher costs
of maintaining small accounts, effective for the first quarter of
1998, the transfer agent may deduct a $5 per quarter minimum
balance fee from your regular account if its balance is under
$2,000 or from your UGMA account if its balance is under $800.
This minimum balance fee does not apply to Stein Roe IRAs and
other Stein Roe prototype retirement plans, accounts with
automatic investment plans (unless regular investments have been
discontinued), and omnibus and nominee accounts. The Adviser may
waive the fee, at its discretion, in the event of significant
market corrections.
Shares in any account you maintain with a Fund or any of the
other Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers or any Stein Roe Fund liability under the
Internal Revenue Code provisions on backup withholding).
SHAREHOLDER SERVICES
Reporting to Shareholders. You will receive a confirmation
statement reflecting each of your purchases and redemptions of
shares of a Fund, as well as periodic statements detailing
distributions made by that Fund. Shares purchased by reinvestment
of dividends, by cross-reinvestment of dividends from another
Fund, or 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.
To reduce the volume of mail you receive, only one copy of
certain materials, such as prospectuses and shareholder reports,
will be mailed to your household (same address). Please call 800-
338-2550 if you wish to receive additional copies free of charge.
This policy may not apply if you purchased shares through an
Intermediary.
Funds-on-Call [registered trademark] Automated Telephone Service.
To access Stein Roe Funds-on-Call [registered trademark], just
call 800-338-2550 on any touch-tone telephone and follow the
recorded instructions. Funds-on-Call [registered trademark]
provides yields, prices, latest dividends, account balances, last
transaction, and other information 24 hours a day, seven days a
week. You also may use Funds-on-Call [registered trademark] 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.) Information
regarding your account is available to you via Funds-on-Call
[registered trademark] only after you follow an activation process
the first time you call. Your account information is protected by
a personal identification number (PIN) that you establish.
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.
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 carefully read 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 gains 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).
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 each Fund's shares is its net
asset value per share. Each Fund determines 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 Portfolio allocates
net asset value, income, and expenses to High Yield Fund and any
other of its feeder funds in proportion to their respective
interests in High Yield Portfolio.
Net asset value will not be determined on days when the NYSE
is closed unless, in the judgment of the Board of Trustees, the
net asset value of a Fund should be determined on any such day, in
which case the determination will be made at 3:00 p.m., central
time.
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 a Fund for which
these valuation methods do not produce a fair value are valued by
a method that the Board believes will determine a fair value.
DISTRIBUTIONS AND INCOME TAXES
Distributions. Income dividends are declared each business day,
paid monthly, and confirmed at least quarterly. Each Fund intends
to distribute by the end of each calendar year at least 98% of any
net capital gains realized from the sale of securities during the
12-month period ended Oct. 31 in that year. The Funds intend to
distribute any undistributed net investment income and net
realized capital gains in the following year.
All of your income dividends and capital gains distributions
will be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank account; (3) applied to
purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment
normally occurs on the payable date. 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 Jan. but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates
on income dividends and distributions of net short-term capital
gains. Distributions of net long-term capital gains will be
taxable to you as long-term capital gains regardless of the length
of time you have held your shares.
You will be advised annually as to the source of
distributions. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares
held for six months or less, your short-term loss is
recharacterized as long-term to the extent of any long-term
capital gains distributions you have received with respect to
those shares.
For federal income tax purposes, each 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. The
Funds must promptly pay to the IRS all amounts withheld.
Therefore, it is usually not possible for a Fund to reimburse you
for amounts withheld. 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 a Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
The yield of a Fund is calculated by dividing its net
investment income per share (a hypothetical figure as defined in
the SEC rules) during a 30-day period by the net asset value per
share on the last day of the period. The yield formula provides
for semiannual compounding, which assumes that net investment
income is earned and reinvested at a constant rate and annualized
at the end of a six-month period.
Comparison of a Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. Yield figures are not based on
actual dividends paid. Past performance is not necessarily
indicative of future results. To obtain current yield or total
return information, you may call 800-338-2550.
MANAGEMENT
Trustees and Investment Adviser. The Board of Trustees of Income
Trust has overall management responsibility for the Trust and the
Funds. See Management in the Statement of Additional Information
for the names of and other information about the trustees and
officers. 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 portfolios of the Funds and High Yield Portfolio
and the business affairs of the Funds, 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
and its predecessor have advised and managed mutual funds since
1949. The Adviser is a wholly owned indirect subsidiary of
Liberty Financial Companies, Inc. ("Liberty Financial"), which in
turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.
In approving the use of a single combined prospectus, the
Board considered the possibility that one Fund (or High Yield
Portfolio) might be liable for misstatements in the prospectus
regarding information concerning another Fund.
Portfolio Managers. Michael T. Kennedy has been portfolio manager
of Intermediate Bond Fund since 1988. He is a senior vice
president of the Adviser, and has been associated with the Adviser
since 1987. From 1984 to 1987, he was employed by Homewood
Federal Savings and Loan. A chartered financial analyst and a
chartered investment counselor, he received his B.S. degree from
Marquette University in 1984 and his M.M. from Northwestern
University in 1988. Mr. Kennedy is a member of the Adviser's
Taxable Strategy Team and managed $440 million in mutual fund
net assets for the Adviser as of June 30, 1997.
Stephen F. Lockman became portfolio manager of High Yield
Portfolio and Income Fund on Mar. 3, 1997. He had been associate
portfolio manager of High Yield Portfolio since its inception in
Nov. 1996 and of Income Fund since Oct. 1995. Mr. Lockman joined
the Adviser in Jan. 1994. As a senior research analyst for the
Adviser's fixed income department from 1994 to 1997, Mr. Lockman
has broad expertise in the fixed income markets, with specialties
in the high yield sector and the aerospace, broadcasting,
entertainment, insurance, mining/metals, paper/forest products,
printing, publishing and real estate industries. In addition, he
served as the fixed income department's sovereign debt analyst
from 1994 to 1997, evaluating securities for its more than $1
billion portfolio of dollar-denominated foreign investments. Mr.
Lockman previously served as portfolio manager for the Illinois
State Board of Investment from 1987 to 1994, and as a trust
investment officer for LaSalle National Bank from 1983 to 1987. A
chartered financial analyst, Mr. Lockman earned a bachelor's
degree in 1983 from the University of Illinois and a master's
degree in 1986 from DePaul University. As of June 30, 1997, Mr.
Lockman managed $415 million in mutual fund net assets.
Fees and Expenses. The Adviser provides administrative services
to the Funds under an administrative agreement and investment
management services to Intermediate Bond Fund, Income Fund, and
High Yield Portfolio under separate management agreements. The
Adviser is entitled to receive: (i) in return for its investment
advisory and administrative services, a monthly fee from each Fund
(other than High Yield Fund) based on its average net assets,
computed and accrued daily, (ii) a monthly portfolio management
fee, computed and accrued daily, based on High Yield Portfolio's
average net assets, and (iii) a monthly administrative service
fee, computed and accrued daily from High Yield Fund, at the
following annual rates (dollar amounts are in millions):
FUND MANAGEMENT FEE ADMINISTRATIVE FEE TOTAL FEES
- ---------- --------------- ------------------- ----------------
Interme-
diate Bond
Fund .350% .150% .500%
Income .500% up to $100, .150% up to $100, .650% up to $100,
Fund .475% thereafter .125% thereafter .600% thereafter
High Yield
Fund N/A .150% up to $500, .150% up to $500,
.125% thereafter .125% thereafter
High Yield
Portfolio.500% up to $500, N/A .500% up to $500,
.475% thereafter .475% thereafter
As noted under Fee Table, the Adviser may voluntarily waive a
portion of its fees. For the fiscal year ended June 30, 1997, the
annualized fees for Intermediate Bond Fund and Income Fund
amounted to 0.48% and 0.60% of average net assets, respectively.
For that period, High Yield Fund's administrative fee, in addition
to the pro rata portion of High Yield Portfolio's management fees,
was 0.00% of average net assets, after the fee waiver.
Under a separate agreement with each Trust, the Adviser
provides certain accounting and bookkeeping services to the Funds
and High Yield Portfolio including computation of net asset value
and calculation of net income and capital gains and losses on
disposition of assets.
Portfolio Transactions. The Adviser places the orders for the
purchase and sale of portfolio securities and options and futures
contracts. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
Transfer Agent. SteinRoe Services Inc. ("SSI"), One South Wacker
Drive, Chicago, Illinois 60606, a wholly owned subsidiary of
Liberty Financial, is the agent of Income Trust for the transfer
of shares, disbursement of dividends, and maintenance of
shareholder accounting records.
Distributor. The shares of each Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to the Funds or to their shareholders. The
Distributor is a wholly owned indirect subsidiary of Liberty
Financial. The business address of the Distributor is 100
Manhattanville Road, Purchase, New York 10577; however, all Fund
correspondence (including purchase and redemption orders) should
be mailed 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. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
Custodian. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Funds. Foreign securities are maintained in the custody of
foreign banks and trust companies that are members of the Bank's
Global Custody Network or foreign depositories used by such
members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
Income Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
Jan. 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 Income Trust's
shareholders or its trustees. Income Trust may issue an unlimited
number of shares, in one or more series as the Board may
authorize. Currently, four 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, Income
Trust or any particular series shall look only to the assets of
Income Trust or of the respective series for payment under such
credit, contract or claim, and that the shareholders, trustees and
officers shall have no personal liability therefor. The
Declaration of Trust requires that notice of such disclaimer of
liability be given in each contract, instrument or undertaking
executed or made on behalf of Income 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 Income
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 Income Trust
also is believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to circumstances
in which the other series was unable to meet its obligations.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS
High Yield Fund, an open-end management investment company, seeks
to achieve its objective by investing all of its assets in another
mutual fund having an investment objective identical to that of
High Yield Fund. The initial shareholder of High Yield Fund
approved this policy of permitting High Yield Fund to act as a
feeder fund by investing in High Yield Portfolio. Please refer to
Investment Policies--High Yield Fund, Portfolio Investments and
Strategies, and Investment Restrictions 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
Fee Table and Management. High Yield Fund bears 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 law trust organized
under an Agreement and Declaration of Trust ("Declaration of
Trust") dated Aug. 23, 1993. The Declaration of Trust of Base
Trust provides that High Yield Fund and other investors in High
Yield Portfolio will 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
liability was not adequately insured and High Yield Portfolio was
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 proposed 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. 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
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.
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. The investor's
percentage of the aggregate interests in High Yield Portfolio will
be computed as the percentage equal to the fraction (i) the
numerator of which is the beginning of the day value of such
investor's investment in High Yield Portfolio on such day plus or
minus, as the case may be, the amount of any additions to or
withdrawals from the investor's investment in High Yield Portfolio
effected on such day; and (ii) the denominator of which is the
aggregate beginning of the day net asset value of High Yield
Portfolio on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate
investments in 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 the close of business.
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 incur different administrative fees and
expenses than High Yield Fund, and their shares might be sold with
a sales commission. Therefore, Fund shareholders might have
different investment returns than shareholders in another
investment company that invests exclusively in 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 High Yield
Portfolio's operating expenses as a percentage of its 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 its net assets. As a result, High
Yield Portfolio's security holdings may become less diverse,
resulting in increased risk.
Information regarding other investors in High Yield Portfolio
may be obtained by writing to SR&F Base Trust, Suite 3200, One
South Wacker Drive, Chicago, Illinois 60606 or by calling 800-338-
2550. The Adviser may provide administrative or other services to
one or more of such investors.
APPENDIX--RATINGS
Ratings In General. A rating of a rating service represents the
service's opinion as to the credit quality of the security being
rated. However, the ratings are general and are not absolute
standards of quality or guarantees as to the creditworthiness of
an issuer. Consequently, the Adviser believes that the quality of
debt securities should be continuously reviewed and that
individual analysts give different weightings to the various
factors involved in credit analysis. A rating is not a
recommendation to purchase, sell or hold a security because it
does not take into account market value or suitability for a
particular investor. When a security has received a rating from
more than one service, each rating should be evaluated
independently. Ratings are based on current information furnished
by the issuer or obtained by the rating services from other
sources that they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability
of such information, or for other reasons. The following is a
description of the characteristics of ratings used by Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P").
Corporate Bond Ratings
Ratings By Moody's. Aaa. Bonds rated Aaa are judged to be
the best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or an exceptionally stable
margin and principal is secure. Although the various protective
elements are likely to change, such changes as can be visualized
are more unlikely to impair the fundamentally strong position of
such bonds.
Aa. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa. Bonds rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in
each generic rating classification from Aa through B in its
corporate bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
Ratings By S&P. AAA. Debt rated AAA has the highest rating.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only
in small degree.
A. Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than for debt in higher rated categories.
BB, B, CCC, CC, and C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no
interest is being paid.
D. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears. The D rating is also
used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
NOTES: The ratings from AA to CCC may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing
within the major rating categories. Foreign debt is rated on the
same basis as domestic debt measuring the creditworthiness of the
issuer; ratings of foreign debt do not take into account currency
exchange and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and
certain other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-
credit risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities,
or currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
Commercial Paper Ratings
Ratings By Moody's. Moody's employs the following three
designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or
entities, Moody's, in assigning ratings to such issuers, evaluates
the financial strength of the indicated affiliated corporations,
commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating
assessment.
Ratings By S&P. A brief description of the applicable rating
symbols and their meaning follows:
A. Issues assigned this highest rating are regarded as
having the greatest capacity for timely payment. Issues in this
category are further refined with the designations 1, 2, and 3 to
indicate the relative degree of safety.
A-1. This designation indicates that the degree of safety
regarding timely payment is very strong. Those issues determined
to possess overwhelming safety characteristics will be denoted
with a plus (+) sign designation.
Stein Roe 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 ____________________________ (the "Corporation")
(name of Corporation/Association)
and that the following individual(s):
AUTHORIZED PERSONS
_____________________________ __________________________
Name Title
_____________________________ __________________________
Name Title
_____________________________ __________________________
Name Title
is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or
redeem shares of that Fund payable to any person or in any manner,
or to redeem shares of that Fund and apply the proceeds of such
redemption to purchase shares of another Fund (an "exchange"), and
to execute any necessary forms in connection therewith.
Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.
If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that the
Corporation's Charter and 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
[STEIN ROE MUTUAL FUNDS LOGO]
The Stein Roe Funds
Stein Roe Cash Reserves 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 Growth Opportunities Fund
Stein Roe International Fund
Stein Roe Emerging Markets Fund
Stein Roe Mutual Funds
P. O. Box 8900
Boston, Massachusetts 02205-8900
Financial Advisors call: 1-800-322-0593
Shareholders call 1-800-338-2550
http://www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive,
Suite 3200
Liberty Securities Corporation, Distributor
Member, SIPC
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
Defined Contribution Plans
Stein Roe Cash Reserves Fund
Prospectus
Nov. 1, 1997
The Fund seeks to obtain maximum current income consistent with
capital preservation and maintenance of liquidity. The Fund
invests solely in money market instruments maturing in thirteen
months or less from time of investment.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" money market fund and attempts to maintain
its net asset value at $1.00 per share. Shares of the Fund are
neither insured nor guaranteed by the U.S. Government and there
can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share. There are no sales or
redemption charges, and the Fund has no 12b-1 plan.
The Fund is a series of the Stein Roe Income Trust, an open-end
management investment company. This prospectus contains
information you should know before investing in the Fund. Please
read it carefully and retain it for future reference.
A Statement of Additional Information dated Nov. 1, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Funds at Suite 3200, One South Wacker Drive, Chicago, IL 60606
or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Income Trust that may not be available as investment
vehicles for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Table of Contents
Page
Fee Table............................ 2
Financial Highlights..................2
The Fund..............................3
Investment Policies...................4
Investment Restrictions...............5
Risks and Investment Considerations...5
How to Purchase Shares............... 6
How to Redeem Shares................. 7
Net Asset Value...................... 7
Distributions and Income Taxes........8
Management............................8
Organization and Description of
Shares.............................9
For More Information..................9
___________________________
Fee Table
Shareholder Transaction Expenses
Sales Load Imposed on Purchases..................None
Sales Load Imposed on Reinvested Dividends.......None
Deferred Sales Load..............................None
Redemption Fees................................ None*
Exchange Fees....................................None
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management and Administrative Fees)............. 0.50%
12b-1 Fees.......................................None
Other Expenses.................................. 0.27%
-----
Total Fund Operating Expenses....................0.77%
=====
Example. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2) redemption at the
end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$8 $25 $43 $95
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year. For purposes
of the Example above, the figures assume that the percentage
amounts for the Fund listed under Annual Fund Operating Expenses
remain the same during each of the periods, that all income
dividends and capital gains distributions are reinvested in
additional Fund shares, and that, for purposes of fee breakpoints,
the Fund's net assets remain at the same level as in the most
recently completed fiscal year. The figures in the Example are
not necessarily indicative of past or future expenses, and actual
expenses may be greater or less than those shown. Although
information such as that shown in the Fee Table and Example is
useful in reviewing the Fund's expenses and in providing a basis
for comparison with other mutual funds, it should not be used for
comparison with other investments using different assumptions or
time periods. The Example does not reflect any charges or
expenses related to your employer's plan.
__________________________
Financial Highlights
The table below reflects the results of operations of the Fund on
a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction
with the financial statements and notes thereto, which may be
obtained from the Trust without charge upon request.
<TABLE>
<CAPTION>
Six
Year Months
Ended Ended
Dec. 31, June 30, Years Ended June 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income. 0.060 0.032 0.081 0.079 0.068 0.044 0.028 0.028 0.048 0.050 0.048
Distributions from net
investment income.... (0.060) (0.032) (0.081) (0.079) (0.068) (0.044) (0.028) (0.028) (0.048) (0.050) (0.048)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END
OF PERIOD............. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of expenses to
average net assets... 0.72% *0.70% 0.75% 0.76% 0.78% 0.78% 0.79% 0.79% 0.76% 0.78% 0.77%
Ratio of net investment
income to average
net assets........... 6.02% *6.36% 8.13% 7.94% 6.81% 4.40% 2.81% 2.77% 4.83% 4.98% 4.80%
Total return.......... 6.15% *6.43% 8.41% 8.20% 6.98% 4.49% 2.83% 2.81% 4.96% 5.07% 4.92%
Net assets, end of
period (000 omitted).$962,901 $930,074 $948,018 $949,803 $840,525 $711,087 $627,110 $554,713 $498,163 $476,840 $452,358
<FN>
*Annualized.
</TABLE>
___________________________
The Fund
Stein Roe Cash Reserves Fund (the "Fund") is a no-load "mutual
fund." Mutual funds sell their own shares to investors and use
the money they receive to invest in a portfolio of securities. A
mutual fund allows you to pool your money with that of other
investors in order to obtain professional investment management.
Mutual funds generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping. Because the Fund invests only in money market
instruments, it is called a "money market fund." No-load funds do
not impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the Stein Roe Income Trust (the "Trust"),
an open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory and administrative services to the Fund. The
Adviser also manages several other mutual funds with different
investment objectives, including other money market funds, equity
funds, international funds, and taxable and tax-exempt bond funds.
To obtain prospectuses and other information on opening a regular
account in any of these mutual funds, please call 800-338-2550.
Although there can be no assurance that it will always be able to
do so, the Fund follows procedures designed to stabilize its price
per share at $1.00. The Statement of Additional Information
describes these procedures. Because the Fund strives to maintain
a $1.00 per share value, its return is usually quoted either as a
current seven-day yield, calculated by totaling the dividends on a
Fund share for the previous seven days and restating that yield as
an annual rate, or as an effective yield, calculated by adjusting
the current yield to assume daily compounding. The Fund's current
and effective yields for the seven-day period ended Sept. 30,
1997, were 4.96% and 5.09%, respectively. To obtain current yield
information, you may call 800-338-2550.
From time to time, the Fund may also quote total return figures.
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Past performance is not necessarily indicative of future
results.
___________________________
Investment Policies
The Fund seeks to obtain maximum current income consistent with
the preservation of capital and the maintenance of liquidity by
investing all of its assets in U.S. dollar-denominated money
market instruments maturing in thirteen months or less from time
of investment. Each security must be rated (or be issued by an
issuer that is rated with respect to its short-term debt) within
the highest rating category for short-term debt by at least two
nationally recognized statistical rating organizations ("NRSRO")
(or, if rated by only one NRSRO, by that rating agency), or, if
unrated, determined by or under the direction of the Board of
Trustees to be of comparable quality. These securities may
include:
(1) Securities issued or guaranteed by the U.S. Government or by
its agencies or instrumentalities ("U.S. Government
Securities");
(2) Securities issued or guaranteed by the government of any
foreign country that are rated at time of purchase A or better
(or equivalent rating) by at least one NRSRO;/1/
(3) Certificates of deposit, bankers' acceptances and time
deposits of any bank (U.S. or foreign) having total assets in
excess of $1 billion, or the equivalent in other currencies
(as of the date of the most recent available financial
statements) or of any branches, agencies or subsidiaries (U.S.
or foreign) of any such bank;
(4) Commercial paper of U.S. or foreign issuers;
(5) Notes, bonds, and debentures rated at time of purchase A or
better (or equivalent rating) by at least one NRSRO;
(6) Repurchase agreements /2/ involving securities listed in (1)
above;
(7) Other high-quality short-term obligations.
- ------------
/1/ For a description of certain NRSRO commercial paper, note, and
bond ratings, see the Appendix to the Statement of Additional
Information.
/2/ A sale of securities to the Fund in which the seller (a bank
or securities dealer that the Adviser believes to be financially
sound) agrees to repurchase the securities at a higher price,
which includes an amount representing interest on the purchase
price, within a specified time.
- ------------
In accordance with its investment objectives and policies, the
Fund may invest in variable and floating rate money market
instruments which provide for periodic or automatic adjustment in
coupon interest rates that are reset based on changes in amount
and directions of specified short-term interest rates.
Under normal market conditions, the Fund will invest at least 25%
of its total assets in securities of issuers in the financial
services industry (which includes, but is not limited to, banks,
personal credit and business credit institutions, and other
financial services institutions).
The Fund maintains a dollar-weighted average portfolio maturity
appropriate to its objective of maintaining a stable net asset
value per share, and not in excess of 90 days. It is a
fundamental policy that the maturity of any instrument that grants
the holder an optional right to redeem at par plus interest and
without penalty will be deemed at any time to be the next date
provided for payment on exercise of such optional redemption
right.
___________________________
Investment Restrictions
The Fund is diversified as that term is defined in the Investment
Company Act of 1940.
The Fund will not, with respect to 75% of its total assets, invest
more than 5% of its total assets in the securities of any one
issuer /3/--this restriction does not apply to U.S. Government
Securities or repurchase agreements for such securities.
Notwithstanding the limitation on investments in a single issuer,
the Fund may invest all of its assets in another investment
company having the identical investment objective under a master
fund/feeder fund structure.
- --------
/3/ Notwithstanding the foregoing, and in accordance with Rule 2a-
7 of the Investment Company Act of 1940 (the "Rule"), the Fund
will not, immediately after the acquisition of any security (other
than a Government Security or certain other securities as
permitted under the Rule), invest more than 5% of its total assets
in the securities of any one issuer; provided, however, that it
may invest up to 25% of its total assets in First Tier Securities
(as that term is defined in the Rule) of a single issuer for a
period of up to three business days after the purchase thereof.
- --------
The Fund may make not loans except that it may (1) purchase money
market instruments and enter into repurchase agreements; (2)
acquire publicly distributed or privately placed debt securities;
and (3) participate in an interfund lending program with other
Stein Roe Funds and Portfolios. The Fund may not borrow money,
except for nonleveraging, temporary, or emergency purposes or in
connection with participation in the interfund lending program.
Neither the Fund's aggregate borrowings (including reverse
repurchase agreements) nor its aggregate loans at any one time may
exceed 33 1/3% of the value of its total assets. Additional
securities may not be purchased when borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may not invest more than 10% of its net assets in
illiquid securities, including repurchase agreements maturing in
more than seven days (however, there is otherwise no limitation on
the percentage of the Fund's assets which may be invested in
repurchase agreements).
The policies described in the second and third paragraphs of this
section, which summarize certain important investment restrictions
of the Fund, and the policy with respect to concentration of
investment in the financial services industry, can be changed only
with the approval of a "majority of the outstanding voting
securities" of the Fund, as defined in the Investment Company Act
of 1940. All of the investment restrictions are set forth in the
Statement of Additional Information.
___________________________
Risks and Investment Considerations
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. There can be no
guarantee that the Fund will achieve its objective or be able at
all times to maintain its net asset value per share at $1.00.
In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and losses, including: (a)
possible decline in the value of the collateral during the period
in which the Fund seeks to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.
The Fund's investment objective is not fundamental and may be
changed by the Board of Trustees without a vote of shareholders.
If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial
position and needs.
The Fund's policy of investing at least 25% of its assets in
securities of issuers in the financial services industry may cause
the Fund to be more adversely affected by changes in market or
economic conditions and other circumstances affecting the
financial services industry. Because the Fund's investment policy
permits it to invest in: securities of foreign branches of U.S.
banks (Eurodollars), U.S. branches of foreign banks (Yankee
dollars), and foreign banks and their foreign branches, such as
negotiable certificates of deposit; securities of foreign
governments; and securities of foreign issuers, such as commercial
paper and corporate notes, bonds and debentures, investment in the
Fund might involve risks that are different in some respects from
an investment in a fund that invests only in debt obligations of
U.S. domestic issuers. Such risks may include future political
and economic developments; the possible imposition of foreign
withholding taxes on interest income payable on securities held in
the portfolio; possible seizure or nationalization of foreign
deposits; the possible establishment of exchange controls; or the
adoption of other foreign governmental restrictions that might
adversely affect the payment of principal and interest on
securities in the portfolio. Additionally, there may be less
public information available about foreign banks and their
branches. Foreign banks and foreign branches of foreign banks are
not regulated by U.S. banking authorities, and generally are not
bound by accounting, auditing, and financial reporting standards
comparable to U.S. banks.
The Fund may invest in securities purchased on a when-issued or
delayed-delivery basis. Although the payment terms of these
securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed and the yields then available in the market may be
greater. The Fund will make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if it is deemed advisable for
investment reasons.
The Fund may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Fund binds itself to accept delivery of a security at the
option of the other party to the agreement.
Master Fund/Feeder Fund Option.
Rather than invest in money market securities directly, the Fund
may in the future seek to achieve its investment objective by
pooling all of its assets with those of other investment companies
for investment in another registered investment company having the
same investment objective and substantially the same investment
policies as the Fund. It is expected that the assets of any such
investment company would be managed by the Adviser in
substantially the same manner as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment. Such investment would
be made only if the trustees determine it to be in the best
interests of the Fund and its shareholders.
___________________________
How to Purchase Shares
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund. Each purchase of shares through a
broker-dealer, bank or other Intermediary ("Intermediary") that is
an authorized agent of the Trust for the receipt of orders is made
at the net asset value next determined after receipt of the order
by the Intermediary. An Intermediary, who accepts orders that are
processed at the net asset value next determined after receipt of
the order by the Intermediary, accepts such orders as agent of the
Fund. The Intermediary is required to segregate any orders
received on a business day after the close of regular session
trading on the New York Stock Exchange and transmit those orders
separately for execution at the net asset value next determined
after that business day.
Each purchase order must be accepted by an authorized officer of
the Trust in Chicago and is not binding until accepted and entered
on the books of the Fund. Once your purchase order has been
accepted, you may not cancel or revoke it; however, you may redeem
the shares. The Trust reserves the right not to accept any
purchase order that it determines not to be in the best interests
of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.
___________________________
How to Redeem Shares
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
Exchange Privilege.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
General Redemption Policies.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.
___________________________
Net Asset Value
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is normally determined twice each day: at 11:00 a.m., central
time, and as of the close of trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., central time). The net
asset value per share is computed by dividing the difference
between the values of the Fund's assets and liabilities by the
number of shares outstanding and rounding to the nearest cent.
Net asset value will not be determined on days when the NYSE is
closed unless, in the judgment of the Board of Trustees, the net
asset value of the Fund should be determined on any such day, in
which case the determination will be made at 3:00 p.m., central
time.
The Fund attempts to maintain its net asset value at $1.00 per
share. Portfolio securities are valued based on their amortized
cost, which does not take into account unrealized gains or losses.
Other assets and securities of the Fund for which this valuation
method does not produce a fair value are valued at a fair value
determined by the Board. The extent of any deviation between the
Fund's net asset value based upon market quotations or equivalents
and $1.00 per share based on amortized cost will be examined by
the Board of Trustees. If such deviation were to exceed 1/2 of
1%, the Board would consider what action, if any, should be taken,
including selling portfolio instruments, increasing, reducing or
suspending distributions, or redeeming shares in kind.
___________________________
Distributions and Income Taxes
Distributions.
A dividend from net income of the Fund is declared each business
day to shareholders of record immediately before 3:00 p.m.,
central time. Dividends credited to your account are distributed
monthly. If the Fund's net asset value per share were to decline,
or were believed likely to decline, below $1.00 (rounded to the
nearest cent), the Board might temporarily reduce or suspend
dividends in an effort to maintain net asset value at $1.00 per
share.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital gain
distributions will be reinvested in additional shares of the Fund.
Income Taxes.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
___________________________
Management
Trustees and Investment Adviser.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. The Fund's Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing the Fund's investment portfolio
and the business affairs of the Fund and the Trust, subject to the
direction of the Board. The Adviser is registered as an
investment adviser under the Investment Advisers Act. The Adviser
and its predecessor have advised and managed mutual funds since
1949. The Adviser is a wholly owned indirect subsidiary of
Liberty Financial Companies, Inc. ("Liberty Financial"), which in
turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.
Fees and Expenses.
The Adviser provides investment advisory and administrative
services to the Fund under separate management and administrative
agreements. The Adviser receives, in return for its services,
monthly fees from the Fund based on its average net assets,
computed and accrued daily, at the following annual rates:
MANAGEMENT FEE ADMINISTRATIVE FEE TOTAL FEES
- -------------- ------------------------ -------------------------
.250% 250% up to $500 million, .500% up to $500 million,
.200% next $500 million, .450% next $500 million,
.150% thereafter .400% thereafter
The annualized management and administrative fees amounted to
0.50% of average net assets for the year ended June 30, 1997.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of net asset value and calculation of net income and
capital gains and losses on disposition of assets.
Portfolio Transactions.
The Adviser places the orders for the purchase and sale of
portfolio securities. In doing so, the Adviser seeks to obtain
the best combination of price and execution, which involves a
number of judgmental factors.
Transfer Agent.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty Financial, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
Distributor.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned indirect subsidiary of Liberty
Financial. The business address of the Distributor is 100
Manhattanville Road, Purchase, New York 10577; 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 the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)
___________________________
Organization and Description of Shares
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
Jan. 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, four series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers shall have
no personal liability therefor. The Declaration of Trust requires
that notice of such disclaimer of liability be given in each
contract, instrument or undertaking executed or made on behalf of
the Trust. The Declaration of Trust provides for indemnification
of any shareholder against any loss and expense arising from
personal liability solely by reason of being or having been a
shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is believed to be remote,
because it would be limited to circumstances in which the
disclaimer was inoperative and the Trust was unable to meet its
obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust
also is believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to circumstances
in which the other series was unable to meet its obligations.
___________________________
For More Information
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
___________________________
<PAGE>
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
Defined Contribution Plans
Stein Roe Income Fund
Prospectus
Nov. 1, 1997
The Fund seeks high current income by investing principally in
medium-quality debt securities and, to a lesser extent, in lower-
quality securities which may involve greater risk. (See
Investment Policies.)
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the Stein Roe Income Trust, an open-end management investment
company. This prospectus contains information you should know
before investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated Nov. 1, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Funds at Suite 3200, One South Wacker Drive, Chicago, IL 60606
or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Income Trust that may not be available as investment
vehicles for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Table of Contents
Page
Fee Table............................. 2
Financial Highlights...................2
The Fund...............................3
Investment Policies....................3
Portfolio Investments and Strategies...5
Investment Restrictions............. ..8
Risks and Investment Considerations... 8
How to Purchase Shares................ 9
How to Redeem Shares.................. 9
Net Asset Value...................... 10
Distributions and Income Taxes........10
Investment Return.....................11
Management............................11
Organization and Description of
Shares..............................13
For More Information..................13
___________________________
Fee Table
Shareholder Transaction Expenses
Sales Load Imposed on Purchases......................None
Sales Load Imposed on Reinvested Dividends...........None
Deferred Sales Load..................................None
Redemption Fees......................................None
Exchange Fees........................................None
Annual Fund Operating Expenses (as a percentage of
average net assets)
Management and Administrative Fees.................. 0.61%
12b-1 Fees...........................................None
Other Expenses.......................................0.24%
-----
..........Total Fund Operating Expenses..............0.85%
=====
Example.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$9 $27 $47 $105
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based on
actual expenses incurred in the last fiscal year. For purposes of
the Example above, the figures assume that the percentage amounts
listed for the Fund under Annual Fund Operating Expenses remain
the same during each of the periods, that all income dividends and
capital gains distributions are reinvested in additional Fund
shares, and that, for purposes of fee breakpoints, the Fund's net
assets remain at the same level as in the most recently completed
fiscal year. The figures in the Example are not necessarily
indicative of past or future expenses, and actual expenses may be
greater or less than those shown. Although information such as
that shown in the Fee Table and Example is useful in reviewing the
Fund's expenses and in providing a basis for comparison with other
mutual funds, it should not be used for comparison with other
investments using different assumptions or time periods. The
Example does not reflect any charges or expenses related to your
employer's plan.
__________________________
Financial Highlights
The table below reflects the results of operations of the Fund on
a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction
with the Fund's financial statements and notes thereto. The
Fund's annual report, which may be obtained from the Trust without
charge upon request, contains additional performance information.
<TABLE>
<CAPTION>
Years Ended June 30,
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
----- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 9.71 $ 9.60 $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36 $9.79 $9.63
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income..... .95 .95 .92 .80 .76 .75 .69 .71 .71 .70
Net realized and
unrealized gains (losses)
on investments........... (.11) .05 (.70) -- .56 .59 (.74) .43 (.16) .25
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from investment
operations............... .84 1.00 .22 .80 1.32 1.34 (.05) 1.14 .55 .95
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS FROM NET
INVESTMENT INCOME......... (.95) (.95) (.92) (.80) (.76) (.75) (.69) (.71) (.71) (.70)
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
NET ASSET VALUE, END OF
PERIOD................... $ 9.60 $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36 $ 9.79 $9.63 $9.88
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Ratio of net expenses to
average net assets (a)... 0.91% 0.90% 0.93% 0.95% 0.90% 0.82% 0.82% 0.82% 0.82% 0.84%
Ratio of net investment
income to average net
assets (b)............... 10.08% 9.97% 10.02% 8.98% 8.20% 7.62% 6.94% 7.55% 7.26% 7.26%
Portfolio turnover rate... 158% 94% 90% 77% 76% 39% 53% 64% 135% 138%
Total return (b).......... 9.38% 11.06% 2.48% 9.30% 15.30% 14.64% (0.69%) 12.79% 5.70% 10.34%
Net assets, end of
period (000 omitted).... $96,611 $110,376 $89,023 $93,952 $112,706 $151,594 $158,886 $174,327 $309,564 $375,272
</TABLE>
__________________
(a) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the Adviser, this ratio would
have been 0.83%, 0.85%, 0.88% and 0.85% for the years ended
June 30, 1994 through 1997, respectively.
(b) Computed giving effect to the Adviser's expense limitation
undertaking.
___________________________
The Fund
The mutual fund offered by this prospectus is Stein Roe Income
Fund (the "Fund"). The Fund is a no-load "mutual fund." No-load
funds do not impose commissions or charges when shares are
purchased or redeemed. Mutual funds sell their own shares to
investors and invest the proceeds in a portfolio of securities. A
mutual fund allows you to pool your money with that of other
investors in order to obtain professional investment management.
Mutual funds generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping.
The Fund is a series of the Stein Roe Income Trust (the "Trust"),
an open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory and administrative services to the Fund. 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 opening a
regular account in any of these mutual funds, please call 800-338-
2550.
___________________________
Investment Policies
The investment objective of the Fund is to provide a high level of
current income. Consistent with this investment objective,
capital preservation and capital appreciation are regarded as
secondary objectives. The Fund attempts to achieve its objective
by investing principally in medium-quality debt securities, which
are obligations of issuers that the Adviser believes possess
adequate, but not outstanding, capacities to service their debt
securities, such as securities rated A or Baa by Moody's Investors
Service ("Moody's") or A or BBB by Standard & Poor's Corporation
("S&P"). The Adviser generally attributes to medium-quality
securities the same characteristics as rating services. Further
information on portfolio investments and strategies may be found
under Portfolio Investments and Strategies in this prospectus and
in the Statement of Additional Information.
Although the Fund will invest at least 60% of its assets in
medium- or higher-quality securities, it may also invest to a
lesser extent in securities of lower quality (in the case of rated
securities, having a rating by Moody's or S&P of not less than C).
Although the Fund can invest up to 40% of its assets in lower-
quality securities, it does not intend to invest more than 35% in
lower-quality securities. Lower-quality debt securities are
obligations of issuers that are predominantly speculative with
respect to the issuer's capacity to pay interest and repay
principal, and are commonly referred to as "junk bonds." The Fund
may invest in lower-quality debt securities; for example, if the
Adviser believes the financial condition of the issuers or the
protection offered to the particular obligations is stronger than
is indicated by low ratings or otherwise. The Fund may invest in
higher-quality securities; for example, under extraordinary
economic or financial market conditions, or when the spreads
between the yields on medium- and high-quality securities are
relatively narrow.
Some issuers of debt securities choose not to have their
securities rated by a rating service, and the Fund may invest in
unrated securities that the Adviser believes are suitable for
investment.
Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer
default or bankruptcy. An economic downturn could severely
disrupt this market and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and
interest. In addition, lower-quality bonds are less sensitive to
interest rate changes than higher-quality instruments (see Risks
and Investment Considerations) and generally are more sensitive to
adverse economic changes or individual corporate developments.
During a period of adverse economic changes, including a period of
rising interest rates, issuers of such bonds may experience
difficulty in servicing their principal and interest payment
obligations.
Achievement of the Fund's investment objective will be more
dependent on the Adviser's credit analysis than would be the case
if the Fund were investing in higher-quality debt securities.
Since the ratings of rating services (which evaluate the safety of
principal and interest payments, not market risks) are used only
as preliminary indicators of investment quality, the Adviser
employs its own credit research and analysis, from which it has
developed a credit rating system based upon comparative credit
analyses of issuers within the same industry. These analyses may
take into consideration such quantitative factors as an issuer's
present and potential liquidity, profitability, internal
capability to generate funds, debt/equity ratio and debt servicing
capabilities, and such qualitative factors as an assessment of
management, industry characteristics, accounting methodology, and
foreign business exposure.
Medium- and lower-quality debt securities tend to be less
marketable than higher-quality debt securities because the market
for them is less broad. The market for unrated debt securities is
even narrower. During periods of thin trading in these markets,
the spread between bid and asked prices is likely to increase
significantly, and the Fund may have greater difficulty selling
its portfolio securities. (See Net Asset Value.) The market
value of these securities and their liquidity may be affected by
adverse publicity and investor perceptions.
Under normal market conditions, the Fund will invest at least 65%
of the value of its total assets (taken at market value) in
convertible and non-convertible bonds and debentures. Such
securities may be accompanied by the right to acquire equity
securities evidenced by warrants attached to the security or
acquired as part of a unit with the security. Equity securities
acquired by conversion or exercise of such a right may be retained
by the Fund for a sufficient time to permit orderly disposition
thereof or to establish long-term holding periods for federal
income tax purposes.
The Fund may invest up to 35% of its total assets in other debt
securities, marketable preferred and common stocks, and foreign
and municipal securities that the Adviser considers likely to
yield relatively high income in relation to costs, and rights to
acquire such securities. (Municipal securities are securities
issued by or on behalf of state and local governments, the
interest on which is generally exempt from federal income tax.)
Any assets not otherwise invested may be invested in money market
instruments.
For the fiscal year ended June 30, 1997, Income Fund's portfolio
was invested, on average, as follows: high-quality short-term
instruments, 3.7%; U.S. Government Securities, 1.7%; AA, 6.3%; A,
22.8%; BBB, 35.5%; BB, 19.8%; B, 9.6%; and unrated, 0.6%. The
ratings are based on a dollar-weighted average, computed monthly,
and reflect the higher of S&P or Moody's ratings. The ratings do
not necessarily reflect the current or future composition of
Income Fund.
___________________________
Portfolio Investments and Strategies
Derivatives.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, and other
instruments, the value of which is "derived" from the performance
of an underlying asset or a "benchmark" such as a security index,
an interest rate, or a currency ("Derivatives"). The Fund does
not expect to invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, or futures
options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because 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 exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
REMICs. The Fund may invest in real estate mortgage investment
conduits ("REMICs"). REMICs, which were authorized under the Tax
Reform Act of 1986, are private entities formed for the purpose of
holding a fixed pool of mortgages secured by an interest in real
property. REMICs are similar to CMOs in that they issue multiple
classes of securities. A REMIC is a CMO that qualifies for
special tax treatment under the Internal Revenue Code and invests
in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs,
which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by FNMA or FHLMC represent beneficial ownership interests
in a REMIC trust consisting principally of mortgage loans or FNMA-
, FHLMC- or GNMA-guaranteed mortgage pass-through certificates.
For FHLMC REMIC Certificates, FHLMC guarantees the timely payment
of interest and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage
participation certificates. FNMA REMIC Certificates are issued and
guaranteed as to timely distribution and principal and interest by
FNMA.
Floating Rate Instruments. The Fund may also invest in floating
rate instruments which provide for periodic adjustments in coupon
interest rates that are automatically reset based on changes in
amount and direction of specified market interest rates. In
addition, the adjusted duration of some of these instruments may
be materially shorter than their stated maturities. To the extent
such instruments are subject to lifetime or periodic interest rate
caps or floors, such instruments may experience greater price
volatility than debt instruments without such features. Adjusted
duration is an inverse relationship between market price and
interest rates and refers to the approximate percentage change in
price for a 100 basis point change in yield. For example, if
interest rates decrease by 100 basis points, a market price of a
security with an adjusted duration of 2 would increase by
approximately 2%. The Fund does not intend to invest more than 5%
of net assets in floating rate instruments.
Futures and Options. The Fund may purchase and write both call
options and put options on securities, indexes and foreign
currencies, and enter into interest rate, index and foreign
currency futures contracts. The Fund may also write options on
such futures contracts and purchase other types of forward or
investment contracts linked to individual securities, indexes or
other benchmarks, consistent with its investment objective, in
order to provide additional revenue, or to hedge against changes
in security prices, interest rates, or currency fluctuations. The
Fund may write a call or put option only if the option is covered.
As the writer of a covered call option, the Fund foregoes, during
the option's life, the opportunity to profit from increases in
market value of the security covering the call option above the
sum of the premium and the exercise price of the call. There can
be no assurance that a liquid market will exist when the Fund
seeks to close out a position. Because of low margin deposits
required, the use of futures contracts involves a high degree of
leverage, and may result in losses in excess of the amount of the
margin deposit.
Foreign Securities.
Although the Fund may invest in foreign securities, it will not
invest in a foreign security if, as a result of such investment,
more than 25% of its total assets would be invested in foreign
securities. For purposes of this restriction, foreign securities
do not include securities represented by American Depositary
Receipts ("ADRs"), foreign debt securities denominated in U.S.
dollars, or securities guaranteed by a U.S. person such as a
corporation domiciled in the United States that is a parent or
affiliate of the issuer of the securities being guaranteed. The
Fund may invest in sponsored or unsponsored ADRs. In addition to,
or in lieu of, such direct investment, the Fund may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Foreign securities may involve a greater degree of risk (including
risk related to exchange rate fluctuations, tax provisions, or
expropriation of assets) than securities of domestic issuers. At
June 30, 1997, no assets of the Fund were invested in foreign
securities as defined above, and the Fund does not currently
intend to invest more than 5% of its net assets in such
securities. (See Risks and Investment Considerations.)
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.
Lending of Portfolio Securities.
Subject to certain restrictions, the Fund may lend its portfolio
securities to broker-dealers and banks. Any such loan must be
continuously secured by collateral in cash or cash equivalents
maintained on a current basis in an amount at least equal to the
market value of the securities loaned by the Fund. The Fund would
continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and would also
receive an additional return that may be in the form of a fixed
fee or a percentage of the collateral. The Fund would have the
right to call the loan and obtain the securities loaned at any
time on notice of not more than five business days. In the event
of bankruptcy or other default of the borrower, the Fund could
experience both delays in liquidating the loan collateral or
recovering the loaned securities and losses including (a) possible
decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to
enforce its rights thereto; (b) possible subnormal levels of
income and lack of access to income during this period; and (c)
expenses of enforcing its rights. The Fund may participate in an
interfund lending program, subject to certain restrictions
described in the Statement of Additional Information.
When-Issued and Delayed-Delivery Securities; Standby Commitments.
The Fund's assets may include securities purchased on a when-
issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time the
purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. The Fund makes such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
the Adviser deems it advisable for investment reasons. Securities
purchased in this manner involve a risk of loss if the value of
the security purchased declines before settlement date.
When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that the Fund will
sell securities with a commitment to purchase similar, but not
identical, securities at a future date. Generally, the securities
are repurchased at a price lower than the sales price. Dollar
roll transactions involve the risk of restrictions on the Fund's
ability to repurchase the security if the counterparty becomes
insolvent; an adverse change in the price of the security during
the period of the roll or that the value of the security
repurchased will be less than the security sold; and transaction
costs exceeding the return earned by the Fund on the sales
proceeds of the dollar roll.
The Fund may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Fund binds itself to accept delivery of a security at the
option of the other party to the agreement.
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 Portfolio, to trade in privately placed
securities that have not been registered for sale under the 1933
Act. The Adviser, under the supervision of the Board of Trustees,
will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the restriction of investing no more
than 10% of net assets in illiquid securities. A determination of
whether a Rule 144A security is liquid or not is a question of
fact. In making this determination, the Adviser will consider the
trading markets for the specific security, taking into account the
unregistered nature of a Rule 144A security. In addition, the
Adviser could consider the (1) frequency of trades and quotes, (2)
number of dealers and potential purchasers, (3) dealer
undertakings to make a market, and (4) nature of the security and
of marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of
transfer). The liquidity of Rule 144A securities would be
monitored and if, as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the
Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the
Portfolio does not invest more than 10% of its assets in illiquid
securities. Investing in Rule 144A securities could have the
effect of increasing the amount of assets invested in illiquid
securities if qualified institutional buyers are unwilling to
purchase such securities. The 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.
In seeking to attain its objective, the Fund may sell portfolio
securities without regard to the period of time they have been
held. Further, the Adviser may purchase and sell securities for
the portfolio of the Fund with a view to maximizing current
return, even if portfolio changes would cause the realization of
capital gains. Although the average stated maturity of the Fund's
portfolio generally will exceed ten years, the Adviser may adjust
the average maturity of the Fund's portfolio from time to time,
depending on its assessment of the relative yields available on
securities of different maturities and its expectations of future
changes in interest rates. As a result, the turnover rate of the
Fund may vary from year to year. A high rate of portfolio
turnover may result in increased transaction expenses and the
realization of capital gains (which may be taxable) or losses.
(See Financial Highlights and Distributions and Income Taxes.)
___________________________
Investment Restrictions
The Fund is diversified as that term is defined in the Investment
Company Act of 1940.
The Fund may not invest in a security if, as a result of such
investment: (1) with respect to 75% of its assets, more than 5% of
its total assets would be invested in the securities of any one
issuer, except for U.S. Government Securities or repurchase
agreements /1/ for such securities; or (2) 25% or more of its
total assets would be invested in the securities of a group of
issuers in the same industry, except that this restriction does
not apply to U.S. Government Securities. Notwithstanding these
limitations, the Fund may invest all or substantially all of its
assets in another investment company having the identical
investment objective under a master fund/feeder fund structure.
- --------
/1/ A repurchase agreement involves a sale of securities to the
Fund with the concurrent agreement of the seller (bank or
securities dealer) to repurchase the securities at the same price
plus an amount equal to an agreed-upon interest rate within a
specified time. In the event of a bankruptcy or other default of
a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses. The
Fund may not invest more than 10% of its net assets in repurchase
agreements maturing in more than seven days and other illiquid
securities.
- --------
The Fund may not make loans except that it may (1) purchase money
market instruments and enter into repurchase agreements; (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 and Portfolios. The Fund may not borrow money, except
for nonleveraging, temporary, or emergency purposes or in
connection with participation in the interfund lending program.
Neither the Fund's aggregate borrowings (including reverse
repurchase agreements) nor its aggregate loans at any one time may
exceed 33 1/3% of the value of its total assets. Additional
securities may not be purchased when borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The policies set forth in the second and third paragraphs under
Investment Restrictions (but not the footnote) are fundamental
policies of the Fund. The Statement of Additional Information
contains all of the investment restrictions.
___________________________
Risks and Investment Considerations
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although the Fund seeks
to reduce risk by investing in a diversified portfolio, this does
not eliminate all risk. The risks inherent in the Fund depend
primarily upon the term and quality of the obligations in the
Fund's portfolio, as well as on market conditions.
A decline in prevailing levels of interest rates generally
increases the value of securities in the Fund's portfolio, while
an increase in rates usually reduces the value of those
securities. As a result, interest rate fluctuations will affect
the Fund's net asset value, but not the income received by the
Fund from its portfolio securities. (Because yields on debt
securities available for purchase vary over time, no specific
yield on shares of the Fund can be assured.) In addition, if the
bonds in the Fund's portfolio contain call, prepayment or
redemption provisions, during a period of declining interest
rates, these securities are likely to be redeemed, and the Fund
will probably be unable to replace them with securities having as
great a yield.
The Fund is designed for investors who seek a higher level of
income and who can accept greater levels of credit and other risks
associated with securities of medium or lower quality.
Investments in foreign securities, including ADRs, represent both
risks and opportunities not typically associated with investments
in domestic issuers. Risks of foreign investing include currency
risk, less complete financial information on issuers, different
accounting, auditing and financial reporting standards, different
settlement practices, less market liquidity, more market
volatility, less well-developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by nonresidents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
nonresidents. Foreign investments also tend to involve higher
transaction and custody costs.
The Fund may enter into foreign currency forward contracts and use
options and futures contracts as described elsewhere in this
prospectus to limit or reduce foreign currency risk.
There can be no assurance that the Fund will achieve its
objective, nor can the Fund assure that payments of interest and
principal on portfolio securities will be made when due. If,
after purchase by the Fund, the rating of a portfolio security is
lost or reduced, the Fund would not be required to sell the
security, but the Adviser would consider such a change in deciding
whether to retain the security in the portfolio.
The Fund's investment objective is not fundamental and may be
changed by the Board of Trustees without a vote of shareholders.
If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial
position and needs.
Master Fund/Feeder Fund Option.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with those of other investment companies for investment in
another investment company having the same investment objective
and substantially the same investment policies as the Fund. The
purpose of such an arrangement is to achieve greater operational
efficiencies and to reduce costs. It is expected that the assets
of any such investment company would be managed by the Adviser in
substantially the same manner as the Fund. Shareholders of the
Fund will be given at least 30 days' prior notice of any such
investment. Such investment would be made only if the trustees
determine it to be in the best interests of the Fund and its
shareholders.
___________________________
How to Purchase Shares
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund. Each purchase of shares through a
broker-dealer, bank or other Intermediary ("Intermediary") that is
an authorized agent of the Trust for the receipt of orders is made
at the net asset value next determined after receipt of the order
by the Intermediary. An Intermediary, who accepts orders that are
processed at the net asset value next determined after receipt of
the order by the Intermediary, accepts such orders as agent of the
Fund. The Intermediary is required to segregate any orders
received on a business day after the close of regular session
trading on the New York Stock Exchange and transmit those orders
separately for execution at the net asset value next determined
after that business day.
Each purchase order must be accepted by an authorized officer of
the Trust in Chicago and is not binding until accepted and entered
on the books of the Fund. Once your purchase order has been
accepted, you may not cancel or revoke it; however, you may redeem
the shares. The Trust reserves the right not to accept any
purchase order that it determines not to be in the best interests
of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.
___________________________
How to Redeem Shares
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
Exchange Privilege.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
General Redemption Policies.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.
___________________________
Net Asset Value
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., central time) by dividing
the difference between the values of the Fund's assets and
liabilities by the number of shares outstanding. Net asset value
will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, the net asset value of the
Fund should be determined on any such day, in which case the
determination will be made at 3:00 p.m., central time.
Securities for which market quotations are readily available at
the time of valuation are valued on that basis. Long-term
straight-debt securities for which market quotations are not
readily available are valued at a fair value based on valuations
provided by pricing services approved by the Board, which may
employ electronic data processing techniques, including a matrix
system, to determine valuations. Short-term debt securities with
remaining maturities of 60 days or less are valued at their
amortized cost, which does not take into account unrealized gains
or losses. The Board believes that the amortized cost represents
a fair value for such securities. Short-term debt securities with
remaining maturities of more than 60 days for which market
quotations are not readily available are valued by use of a matrix
prepared by the Adviser based on quotations for comparable
securities. Other assets and securities held by the Fund for
which these valuation methods do not produce a fair value are
valued by a method that the Board believes will determine a fair
value.
___________________________
Distributions and Income Taxes
Distributions.
Income dividends are declared each business day and are paid
monthly. The Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the 12-month period ended Oct. 31 in
that year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares of the
Fund.
Income Taxes.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
___________________________
Investment Return
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
The yield of the Fund is calculated by dividing its net investment
income per share (a hypothetical figure as defined in the SEC
rules) during a 30-day period by the net asset value per share on
the last day of the period. The yield formula provides for
semiannual compounding, which assumes that net investment income
is earned and reinvested at a constant rate and annualized at the
end of a six-month period.
Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Yield figures are not based on actual dividends paid. Past
performance is not necessarily indicative of future results. To
obtain current yield or total return information, you may call
800-338-2550.
___________________________
Management
Trustees and Investment Adviser.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See Management in the
Statement of Additional Information for the names of and other
information about the trustees and officers. The Adviser, Stein
Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
Illinois 60606, is responsible for managing the investment
portfolio and the business affairs of the Fund and the Trust,
subject to the direction of the Board. The Adviser is registered
as an investment adviser under the Investment Advisers Act of
1940. The Adviser and its predecessor have advised and managed
mutual funds since 1949. The Adviser is a wholly owned indirect
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which in turn is a majority owned indirect subsidiary
of Liberty Mutual Insurance Company.
Portfolio Manager.
Stephen F. Lockman has been portfolio manager of the Fund since
Mar. 1997. Associate portfolio manager of the Fund since Oct.
1995, Mr. Lockman joined the Adviser in Jan. 1994. As a senior
research analyst for the Adviser's fixed income department from
1994 to 1997, Mr. Lockman has broad expertise in the fixed income
markets, with specialties in the high yield sector and the
aerospace, broadcasting, entertainment, insurance, mining/metals,
paper/forest products, printing, publishing and real estate
industries. In addition, he served as the fixed income
department's sovereign debt analyst from 1994 to 1997, evaluating
securities for its more than $1 billion portfolio of dollar-
denominated foreign investments. Mr. Lockman previously served as
portfolio manager for the Illinois State Board of Investment from
1987 to 1994, and as a trust investment officer for LaSalle
National Bank from 1983 to 1987. A chartered financial analyst,
Mr. Lockman earned a bachelor's degree in 1983 from the University
of Illinois and a master's degree in 1986 from DePaul University.
As of June 30, 1997, he was responsible for managing $415 million
in mutual fund net assets for the Adviser.
Fees and Expenses.
The Adviser provides investment advisory and administrative
services to the Fund under separate management and administrative
agreements. The Adviser is entitled to receive, in return for its
services, monthly fees from the Fund based on its average net
assets, computed and accrued daily, at the following annual rates:
MANAGEMENT FEE ADMINISTRATIVE FEE TOTAL FEES
- --------------- ------------------- ----------------
.500% up to $100, .150% up to $100, .650% up to $100,
.475% thereafter .125% thereafter .600% thereafter
For the fiscal year ended June 30, 1997, the management and
administrative fees amounted to 0.61% of average net assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of net asset value and calculation of net income and
capital gains and losses on disposition of assets.
Portfolio Transactions.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts. In doing
so, the Adviser seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors.
Transfer Agent.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty Financial, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
Distributor.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned indirect subsidiary of Liberty
Financial. The business address of the Distributor is 100
Manhattanville Road, Purchase, New York 10577; 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 the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)
___________________________
Organization and Description of Shares
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
Jan. 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, four series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, trustees and officers shall have
no personal liability therefor. The Declaration of Trust requires
that notice of such disclaimer of liability be given in each
contract, instrument or undertaking executed or made on behalf of
the Trust. The Declaration of Trust provides for indemnification
of any shareholder against any loss and expense arising from
personal liability solely by reason of being or having been a
shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is believed to be remote,
because it would be limited to circumstances in which the
disclaimer was inoperative and the Trust was unable to meet its
obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust
also is believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to circumstances
in which the other series was unable to meet its obligations.
___________________________
For More Information
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
_________________
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
Defined Contribution Plans
Stein Roe Intermediate Bond Fund
Prospectus
Nov. 1, 1997
The Fund seeks high current income by investing primarily in
marketable debt securities. The dollar-weighted average life of
the Fund's portfolio is expected to be between three and ten
years.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the Stein Roe Income Trust, an open-end management investment
company.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated Nov. 1, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Funds at Suite 3200, One South Wacker Drive, Chicago, IL 60606
or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Income Trust that may not be available as investment
vehicles for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Table of Contents
Page
Fee Table................................. 2
Financial Highlights.......................2
The Fund...................................3
Investment Policies........................4
Portfolio Investments and Strategies.......5
Investment Restrictions................... 8
Risks and Investment Considerations....... 9
How to Purchase Shares................... 10
How to Redeem Shares..................... 10
Net Asset Value.......................... 11
Distributions and Income Taxes............11
Investment Return.........................12
Management............................... 12
Organization and Description of Shares....13
For More Information......................13
___________________________
Fee Table
Shareholder Transaction Expenses
Sales Load Imposed on Purchases........................None
Sales Load Imposed on Reinvested Dividends.............None
Deferred Sales Load....................................None
Redemption Fees........................................None
Exchange Fees..........................................None
Annual Fund Operating Expenses (as a percentage
of average net assets)
Management and Administrative Fees.....................0.50%
12b-1 Fees.............................................None
Other Expenses........................................ 0.25%
-----
............Total Fund Operating Expenses............. 0.75%
=====
Example.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- -------- ---------
$8 $24 $42 $93
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year. For purposes of
the Example above, the figures assume that the percentage amounts
listed for the Fund under Annual Fund Operating Expenses remain
the same during each of the periods and that all income dividends
and capital gains distributions are reinvested in additional Fund
shares. The figures in the Example are not necessarily indicative
of past or future expenses, and actual expenses may be greater or
less than those shown. Although information such as that shown in
the Fee Table and Example is useful in reviewing the Fund's
expenses and in providing a basis for comparison with other mutual
funds, it should not be used for comparison with other investments
using different assumptions or time periods. The Example does not
reflect any charges or expenses related to your employer's plan.
__________________________
Financial Highlights
The table below reflects the results of operations of the Fund on
a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction
with the Fund's financial statements and notes thereto. The
Fund's annual report, which may be obtained from the Trust without
charge upon request, contains additional performance information.
<TABLE>
<CAPTION>
Years Ended June 30,
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
----- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $8.77 $8.51 $8.65 $8.38 $8.53 $8.99 $9.26 $8.44 $8.67 $8.58
---- ------ ------ ------ ------ ------ ------ ------ ------ -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income........ .68 .74 .73 .69 .69 .65 .56 .58 .59 .60
Net realized and unrealized
gains (losses) on
investments............... (.12) .14 (.28) .16 .46 .27 (.59) .23 (.10) .17
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from investment
operations................. .56 .88 .45 .85 1.15 .92 (.03) .81 .49 .77
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
DISTRIBUTIONS
Net investment income....... (.68) (.74) (.72) (.70) (.69) (.65) (.56) (.58) (.58) (.61)
Net realized capital gains.. (.14) -- -- -- -- -- (.08) -- -- --
In excess of realized gains. -- -- -- -- -- -- (.15) -- -- --
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
Total distributions....... (.82) (.74) (.72) (.70) (.69) (.65) (.79) (.58) (.58) (.61)
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
NET ASSET VALUE, END
OF PERIOD................ $8.51 $8.65 $8.38 $8.53 $8.99 $9.26 $8.44 $8.67 $8.58 $8.74
===== ====== ====== ====== ====== ====== ====== ====== ====== =====
Ratio of net expenses to
average net assets (a)... 0.73% 0.73% 0.74% 0.73% 0.70% 0.67% 0.70% 0.70% 0.70% 0.73%
Ratio of net investment
income to average net
assets (b). ............. 7.97% 8.71% 8.60% 8.17% 7.87% 7.22% 6.20% 6.94% 6.79% 6.97%
Portfolio turnover rate... 273% 197% 296% 239% 202% 214% 206% 162% 202% 210%
Total return (b).......... 6.92% 10.97% 5.33% 10.62% 14.02% 10.59% (0.47%) 10.11% 5.76% 9.31%
Net assets, end of
period (000 omitted)....$162,225 $165,056 $161,439 $184,444 $242,948 $311,728 $302,507 $301,733 $298,112 $328,784
</TABLE>
_____________
(a) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the Adviser, this ratio would
have been 0.71%, 0.75% and 0.75% for the years ended June 30,
1995 through 1997, respectively.
(b) Computed giving effect to the Adviser's fee waiver.
___________________________
The Fund
The mutual fund offered by this prospectus is Stein Roe
Intermediate Bond Fund (the "Fund"). The Fund is a no-load
"mutual fund." No-load funds do not impose commissions or charges
when shares are purchased or redeemed. Mutual funds sell their
own shares to investors and invest the proceeds in a portfolio of
securities. A mutual fund allows you to pool your money with that
of other investors in order to obtain professional investment
management. Mutual funds generally make it possible for you to
obtain greater diversification of your investments and simplify
your recordkeeping.
The Fund is a series of the Stein Roe Income Trust (the "Trust"),
an open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory and administrative services to the Fund. 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 opening a
regular account in any of these mutual funds, please call 800-338-
2550.
___________________________
Investment Policies
The Fund's investment objective is to provide a high level of
current income, consistent with the preservation of capital, by
investing primarily in marketable debt securities. Under normal
market conditions, the Fund will invest at least 65% of the value
of its total assets (taken at market value at the time of
investment) in convertible and non-convertible bonds and
debentures, and at least 60% of its assets will be invested in the
following:
(1) Marketable straight-debt securities of domestic issuers, and
of foreign issuers payable in U.S. dollars, rated at time of
purchase within the three highest grades assigned by Moody's
Investors Service, Inc. ("Moody's") or by Standard & Poor's
Corporation ("S&P");
(2) U.S. Government Securities;
(3) Commercial paper rated Prime-1 by Moody's or A-1 by S&P at
time of purchase, or, if unrated, issued or guaranteed by a
corporation with any outstanding debt rated Aa or better by
Moody's or AA or better by S&P; and
(4) Bank obligations, including repurchase agreements, of banks
having total assets in excess of $1 billion.
The Fund also may invest in mortgaged-backed and other debt
securities (including those convertible into or carrying warrants
to purchase common stocks or other equity interests, and privately
placed debt securities), preferred stocks, and marketable common
stocks that the Adviser considers likely to yield relatively high
income in relation to cost. Further information on portfolio
investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
Under normal market conditions, the Fund invests at least 65% of
its assets in securities with an average life of between three and
ten years, and expects that the dollar-weighted average life of
its portfolio will be between three and ten years. Average life
is the weighted average period over which the Adviser expects the
principal to be paid, and differs from stated maturity in that it
estimates the effect of expected principal prepayments and call
provisions. With respect to GNMA securities and other mortgage-
backed securities, average life is likely to be substantially less
than the stated maturity of the mortgages in the underlying pools.
With respect to obligations with call provisions, average life is
typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an average life equal to their
stated maturity. During periods of rising interest rates, the
average life of mortgage-backed securities and callable
obligations may increase substantially because they are not likely
to be prepaid, which may result in greater net asset value
fluctuation.
The Fund may invest up to 35% of its total assets in debt
securities that are rated below investment grade (with no
permitted rating) and that, on balance, are considered
predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal according to the terms of the
obligation and, therefore, carry greater investment risk,
including the possibility of issuer default and bankruptcy. An
economic downturn could severely disrupt this market and adversely
affect the value of outstanding bonds and the ability of the
issuers to repay principal and interest. In addition, lower-
quality bonds are less sensitive to interest rate changes than
higher-quality instruments (see Risks and Investment
Considerations) and generally are more sensitive to adverse
economic changes or individual corporate developments. During a
period of adverse economic changes, including a period of rising
interest rates, issuers of such bonds may experience difficulty in
servicing their principal and interest payment obligations.
Achievement of the Fund's investment objective will be more
dependent on the Adviser's credit analysis than would be the case
if the Fund were investing exclusively in investment-grade debt
securities. Since the ratings of rating services (which evaluate
the safety of principal and interest payments, not market risks)
are used only as preliminary indicators of investment quality, the
Adviser employs its own credit research and analysis, from which
it has developed a credit rating system based upon comparative
credit analyses of issuers within the same industry. These
analyses may take into consideration such quantitative factors as
an issuer's present and potential liquidity, profitability,
internal capability to generate funds, debt/equity ratio and debt
servicing capabilities, and such qualitative factors as an
assessment of management, industry characteristics, accounting
methodology, and foreign business exposure.
Debt securities that are rated below investment grade tend to be
less marketable than higher-quality debt securities because the
market for them is less broad. The market for unrated debt
securities is even narrower. During periods of thin trading in
these markets, the spread between bid and asked prices is likely
to increase significantly, and the Fund may have greater
difficulty selling its portfolio securities. (See Net Asset
Value.) The market value of these securities and their liquidity
may be affected by adverse publicity and investor perceptions.
For the fiscal year ended June 30, 1997, the Fund's portfolio was
invested, on average, as follows: high-quality short-term
instruments, 6.3%; U.S. Government Securities, 10.9%; AAA, 10.3%;
AA, 8.9%; A, 24.1%; BBB, 29.3%; and BB, 10.2%. The ratings are
based on a dollar-weighted average, computed monthly, and reflect
the higher of S&P or Moody's ratings. The ratings do not
necessarily reflect the current or future composition of the Fund.
___________________________
Portfolio Investments and Strategies
Derivatives.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, and other
instruments, the value of which is "derived" from the performance
of an underlying asset or a "benchmark" such as a security index,
an interest rate, or a currency ("Derivatives"). The Fund does
not expect to invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, futures options,
and mortgage or other asset-backed securities.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because 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 exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
Mortgage and Other Asset-Backed Securities. The Fund may invest
in securities secured by mortgages or other assets such as
automobile or home improvement loans and credit card receivables.
These instruments may be issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities or by private
entities such as commercial, mortgage and investment banks and
financial companies or financial subsidiaries of industrial
companies.
Securities issued by GNMA represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the
Farmers Home Administration, or guaranteed by the Veterans
Administration. Securities issued by FNMA and FHLMC, U.S.
Government-sponsored corporations, also represent an interest in a
pool of mortgages.
The timely payment of principal and interest on GNMA securities is
guaranteed by GNMA and backed by the full faith and credit of the
U.S. Treasury. FNMA guarantees full and timely payment of
interest and principal on FNMA securities. FHLMC guarantees
timely payment of interest and ultimate collection of principal on
FHLMC securities. FNMA and FHLMC securities are not backed by the
full faith and credit of the U.S. Treasury.
Mortgage-backed debt securities, such as those issued by GNMA,
FNMA, and FHLMC, are of the "modified pass-through type," which
means the interest and principal payments on mortgages in the pool
are "passed through" to investors. Mortgage-backed securities
provide either a pro rata interest in underlying mortgages or an
interest in collateralized mortgage obligations ("CMOs"), which
represent a right to interest and/or principal payments from an
underlying mortgage pool. CMOs are not guaranteed by either the
U.S. Government or by its agencies or instrumentalities and are
usually issued in multiple classes, each of which has different
payment rights, prepayment risks, and yield characteristics.
Mortgage-backed securities involve the risk of prepayment on the
underlying mortgages at a faster or slower rate than the
established schedule. Prepayments generally increase with falling
interest rates and decrease with rising rates, but they also are
influenced by economic, social, and market factors. If mortgages
are prepaid during periods of declining interest rates, there
would be a resulting loss of the full-term benefit of any premium
paid by the Fund on purchase of the securities, and the proceeds
of prepayment would likely be invested at lower interest rates.
The Fund tends to invest in CMOs of classes known as planned
amortization classes ("PACs") which have prepayment protection
features tending to make them less susceptible to price
volatility.
Non-mortgage asset-backed securities usually have less prepayment
risk than mortgage-backed securities, but have the risk that the
collateral will not be available to support payments on the
underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.
Asset-backed securities tend to experience greater price
volatility than straight debt securities.
REMICs. The Fund may invest in real estate mortgage investment
conduits ("REMICs"). REMICs, which were authorized under the Tax
Reform Act of 1986, are private entities formed for the purpose of
holding a fixed pool of mortgages secured by an interest in real
property. REMICs are similar to CMOs in that they issue multiple
classes of securities. A REMIC is a CMO that qualifies for
special tax treatment under the Internal Revenue Code and invests
in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs,
which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by FNMA or FHLMC represent beneficial ownership interests
in a REMIC trust consisting principally of mortgage loans or FNMA-
, FHLMC- or GNMA-guaranteed mortgage pass-through certificates.
For FHLMC REMIC Certificates, FHLMC guarantees the timely payment
of interest and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage
participation certificates. FNMA REMIC Certificates are issued and
guaranteed as to timely distribution and principal and interest by
FNMA.
Floating Rate Instruments. The Fund may also invest in floating
rate instruments which provide for periodic adjustments in coupon
interest rates that are automatically reset based on changes in
amount and direction of specified market interest rates. In
addition, the adjusted duration of some of these instruments may
be materially shorter than their stated maturities. To the extent
such instruments are subject to lifetime or periodic interest rate
caps or floors, such instruments may experience greater price
volatility than debt instruments without such features. Adjusted
duration is an inverse relationship between market price and
interest rates and refers to the approximate percentage change in
price for a 100 basis point change in yield. For example, if
interest rates decrease by 100 basis points, a market price of a
security with an adjusted duration of 2 would increase by
approximately 2%. The Fund does not intend to invest more than
10% of net assets in floating rate instruments.
Futures and Options. The Fund may purchase and write both call
options and put options on securities, indexes and foreign
currencies, and enter into interest rate, index and foreign
currency futures contracts. The Fund may also write options on
such futures contracts and purchase other types of forward or
investment contracts linked to individual securities, indexes or
other benchmarks consistent with its investment objective, in
order to provide additional revenue, or to hedge against changes
in security prices, interest rates, or currency fluctuations. The
Fund may write a call or put option only if the option is covered.
As the writer of a covered call option, the Fund foregoes, during
the option's life, the opportunity to profit from increases in
market value of the security covering the call option above the
sum of the premium and the exercise price of the call. There can
be no assurance that a liquid market will exist when the Fund
seeks to close out a position. Because of low margin deposits
required, the use of futures contracts involves a high degree of
leverage, and may result in losses in excess of the amount of the
margin deposit.
Foreign Securities.
Although the Fund may invest in foreign securities, it will not
invest in a foreign security if, as a result of such investment,
more than 25% of its total assets would be invested in foreign
securities. For purposes of this restriction, foreign securities
do not include securities represented by American Depositary
Receipts ("ADRs"), foreign debt securities denominated in U.S.
dollars, or securities guaranteed by a U.S. person such as a
corporation domiciled in the United States that is a parent or
affiliate of the issuer of the securities being guaranteed. The
Fund may invest in sponsored or unsponsored ADRs. In addition to,
or in lieu of, such direct investment, the Fund may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Foreign securities may involve a greater degree of risk (including
risk related to exchange rate fluctuations, tax provisions, or
expropriation of assets) than securities of domestic issuers. At
June 30, 1997, no assets of the Fund were invested in foreign
securities as defined above, and the Fund does not currently
intend to invest more than 5% of its net assets in such
securities. (See Risks and Investment Considerations.)
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.
Lending of Portfolio Securities.
Subject to certain restrictions, the Fund may lend its portfolio
securities to broker-dealers and banks. Any such loan must be
continuously secured by collateral in cash or cash equivalents
maintained on a current basis in an amount at least equal to the
market value of the securities loaned by the Fund. The Fund would
continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and would also
receive an additional return that may be in the form of a fixed
fee or a percentage of the collateral. The Fund would have the
right to call the loan and obtain the securities loaned at any
time on notice of not more than five business days. In the event
of bankruptcy or other default of the borrower, the Fund could
experience both delays in liquidating the loan collateral or
recovering the loaned securities and losses including (a) possible
decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to
enforce its rights thereto; (b) possible subnormal levels of
income and lack of access to income during this period; and (c)
expenses of enforcing its rights. The Fund may participate in an
interfund lending program, subject to certain restrictions
described in the Statement of Additional Information.
When-Issued and Delayed-Delivery Securities; Standby Commitments.
The Fund's assets may include securities purchased on a when-
issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time the
purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. The Fund makes such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
the Adviser deems it advisable for investment reasons. Securities
purchased in this manner involve a risk of loss if the value of
the security purchased declines before the settlement date.
When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that the Fund will
sell securities with a commitment to purchase similar, but not
identical, securities at a future date. Generally, the securities
are repurchased at a price lower than the sales price. Dollar
roll transactions involve the risk of restrictions on the Fund's
ability to repurchase the security if the counterparty becomes
insolvent; an adverse change in the price of the security during
the period of the roll or that the value of the security
repurchased will be less than the security sold; and transaction
costs exceeding the return earned by the Fund on the sales
proceeds of the dollar roll.
The Fund may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Fund binds itself to accept delivery of a security at the
option of the other party to the agreement.
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 Portfolio, to trade in privately placed
securities that have not been registered for sale under the 1933
Act. The Adviser, under the supervision of the Board of Trustees,
will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the restriction of investing no more
than 10% of net assets in illiquid securities. A determination of
whether a Rule 144A security is liquid or not is a question of
fact. In making this determination, the Adviser will consider the
trading markets for the specific security, taking into account the
unregistered nature of a Rule 144A security. In addition, the
Adviser could consider the (1) frequency of trades and quotes, (2)
number of dealers and potential purchasers, (3) dealer
undertakings to make a market, and (4) nature of the security and
of marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of
transfer). The liquidity of Rule 144A securities would be
monitored and if, as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the
Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the
Portfolio does not invest more than 10% of its assets in illiquid
securities. Investing in Rule 144A securities could have the
effect of increasing the amount of assets invested in illiquid
securities if qualified institutional buyers are unwilling to
purchase such securities. The 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.
In seeking to attain its objective, the Fund may sell portfolio
securities without regard to the period of time they have been
held. The turnover rate of the Fund may vary from year to year.
A high rate of portfolio turnover may result in increased
transaction expenses and the realization of capital gains (which
may be taxable) or losses. (See Financial Highlights and
Distributions and Income Taxes.)
___________________________
Investment Restrictions
The Fund is diversified as that term is defined in the Investment
Company Act of 1940.
The Fund may not invest in a security if, as a result of such
investment: (1) with respect to 75% of its assets, more than 5% of
its total assets would be invested in the securities of any one
issuer, except for U.S. Government Securities or repurchase
agreements /1/; for such securities; or (2) 25% or more of its
total assets would be invested in the securities of a group of
issuers in the same industry, except that this restriction does
not apply to U.S. Government Securities. Notwithstanding these
limitations, the Fund may invest all of its assets in another
investment company having the identical investment objective under
a master fund/feeder fund structure.
- ----------
/1/ A repurchase agreement involves a sale of securities to the
Fund with the concurrent agreement of the seller (bank or
securities dealer) to repurchase the securities at the same price
plus an amount equal to an agreed-upon interest rate within a
specified time. In the event of a bankruptcy or other default of
a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses. The
Fund may not invest more than 10% of its net assets in repurchase
agreements maturing in more than seven days and other illiquid
securities.
- ----------
The Fund may not make loans except that it may (1) purchase money
market instruments and enter into repurchase agreements; (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 and Portfolios. The Fund may not borrow money, except
for nonleveraging, temporary, or emergency purposes or in
connection with participation in the interfund lending program.
Neither the Fund's aggregate borrowings (including reverse
repurchase agreements) nor its aggregate loans at any one time may
exceed 33 1/3% of the value of its total assets. Additional
securities may not be purchased when borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The policies set forth in the second and third paragraphs under
Investments Restrictions (but not the footnote) are fundamental
policies of the Fund. The Statement of Additional Information
contains all of the investment restrictions.
___________________________
Risks and Investment Considerations
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although the Fund seeks
to reduce risk by investing in a diversified portfolio, this does
not eliminate all risk. The risks inherent in the Fund depend
primarily upon the term and quality of the obligations in the
und's portfolio, as well as on market conditions.
A decline in prevailing levels of interest rates generally
increases the value of securities in the Fund's portfolio, while
an increase in rates usually reduces the value of those
securities. As a result, interest rate fluctuations will affect
the Fund's net asset value, but not the income received by the
Fund from its portfolio securities. (Because yields on debt
securities available for purchase vary over time, no specific
yield on shares of the Fund can be assured.) In addition, if the
bonds in the Fund's portfolio contain call, prepayment or
redemption provisions, during a period of declining interest
rates, these securities are likely to be redeemed, and the Fund
will probably be unable to replace them with securities having as
great a yield.
The Fund is appropriate for investors who seek high income with
less net asset value fluctuation from interest rate changes than
that of a longer-term fund, and who can accept greater levels of
credit and other risks associated with securities that are rated
below investment grade.
Investments in foreign securities, including ADRs, represent both
risks and opportunities not typically associated with investments
in domestic issuers. Risks of foreign investing include currency
risk, less complete financial information on issuers, different
accounting, auditing and financial reporting standards, different
settlement practices, less market liquidity, more market
volatility, less well-developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by nonresidents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
nonresidents. Foreign investments also tend to involve higher
transaction and custody costs.
The Fund may enter into foreign currency forward contracts and use
options and futures contracts as described elsewhere in this
prospectus to limit or reduce foreign currency risk.
There can be no assurance that the Fund will achieve its
objective, nor can the Fund assure that payments of interest and
principal on portfolio securities will be made when due. If,
after purchase by the Fund, the rating of a portfolio security is
lost or reduced, the Fund would not be required to sell the
security, but the Adviser would consider such a change in deciding
whether to retain the security in the portfolio.
The Fund's investment objective is not fundamental and may be
changed by the Board of Trustees without a vote of shareholders.
If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial
position and needs.
Master Fund/Feeder Fund Option.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with those of other investment companies for investment in
another investment company having the same investment objective
and substantially the same investment policies as the Fund. The
purpose of such arrangement is to achieve greater operational
efficiencies and to reduce costs. It is expected that the assets
of any such investment company would be managed by the Adviser in
substantially the same manner as the Fund. Shareholders of the
Fund will be given at least 30 days' prior notice of any such
investment. Such investment would be made only if the trustees
determine it to be in the best interests of the Fund and its
shareholders.
___________________________
How to Purchase Shares
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund. Each purchase of shares through a
broker-dealer, bank or other Intermediary ("Intermediary") that is
an authorized agent of the Trust for the receipt of orders is made
at the net asset value next determined after receipt of the order
by the Intermediary. An Intermediary, who accepts orders that are
processed at the net asset value next determined after receipt of
the order by the Intermediary, accepts such orders as agent of the
Fund. The Intermediary is required to segregate any orders
received on a business day after the close of regular session
trading on the New York Stock Exchange and transmit those orders
separately for execution at the net asset value next determined
after that business day.
Each purchase order must be accepted by an authorized officer of
the Trust in Chicago and is not binding until accepted and entered
on the books of the Fund. Once your purchase order has been
accepted, you may not cancel or revoke it; however, you may redeem
the shares. The Trust reserves the right not to accept any
purchase order that it determines not to be in the best interests
of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.
___________________________
How to Redeem Shares
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
Exchange Privilege.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
General Redemption Policies.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions. The price at
which your redemption order will be executed is the net asset
value next determined after proper redemption instructions are
received. (See Net Asset Value.) Because the redemption price
you receive depends upon the Fund's net asset value per share at
the time of redemption, it may be more or less than the price you
originally paid for the shares.
___________________________
Net Asset Value
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., central time) by dividing
the difference between the values of the Fund's assets and
liabilities by the number of shares outstanding. Net asset value
will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, the net asset value of the
Fund should be determined on any such day, in which case the
determination will be made at 3:00 p.m., central time.
Securities for which market quotations are readily available at
the time of valuation are valued on that basis. Long-term
straight-debt securities for which market quotations are not
readily available are valued at a fair value based on valuations
provided by pricing services approved by the Board, which may
employ electronic data processing techniques, including a matrix
system, to determine valuations. Short-term debt securities with
remaining maturities of 60 days or less are valued at their
amortized cost, which does not take into account unrealized gains
or losses. The Board believes that the amortized cost represents
fair value for such securities. Short-term debt securities with
remaining maturities of more than 60 days for which market
quotations are not readily available are valued by use of a matrix
prepared by the Adviser based on quotations for comparable
securities. Other assets and securities held by the Fund for
which these valuation methods do not produce a fair value are
valued by a method that the Board believes will determine a fair
value.
___________________________
Distributions and Income Taxes
Distributions.
Income dividends are declared each business day and are paid
monthly. The Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the 12-month period ended Oct. 31 in
that year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital gains
distributions will be reinvested in additional shares of the Fund.
Income Taxes.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
___________________________
Investment Return
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
The yield of the Fund is calculated by dividing its net investment
income per share (a hypothetical figure as defined in the SEC
rules) during a 30-day period by the net asset value per share on
the last day of the period. The yield formula provides for
semiannual compounding, which assumes that net investment income
is earned and reinvested at a constant rate and annualized at the
end of a six-month period.
Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Yield figures are not based on actual dividends paid. Past
performance is not necessarily indicative of future results. To
obtain current yield or total return information, you may call
800-338-2550.
___________________________
Management
Trustees and Investment Adviser.
The Board of Trustees of the Trust and has overall management
responsibility for the Trust and the Fund. See Management in the
Statement of Additional Information for the names of and other
information about the trustees and officers. The Adviser, Stein
Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
Illinois 60606, is responsible for managing the investment
portfolio and the business affairs of the Fund and the Trust,
subject to the direction of the Board. The Adviser is registered
as an investment adviser under the Investment Advisers Act of
1940. The Adviser and its predecessor have advised and managed
mutual funds since 1949. The Adviser is a wholly owned indirect
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which in turn is a majority owned indirect subsidiary
of Liberty Mutual Insurance Company.
Portfolio Manager.
Michael T. Kennedy has been portfolio manager of the Fund since
1988. He is a vice-president of the Trust, a senior vice
president of the Adviser, and has been associated with the Adviser
since 1987. From 1984 to 1987, he was employed by Homewood
Federal Savings and Loan. A chartered financial analyst and a
chartered investment counselor, he received his B.S. degree from
Marquette University (1984) and his M.M. from Northwestern
University (1988). Mr. Kennedy is a member of the Adviser's
Taxable Strategy Team and managed $440 million in mutual fund
net assets for the Adviser as of June 30, 1997.
Fees and Expenses.
The Adviser provides investment advisory and administrative
services to the Fund under separate management and administrative
agreements. The Adviser is entitled to receive from the Fund a
management fee at an annual rate of .350% of average net assets
and an administrative fee of .150%, for a total fee of .500%.
Such fees are computed and accrued daily and paid monthly. For
the fiscal year ended June 30, 1997, the management and
administrative fee amounted to 0.50% of average net assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of net asset value and calculation of net income and
capital gains and losses on disposition of assets.
Portfolio Transactions.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts. In doing
so, the Adviser seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors.
Transfer Agent.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty Financial, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
Distributor.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned indirect subsidiary of Liberty
Financial. The business address of the Distributor is 100
Manhattanville Road, Purchase, New York 10577; 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 the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)
___________________________
Organization and Description of Shares
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
Jan. 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, four series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers shall have
no personal liability therefor. The Declaration of Trust requires
that notice of such disclaimer of liability be given in each
contract, instrument or undertaking executed or made on behalf of
the Trust. The Declaration of Trust provides for indemnification
of any shareholder against any loss and expense arising from
personal liability solely by reason of being or having been a
shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is believed to be remote,
because it would be limited to circumstances in which the
disclaimer was inoperative and the Trust was unable to meet its
obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust
also is believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to circumstances
in which the other series was unable to meet its obligations.
___________________________
For More Information
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
____________________________
<PAGE>
Statement of Additional Information Dated Nov. 1, 1997
STEIN ROE INCOME TRUST
MONEY MARKET FUND
STEIN ROE CASH RESERVES FUND
BOND FUNDS
STEIN ROE INTERMEDIATE BOND FUND
STEIN ROE INCOME FUND
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 Money Market Funds Prospectus and the Bond
Funds Prospectus dated Nov. 1, 1997 and any supplements thereto.
A Prospectus may be obtained at no charge by telephoning 800-338-
2550.
TABLE OF CONTENTS
Page
General Information and History.........................2
Investment Policies.....................................3
Cash Reserves........................................3
Intermediate Bond Fund...............................6
Income Fund..........................................7
High Yield Fund......................................8
Portfolio Investments and Strategies....................9
Investment Restrictions................................27
Additional Investment Considerations...................30
Purchases and Redemptions..............................31
Management.............................................32
Financial Statements...................................35
Principal Shareholders.................................35
Investment Advisory Services...........................36
Distributor............................................39
Transfer Agent.........................................39
Custodian..............................................39
Independent Auditors...................................40
Portfolio Transactions.................................40
Additional Income Tax Considerations...................43
Additional Information on the Determination of Net
Asset Value of the Money Market Funds...............43
Investment Performance.................................44
Appendix--Ratings......................................51
GENERAL INFORMATION AND HISTORY
Stein Roe Cash Reserves Fund, Stein Roe Intermediate Bond
Fund, Stein Roe Income Fund, and Stein Roe High Yield Fund are
series of the Stein Roe Income Trust ("Income Trust"). Each
series of Income Trust other than Stein Roe High Yield Fund ("High
Yield Fund") invests in a separate portfolio of securities and
other assets, with its own objectives and policies. High Yield
Fund invests all of its net investable assets in SR&F High Yield
Portfolio ("High Yield Portfolio"), which is a series of SR&F Base
Trust ("Base Trust"). High Yield Fund and High Yield Portfolio
have identical investment objectives and substantially identical
investment policies.
As used herein, "Cash Reserves" refers to the series of
Income Trust designated Stein Roe Cash Reserves Fund,
"Intermediate Bond Fund" refers to the series of the Trust
designated Stein Roe Intermediate Bond Fund, and "Income Fund"
refers to the series of the Trust designated Stein Roe Income
Fund. The term "Money Market Fund" refers to Cash Reserves, and
the term "Bond Funds" refers to Intermediate Bond Fund, Income
Fund, High Yield Fund, and High Yield Portfolio. The series of
Income Trust are referred to collectively as "the Funds." On Nov.
1, 1995, the name of Income Trust and each of its series was
changed to separate "SteinRoe" into two words.
Currently four series of Income Trust are authorized and
outstanding. Each share of a series, without par value, is
entitled to participate pro rata in any dividends and other
distributions declared by the Board on shares of that series, and
all shares of a series have equal rights in the event of
liquidation of that series. Each whole share (or fractional
share) outstanding on the record date established in accordance
with the By-Laws shall be entitled to a number of votes on any
matter on which it is entitled to vote equal to the net asset
value of the share (or fractional share) in United States dollars
determined at the close of business on the record date (for
example, a share having a net asset value of $10.50 would be
entitled to 10.5 votes). As a business trust, 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 its 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 the
Funds and High Yield Portfolio and provides investment advisory
services to Cash Reserves, Intermediate Bond Fund, Income Fund,
and High Yield Portfolio.
Special Considerations Regarding Master Fund/Feeder Fund Structure
Rather than invest in securities directly, each Fund may seek
to achieve its objective by pooling its assets with those of other
investment companies for investment in another mutual fund having
the same investment objective and substantially the same
investment policies as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The Adviser is expected to manage any such mutual
fund in which a Fund would invest. Such investment would be
subject to determination by the Trustees that it was in the best
interests of the Fund and its shareholders, and shareholders would
receive advance notice of any such change. The only Fund
currently operating under the Master Fund/Feeder Fund structure is
High Yield Fund, which commenced operations on Nov. 1, 1996, as a
feeder fund. For more information, please refer to the Bond Funds
Prospectus under the caption Master Fund/Feeder Fund: Structure
and Risk Factors.
INVESTMENT POLICIES
The following information supplements the discussion of the
investment objectives and policies described in the Prospectuses.
In pursuing its objective, each Fund will invest as described
below and may employ the investment techniques described in its
Prospectus and elsewhere in this Statement of Additional
Information. Investments and strategies that are common to two or
more Funds are described under Portfolio Investments and
Strategies. The investment objective of each Fund and High Yield
Portfolio is a non-fundamental policy and may be changed by the
Board of Trustees without the approval of a "majority of the
outstanding voting securities" /1/ of that Fund or Portfolio.
- --------------
/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.
- --------------
Cash Reserves
This Fund seeks to obtain maximum current income consistent
with the preservation of capital and the maintenance of liquidity
by investing all of its assets in U.S. dollar-denominated money
market instruments maturing in thirteen months or less from time
of investment. Each security must be rated (or be issued by an
issuer that is rated with respect to its short-term debt) within
the highest rating category for short-term debt by at least two
nationally recognized statistical rating organizations ("NRSRO")
(or, if rated by only one NRSRO, by that rating agency) or, if
unrated, determined by or under the direction of the Board of
Trustees to be of comparable quality. These securities may
include:
(1) Securities issued or guaranteed by the U.S. Government or by
its agencies or instrumentalities ("U.S. Government
Securities");
(2) Securities issued or guaranteed by the government of any
foreign country that are rated at time of purchase A or better
(or equivalent rating) by at least one NRSRO;
(3) Certificates of deposit, bankers' acceptances and time
deposits of any bank (U.S. or foreign) having total assets in
excess of $1 billion, or the equivalent in other currencies
(as of the date of the most recent available financial
statements) or of any branches, agencies or subsidiaries (U.S.
or foreign) of any such bank;
(4) Commercial paper of U.S. or foreign issuers;
(5) Notes, bonds, and debentures rated at time of purchase A or
better (or equivalent rating) by at least one NRSRO;
(6) Repurchase agreements /2/ involving securities listed in (1)
above;
(7) Other high-quality short-term debt obligations.
- ----------
/2/ A repurchase agreement involves the sale of securities to the
Fund, with the concurrent agreement of the seller to repurchase
the securities at the same price plus an amount equal to an
agreed-upon interest rate, within a specified time. In the event
of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating
the underlying securities and losses.
- ----------
The Fund will maintain a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining a stable net
asset value per share and not in excess of 90 days. It is a
fundamental policy which may not be changed without the approval
of a majority of the outstanding voting securities, that the
maturity of any instrument that grants the holder the right to
redeem at par plus interest and without penalty will be deemed at
any time to be the next date provided for payment on exercise of
such optional redemption right.
It is the Fund's intention, as a general policy, to hold
securities to maturity. However, the Fund may attempt, from time
to time, to increase its yield by trading to take advantage of
variations in the markets for short-term money market instruments.
In addition, redemptions of the Fund's shares could necessitate
the sale of portfolio securities and these sales may occur when
such sales would not otherwise be desirable. While the Fund seeks
to invest in high-quality money market instruments, these
investments are not entirely without risk. An increase in
interest rates will generally reduce the market value of the
Fund's portfolio investments and a decline in interest rates will
generally increase the market value of the Fund's portfolio
investments. Investments in instruments other than U.S.
Government Securities are also subject to default by the issuer.
Because the Fund's investment policy permits it to invest in:
securities of foreign branches of U.S. banks (Eurodollars), U.S.
branches of foreign banks (Yankee dollars), and foreign banks and
their foreign branches, such as negotiable certificates of
deposit; securities of foreign governments; and securities of
foreign issuers, such as commercial paper and corporate notes,
bonds and debentures, investment in that Fund might involve risks
that are different in some respects from an investment in a fund
that invests only in debt obligations of U.S. domestic issuers.
Such risks may include future political and economic developments,
the possible imposition of foreign withholding taxes on interest
income payable on securities held in the portfolio, possible
seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other
foreign governmental restrictions that might adversely affect the
payment of principal and interest on securities in the Fund's
portfolio. Additionally, there may be less public information
available about foreign banks and their branches. Foreign banks
and foreign branches of foreign banks are not regulated by U.S.
banking authorities, and generally are not bound by accounting,
auditing, and financial reporting standards comparable to U.S.
banks.
The Fund may invest in notes and bonds that bear floating or
variable rates of interest, and that ordinarily have stated
maturities in excess of thirteen months, but permit the holder to
demand earlier payment of principal and accrued interest, upon not
more than 30 days' advance notice, at any time or after stated
intervals not exceeding thirteen months. Such instruments are
commonly referred to as "demand" obligations. Variable rate
demand notes include master demand notes, which are obligations
that permit the Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements
between the Fund, as lender, and the borrower. The interest rates
on these notes fluctuate from time to time. The issuer of such
obligations normally has a right, after a given period, to prepay
the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's
prime rate, and is adjusted automatically each time the rate
changes. The interest rate on a variable rate obligation is
adjusted automatically at the end of specified intervals.
Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because
these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments
will generally be traded, and there generally is no established
secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand.
Such obligations frequently are not rated by credit rating
agencies and the Fund may invest in obligations that are not so
rated only if the Board of Trustees determines that the
obligations are of comparable quality to the other obligations in
which the Fund may invest.
The Fund may purchase from financial institutions
participation interests in securities. A participation interest
gives the Fund an undivided interest in the security in the
proportion that the Fund's participation interest bears to the
total principal amount of the security. The Fund may also
purchase certificates of participation, such as participations in
a pool of mortgages or credit card receivables. Participation
interests and certificates of participation both may have fixed,
floating or variable rates of interest with remaining maturities
of one year or less. If these instruments are unrated, or have
been given a rating below that which is permissible for purchase
by the Fund, they will be backed by an irrevocable letter of
credit or guarantee of a bank, or the payment obligation otherwise
will be collateralized by U.S. Government Securities, or, in the
case of unrated participation interests, the Board of Trustees
must have determined that the instrument is of comparable quality
to those instruments in which the Fund may invest.
Under normal market conditions, the Fund will invest at least
25% of its assets in securities of issuers in the financial
services industry. This policy may cause the Fund to be more
adversely affected by changes in market or economic conditions and
other circumstances affecting the financial services industry.
The financial services industry includes issuers that, according
to the Directory of Companies Required to File Annual Reports with
the Securities and Exchange Commission, are in the following
categories: State banks; national banks; savings and loan holding
companies; personal credit institutions; business credit
institutions; mortgage-backed securities; financial services;
security and commodity brokers, dealers and services; life,
accident and health insurance carriers; fire, marine, casualty and
surety insurance carriers; insurance agents, brokers and services.
Intermediate Bond Fund
This Fund's investment objective is to provide a high level
of current income, consistent with the preservation of capital, by
investing primarily in marketable debt securities. Under normal
market conditions, the Fund will invest at least 65% of the value
of its total assets (taken at market value at the time of
investment) in convertible and non-convertible bonds and
debentures, and at least 60% of its assets will be invested in the
following:
(1) Marketable straight-debt securities of domestic issuers, and
of foreign issuers payable in U.S. dollars, rated at time of
purchase within the three highest grades assigned by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, or A) or by
Standard & Poor's Corporation ("S&P") (AAA, AA, or A);
(2) U.S. Government Securities;
(3) Commercial paper rated Prime-1 by Moody's or A-1 by S&P at
time of purchase, or, if unrated, issued or guaranteed by a
corporation with any outstanding debt rated Aa or better by
Moody's or AA or better by S&P; and
(4) Bank obligations, including repurchase agreements, of banks
having total assets in excess of $1 billion.
Under normal market conditions, the Fund invests at least 65%
of its assets in securities with an average life of between three
and ten years, and expects that the dollar-weighted average life
of its portfolio will be between three and ten years. Average
life is the weighted average period over which the Adviser expects
the principal to be paid, and differs from stated maturity in that
it estimates the effect of expected principal prepayments and call
provisions. With respect to GNMA securities and other mortgage-
backed securities, average life is likely to be substantially less
than the stated maturity of the mortgages in the underlying pools.
With respect to obligations with call provisions, average life is
typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an average life equal to their
stated maturity. During periods of rising interest rates, the
average life of mortgage-backed securities and callable
obligations may increase substantially because they are not likely
to be prepaid, which may result in greater net asset value
fluctuation.
The Fund also may invest in other debt securities (including
those convertible into, or carrying warrants to purchase, common
stocks or other equity interests, and privately placed debt
securities); preferred stocks (including those convertible into,
or carrying warrants to purchase, common stocks or other equity
interests); and marketable common stocks that the Adviser
considers likely to yield relatively high income in relation to
cost.
The Fund may invest up to 35% of its total assets in debt
securities that are rated below investment grade (with no minimum
permitted rating) and that, on balance, are considered
predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal according to the terms of the
obligation and, therefore, carry greater investment risk,
including the possibility of issuer default and bankruptcy. (See
Portfolio Investments and Strategies for more information on the
risks associated with investing in debt securities rated below
investment grade.)
Income Fund
Income Fund attempts to achieve its objective by investing
principally in medium-quality debt securities, which are
obligations of issuers that the Adviser believes possess adequate,
but not outstanding, capacities to service their debt securities,
such as securities rated A or Baa by Moody's or A or BBB by S&P.
The Adviser generally attributes to medium-quality securities the
same characteristics as do rating services.
Although Income Fund will invest at least 60% of its assets
in medium- or higher-quality debt securities, it may also invest
to a lesser extent in debt securities of lower quality (in the
case of rated securities, having a rating by Moody's or S&P of not
less than C). Although the Fund can invest up to 40% of its
assets in lower-quality securities, it does not intend to invest
more than 35% in lower-quality securities. Lower-quality debt
securities are obligations of issuers that are predominantly
speculative with respect to the issuer's capacity to pay interest
and repay principal. Income Fund may invest in lower-quality debt
securities; for example, if the Adviser believes the financial
condition of the issuers or the protection offered to the
particular obligations is stronger than is indicated by low
ratings or otherwise. (See Portfolio Investments and Strategies
for more information on the risks associated with investing in
debt securities rated below investment grade.) Income Fund may
invest in higher-quality securities; for example, under
extraordinary economic or financial market conditions, or when the
spreads between the yields on medium- and high-quality securities
are relatively narrow.
Some issuers of debt securities choose not to have their
securities rated by a rating service, and Income Fund may invest
in unrated securities that the Adviser believes are suitable for
investment.
Under normal market conditions, Income Fund will invest at
least 65% of the value of its total assets (taken at market value)
in convertible and non-convertible bonds and debentures. Such
securities may be accompanied by the right to acquire equity
securities evidenced by warrants attached to the security or
acquired as part of a unit with the security. Equity securities
acquired by conversion or exercise of such a right may be retained
by Income Fund for a sufficient time to permit orderly disposition
thereof or to establish long-term holding periods for federal
income tax purposes.
Income Fund may invest up to 35% of its total assets in other
debt securities, marketable preferred and common stocks, and
foreign and municipal securities that the Adviser considers likely
to yield relatively high income in relation to costs, and rights
to acquire such securities. (Municipal securities are securities
issued by or on behalf of state and local governments, the
interest on which is generally exempt from federal income tax.)
Any assets not otherwise invested may be invested in money market
instruments.
High Yield Fund
High Yield Fund seeks to achieve its objective by investing
all of its assets in High Yield Portfolio. The investment
objective of High Yield Portfolio is identical to that 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 lower than Baa by
Moody's and lower than BBB by S&P, or equivalent ratings as
determined by other rating agencies or unrated securities that the
Adviser determines to be of comparable quality. Medium-quality
debt securities, although considered investment grade, have some
speculative characteristics. Lower-quality debt securities are
obligations of issuers that are considered predominantly
speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation and,
therefore, carry greater investment risk, including the
possibility of issuer default and bankruptcy, and are commonly
referred to as "junk bonds." Some issuers of debt securities
choose not to have their securities rated by a rating service, and
High Yield Portfolio may invest in unrated securities that the
Adviser has researched and 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 assets. (See Portfolio Investments and
Strategies for more information on the risks associated with
investing in debt securities rated below investment grade.)
High Yield Portfolio may invest up to 35% of its total assets
in other securities including, but not limited to, pay-in-kind
bonds, securities issued in private placements, bank loans, zero
coupon bonds, foreign securities, convertible securities, futures,
and options. 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.
PORTFOLIO INVESTMENTS AND STRATEGIES
Unless otherwise noted, for purposes of discussion under
Portfolio Investments and Strategies, the term "Fund" refers to
Cash Reserves, Intermediate Bond Fund, Income Fund, High Yield
Fund, and High Yield Portfolio.
Derivatives
Consistent with its objective, each Bond Fund may invest in a
broad array of financial instruments and securities, including
conventional exchange-traded and non-exchange traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, and other
instruments the value of which is "derived" from the performance
of an underlying asset or a "benchmark" such as a security index,
an interest rate, or a currency ("Derivatives").
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because it is more
efficient or less costly than direct investment that cannot be
readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and directions
of movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives.
High Yield Portfolio does not currently intend to invest more
than 5% of its net assets in any types of Derivatives except
options, futures contracts, and futures options. Income Fund does
not currently intend to invest, nor has the Fund during its past
fiscal year invested, more than 5% of its net assets in any type
of Derivative, except options, futures contracts, and futures
options. Intermediate Bond Fund does not currently intend to
invest, nor has it during its past fiscal year invested, more than
5% of its net assets in any type of Derivative except options,
futures contracts, futures options and obligations collateralized
by either mortgages or other assets. (See Mortgage and Other
Asset-Backed Securities, Variable and Floating Rate Instruments,
and Options and Futures below.)
Medium- and Lower-Quality Debt Securities
Each Bond Fund may invest in medium- and lower-quality debt
securities. 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 bond of
comparable quality.
Investment in medium- or lower-quality debt securities
involves greater investment risk, including the possibility of
issuer default or bankruptcy. A Fund seeks to reduce investment
risk through diversification, credit analysis, and evaluation of
developments in both the economy and financial markets.
An economic downturn could severely disrupt the high-yield
market and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest. In
addition, lower-quality bonds are less sensitive to interest rate
changes than higher-quality instruments and generally are more
sensitive to adverse economic changes or individual corporate
developments. During a period of adverse economic changes,
including a period of rising interest rates, issuers of such bonds
may experience difficulty in servicing their principal and
interest payment obligations.
Lower-quality debt securities are obligations of issuers that
are considered predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal according to
the terms of the obligation and, therefore, carry greater
investment risk, including the possibility of issuer default and
bankruptcy, and are commonly referred to as "junk bonds." The
lowest rating assigned by Moody's is for bonds that can be
regarded as having extremely poor prospects of ever attaining any
real investment standing.
Achievement of the investment objective will be more
dependent on the Adviser's credit analysis than would be the case
if a Fund were investing in higher-quality debt securities. Since
the ratings of rating services (which evaluate the safety of
principal and interest payments, not market risks) are used only
as preliminary indicators of investment quality, the Adviser
employs its own credit research and analysis, from which it has
developed a 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 a Fund 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.
Mortgage and Other Asset-Backed Securities
Each Bond Fund may invest in securities secured by mortgages
or other assets such as automobile or home improvement loans and
credit card receivables. These instruments may be issued or
guaranteed by the U.S. Government or by its agencies or
instrumentalities or by private entities such as commercial,
mortgage and investment banks and financial companies or financial
subsidiaries of industrial companies.
Mortgage-backed securities provide either a pro rata interest
in underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") which represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities, and are usually issued in multiple classes each
of which has different payment rights, prepayment risks and yield
characteristics. Mortgage-backed securities involve the risk of
prepayment on the underlying mortgages at a faster or slower rate
than the established schedule. Prepayments generally increase
with falling interest rates and decrease with rising rates but
they also are influenced by economic, social and market factors.
If mortgages are prepaid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of
any premium paid by the Fund on purchase of the CMO, and the
proceeds of prepayment would likely be invested at lower interest
rates. The Funds tend to invest in CMOs of classes known as
planned amortization classes ("PACs") which have prepayment
protection features tending to make them less susceptible to price
volatility.
Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to support payments on
the underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.
REMICs
Each Bond Fund may invest in real estate mortgage investment
conduits ("REMICs"). REMICs, which were authorized under the Tax
Reform Act of 1986, are private entities formed for the purpose of
holding a fixed pool of mortgages secured by an interest in real
property. REMICs are similar to CMOs in that they issue multiple
classes of securities. A REMIC is a CMO that qualifies for
special tax treatment under the Internal Revenue Code and invests
in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs,
which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by FNMA or FHLMC represent beneficial ownership interests
in a REMIC trust consisting principally of mortgage loans or FNMA-
, FHLMC- or GNMA-guaranteed mortgage pass-through certificates.
For FHLMC REMIC Certificates, FHLMC guarantees the timely payment
of interest and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage
participation certificates. FNMA REMIC Certificates are issued and
guaranteed as to timely distribution and principal and interest by
FNMA.
Variable and Floating Rate Instruments
Each Bond Fund may also invest in floating rate instruments
which provide for periodic adjustments in coupon interest rates
that are automatically reset based on changes in amount and
direction of specified market interest rates. In addition, the
adjusted duration of some of these instruments may be materially
shorter than their stated maturities. To the extent such
instruments are subject to lifetime or periodic interest rate caps
or floors, such instruments may experience greater price
volatility than debt instruments without such features. Adjusted
duration is an inverse relationship between market price and
interest rates and refers to the approximate percentage change in
price for a 100 basis point change in yield. For example, if
interest rates decrease by 100 basis points, a market price of a
security with an adjusted duration of 2 would increase by
approximately 2%. Neither Income Fund nor High Yield Portfolio
intends to invest more than 5% of its net assets in floating rate
instruments. Intermediate Bond Fund does not intend to invest
more than 10% of its net assets in floating rate instruments.
In accordance with its investment objective and policies,
Cash Reserves may invest in variable and floating rate money
market instruments which provide for periodic or automatic
adjustments in coupon interest rates that are reset based on
changes in amount and direction of specified short-term interest
rates. Cash Reserves will not invest in a variable or floating
rate instrument unless the Adviser determines that as of any reset
date the market value of the instrument can reasonably be expected
to approximate its par value.
Lending of Portfolio Securities
Subject to restriction (7) under Investment Restrictions,
each Bond Fund may lend its portfolio securities to broker-dealers
and banks. Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a current
basis in an amount at least equal to the market value of the
securities loaned by a Fund. The Fund would continue to receive
the equivalent of the interest or dividends paid by the issuer on
the securities loaned, and would also receive an additional return
that may be in the form of a fixed fee or a percentage of the
collateral. The Fund would have the right to call the loan and
obtain the securities loaned at any time on notice of not more
than five business days. In the event of bankruptcy or other
default of the borrower, the Fund could experience both delays in
liquidating the loan collateral or recovering the loaned
securities and losses including (a) possible decline in the value
of the collateral or in the value of the securities loaned during
the period while the Fund seeks to enforce its rights thereto, (b)
possible subnormal levels of income and lack of access to income
during this period, and (c) expenses of enforcing its rights.
None of the Bond Funds has loaned portfolio securities during
its last fiscal year, nor does it intend to loan more than 5% of
its net assets.
Repurchase Agreements
Each Fund may invest in repurchase agreements, provided that
it will not invest more than 10% of net assets in repurchase
agreements maturing in more than seven days and any other illiquid
securities. A repurchase agreement is a sale of securities to a
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, a Fund could experience both losses and
delays in liquidating its collateral.
When-Issued and Delayed-Delivery Securities; Reverse Repurchase
Agreements; Standby Commitments
Cash Reserves may purchase instruments on a when-issued or
delayed-delivery basis. Although the payment terms are
established at the time the Fund enters into the commitment, the
instruments may be delivered and paid for some time after the date
of purchase, when their value may have changed and the yields
available in the market may be greater. The Fund will make such
commitments only with the intention of actually acquiring the
instruments, but may sell them before settlement date if it is
deemed advisable for investment reasons. Securities purchased in
this manner involve risk of loss if the value of the security
purchased declines before settlement date.
Each of the Bond Funds may purchase securities on a when-
issued or delayed-delivery basis, as described in its Prospectus.
A Bond Fund makes such commitments only with the intention of
actually acquiring the securities, but may sell the securities
before settlement date if the Adviser deems it advisable for
investment reasons. Securities purchased on a when-issued or
delayed-delivery basis are sometimes done on a "dollar roll"
basis. Dollar roll transactions consist of the sale by a Fund of
securities with a commitment to purchase similar but not identical
securities, generally at a lower price at a future date. A dollar
roll may be renewed after cash settlement and initially may
involve only a firm commitment agreement by a Fund to buy a
security. A dollar roll transaction involves the following risks:
if the broker-dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security
may be restricted; the value of the security may change adversely
over the term of the dollar roll; the security which a Fund is
required to repurchase may be worth less than a security which the
Fund originally held; and the return earned by a Fund with the
proceeds of a dollar roll may not exceed transaction costs.
Each of the Bond Funds may enter into reverse repurchase
agreements with banks and securities dealers. A reverse
repurchase agreement is a repurchase agreement in which the Fund
is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use
of a reverse repurchase agreement may be preferable to a regular
sale and later repurchase of securities because it avoids certain
market risks and transaction costs.
At the time a Fund enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S. Government
or other "high grade" debt obligations) of the Fund having a value
at least as great as the purchase price of the securities to be
purchased will be segregated on the books of the Fund and held by
the custodian throughout the period of the obligation. The use of
these investment strategies, as well as borrowing under a line of
credit as described below, may increase net asset value
fluctuation.
Standby commitment agreements create an additional risk for
each Fund because the other party to the standby agreement
generally will not be obligated to deliver the security, but the
Fund will be obligated to accept it if delivered. Depending on
market conditions, the Fund may receive a commitment fee for
assuming this obligation. If prevailing market interest rates
increase during the period between the date of the agreement and
the settlement date, the other party can be expected to deliver
the security and, in effect, pass any decline in value to the
Fund. If the value of the security increases after the agreement
is made, however, the other party is unlikely to deliver the
security. In other words, a decrease in the value of the
securities to be purchased under the terms of a standby commitment
agreement will likely result in the delivery of the security, and,
therefore, such decrease will be reflected in the Fund's net asset
value. However, any increase in the value of the securities to be
purchased will likely result in the non-delivery of the security
and, therefore, such increase will not affect the net asset value
unless and until the Fund actually obtains the security.
Short Sales Against the Box
Each 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. A 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, a 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 with its custodian an equivalent amount of the
securities sold short or securities convertible into or
exchangeable for such securities at no additional cost. A Fund is
said to have a short position in the securities sold until it
delivers to the broker-dealer the securities sold. A 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 a 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 a 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 a Fund is able to enter into
short sales. There is no limitation on the amount of each 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. No Fund currently expects that 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,
each Fund may establish and maintain a line of credit with a major
bank in order to permit borrowing on a temporary basis to meet
share redemption requests in circumstances in which temporary
borrowing may be preferable to liquidation of portfolio
securities.
Interfund Borrowing and Lending Program
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the Funds have received permission to lend
money to, and borrow money from, other mutual funds advised by the
Adviser. A Fund will borrow through the program when borrowing is
necessary and appropriate and the costs are equal to or lower than
the costs of bank loans.
PIK and Zero Coupon Bonds
Each Bond Fund may invest in both zero coupon bonds and bonds
the interest on which is payable in kind ("PIK bonds"). A zero
coupon bond is a bond that does not pay interest for its entire
life. A PIK bond pays interest in the form of additional
securities. The market prices of both zero coupon and PIK bonds
are affected to a greater extent by changes in prevailing levels
of interest rates and thereby tend to be more volatile in price
than securities that pay interest periodically and in cash. In
addition, because a Fund accrues income with respect to these
securities prior to the receipt of such interest in cash, it may
have to dispose of portfolio securities under disadvantageous
circumstances in order to obtain cash needed to pay income
dividends in amounts necessary to avoid unfavorable tax
consequences. High Yield Portfolio may invest up to 20% of its
total assets in PIK and zero coupon bonds.
Rated Securities
For a description of the ratings applied by Moody's and S&P
(two of the approved NRSROs) to debt securities, please refer to
the Appendix. The rated debt securities described under
Investment Policies above for each Fund include securities given a
rating conditionally by Moody's or provisionally by S&P. If the
rating of a security held by a Fund is withdrawn or reduced, the
Fund is not required to sell the security, but the Adviser will
consider such fact in determining whether that Fund should
continue to hold the security. To the extent that the ratings
accorded by a NRSRO for debt securities may change as a result of
changes in such organizations, or changes in their rating systems,
each Fund will attempt to use comparable ratings as standards for
its investments in debt securities in accordance with its
investment policies.
Foreign Securities
Each Bond Fund may invest up to 25% of total assets (taken at
market value at the time of investment) in securities of foreign
issuers that are not publicly traded in the United States
("foreign securities"). For purposes of these limits, foreign
securities do not include securities represented by American
Depositary Receipts ("ADRs"), securities denominated in U.S.
dollars, or securities guaranteed by U.S. persons. Investment in
foreign securities may involve a greater degree of risk (including
risks relating to exchange fluctuations, tax provisions, or
expropriation of assets) than does investment in securities of
domestic issuers.
Such Funds may invest in both "sponsored" and "unsponsored"
ADRs. In a sponsored ADR, the issuer typically pays some or all
of the expenses of the depositary and agrees to provide its
regular shareholder communications to ADR holders. An unsponsored
ADR is created independently of the issuer of the underlying
security. The ADR holders generally pay the expenses of the
depositary and do not have an undertaking from the issuer of the
underlying security to furnish shareholder communications. No
Fund expects to invest as much as 5% of its total assets in
unsponsored ADRs.
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, the Funds'
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely,
if the dollar rises in value relative to the yen, the dollar value
of the yen-denominated stock will fall. (See discussion of
transaction hedging and portfolio hedging under Currency Exchange
Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions which are generally denominated in foreign currencies,
and utilization of forward foreign currency exchange contracts
involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements.
Although the Funds will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at
a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
The Funds' 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 a 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. A Fund may not engage
in portfolio hedging with respect to the currency of a particular
country to an extent greater than the aggregate market value (at
the time of making such sale) of the securities held in its
portfolio denominated or quoted in that particular currency,
except that a Fund may hedge all or part of its foreign currency
exposure through the use of a basket of currencies or a proxy
currency where such currencies or currency act as an effective
proxy for other currencies. In such a case, a Fund may enter into
a forward contract where the amount of the foreign currency to be
sold exceeds the value of the securities denominated in such
currency. The use of this basket hedging technique may be more
efficient and economical than entering into separate forward
contracts for each currency held in a Fund. No Fund may engage in
"speculative" currency exchange transactions.
At the maturity of a forward contract to deliver a particular
currency, a Fund may either sell the portfolio security related to
such contract and make delivery of the currency, or it may retain
the security and either acquire the currency on the spot market or
terminate its contractual obligation to deliver the currency by
purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same
amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for a Fund to
purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery
of the currency. Conversely, it may be necessary to sell on the
spot market some of the currency received upon the sale of the
portfolio security if its market value exceeds the amount of
currency the Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If a Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between
a Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward
prices increase, a Fund will suffer a loss to the extent the price
of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell. A default on the contract would
deprive a Fund of unrealized profits or force the Fund to cover
its commitments for purchase or sale of currency, if any, at the
current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to a Fund of engaging in currency exchange
transactions varies with such factors as the currency involved,
the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually
conducted on a principal basis, no fees or commissions are
involved.
Synthetic Foreign Positions. The Funds may invest in debt
instruments denominated in foreign currencies. In addition to, or
in lieu of, such direct investment, a Fund may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars, and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. The
results of a direct investment in a foreign currency and a
concurrent construction of a synthetic position in such foreign
currency, in terms of both income yield and gain or loss from
changes in currency exchange rates, in general should be similar,
but would not be identical because the components of the
alternative investments would not be identical.
The Funds may also construct a synthetic foreign position by
entering into a swap arrangement. A swap is a contractual
agreement between two parties to exchange cash flows--at the time
of the swap agreement and again at maturity, and, with some swaps,
at various intervals through the period of the agreement. The use
of swaps to construct a synthetic foreign position would generally
entail the swap of interest rates and currencies. A currency swap
is a contractual arrangement between two parties to exchange
principal amounts in different currencies at a predetermined
foreign exchange rate. An interest rate swap is a contractual
agreement between two parties to exchange interest payments on
identical principal amounts. An interest rate swap may be between
a floating and a fixed rate instrument, a domestic and a foreign
instrument, or any other type of cash flow exchange. A currency
swap generally has the same risk characteristics as a forward
currency contract, and all types of swaps have counter-party risk.
Depending on the facts and circumstances, swaps may be considered
illiquid. Illiquid securities usually have greater investment
risk and are subject to greater price volatility. The net amount
of the excess, if any, of a Fund's obligations over which it is
entitled to receive with respect to an interest rate or currency
swap will be accrued daily and liquid assets (cash, U.S.
Government securities, or other "high grade" debt obligations) of
the Fund having a value at least equal to such accrued excess will
be segregated on the books of the Fund and held by the Custodian
for the duration of the swap.
The Funds may also construct a synthetic foreign position by
purchasing an instrument whose return is tied to the return of the
desired foreign position. An investment in these "principal
exchange rate linked securities" (often called PERLS) can produce
a similar return to a direct investment in a foreign security.
Rule 144A Securities
Each Bond 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 Funds, to trade in privately
placed securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Funds' 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, a 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 a Fund's assets
invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities. No Bond Fund expects
to invest as much as 5% of its total assets in Rule 144A
securities that have not been deemed to be liquid by the Adviser.
Portfolio Turnover
For information on the portfolio turnover rate of a Fund, see
Financial Highlights in its Prospectus. General portfolio
turnover information is also contained in the Prospectuses under
Risks and Investment Considerations.
The portfolio turnover rates of Intermediate Bond Fund and
Income Fund have been greater than 100% in recent fiscal years
because of increased volatility in the financial markets and the
Adviser's techniques for reacting to changes in the markets to
shift exposures to certain sectors and to capture gains. The
turnover rate for each of the Funds in the future may vary greatly
from year to year, and when portfolio changes are deemed
appropriate due to market or other conditions, such turnover rate
may be greater than might otherwise be anticipated. A high rate
of portfolio turnover may result in increased transaction expenses
and the realization of capital gains or losses. Distributions of
any net realized gains are subject to federal income tax. (See
Financial Highlights, Risks and Investment Considerations, and
Distributions and Income Taxes in the Prospectuses, and Additional
Income Tax Considerations in this Statement of Additional
Information.)
Options on Securities and Indexes
Each Bond Fund may purchase and may sell both put options and
call options on debt or other securities or indexes in
standardized contracts traded on national securities exchanges,
boards of trade, or similar entities, or quoted on Nasdaq, and
agreements, sometimes called cash puts, that may accompany the
purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives
the purchaser (holder) of the option, in return for a premium, the
right to buy from (call) or sell to (put) the seller (writer) of
the option the security underlying the option (or the cash value
of the index) at a specified exercise price at any time during the
term of the option. The writer of an option on an individual
security has the obligation upon exercise of the option to deliver
the underlying security upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security.
Upon exercise, the writer of an option on an index is obligated to
pay the difference between the cash value of the index and the
exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect specified facets
of a particular financial or securities market, a specific group
of financial instruments or securities, or certain economic
indicators.)
A Bond Fund will write call options and put options only if
they are "covered." In the case of a call option on a security,
the option is "covered" if the Fund owns the security underlying
the call or has an absolute and immediate right to acquire that
security without additional cash consideration (or, if additional
cash consideration is required, cash or cash equivalents in such
amount are held in a segregated account by its custodian) upon
conversion or exchange of other securities held in its portfolio.
If an option written by a Bond Fund expires, the Fund
realizes a capital gain equal to the premium received at the time
the option was written. If an option purchased by a Fund expires,
the Fund realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when the Fund desires.
A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase
the option, the Fund will realize a capital gain or, if it is
less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price of the
underlying security or index in relation to the exercise price of
the option, the volatility of the underlying security or index,
and the time remaining until the expiration date.
A put or call option purchased by a Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid
and asked prices.
Risks Associated with Options on Securities and Indexes.
There are several risks associated with transactions in options on
securities and on indexes. For example, there are significant
differences between the securities markets and options markets
that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because
of market behavior or unexpected events.
There can be no assurance that a liquid market will exist
when a Fund seeks to close out an option position. If a Fund were
unable to close out an option that it had purchased on a security,
it would have to exercise the option in order to realize any
profit or the option would expire and become worthless. If a Fund
were unable to close out a covered call option that it had written
on a security, it would not be able to sell the underlying
security until the option expired. As the writer of a covered
call option, a Fund foregoes, during the option's life, the
opportunity to profit from increases in the market value of the
security covering the call option above the sum of the premium and
the exercise price of the call.
If trading were suspended in an option purchased by a Fund,
the Fund would not be able to close out the option. If
restrictions on exercise were imposed, the Fund might be unable to
exercise an option it has purchased.
Futures Contracts and Options on Futures Contracts
Each Bond 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 /3/ 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.
- ---------
/3/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made.
- ---------
The Bond Funds may purchase and write call and put futures
options. Futures options possess many of the same characteristics
as options on securities and indexes (discussed above). A futures
option gives the holder the right, in return for the premium paid,
to assume a long position (call) or short position (put) in a
futures contract at a specified exercise price at any time during
the period of the option. Upon exercise of a call option, the
holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a
put option, the opposite is true. A Fund might, for example, use
futures contracts to hedge against or gain exposure to
fluctuations in the general level of security prices, anticipated
changes in interest rates or currency fluctuations that might
adversely affect either the value of the Fund's securities or the
price of the securities that the Fund intends to purchase.
Although other techniques could be used to reduce that Fund's
exposure to security price, interest rate and currency
fluctuations, the Fund may be able to achieve its exposure more
effectively and perhaps at a lower cost by using futures contracts
and futures options.
Each Bond Fund will only enter into futures contracts and
futures options that are standardized and traded on an exchange,
board of trade, or similar entity, or quoted on an automated
quotation system.
The success of any futures transaction depends on the Adviser
correctly predicting changes in the level and direction of
security prices, interest rates, currency exchange rates and other
factors. Should those predictions be incorrect, a Fund's return
might have been better had the transaction not been attempted;
however, in the absence of the ability to use futures contracts,
the Adviser might have taken portfolio actions in anticipation of
the same market movements with similar investment results but,
presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by a
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is
set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is
in the nature of a performance bond or good faith deposit on the
futures contract that is returned to the Fund upon termination of
the contract, assuming all contractual obligations have been
satisfied. Each Fund expects to earn interest income on its
initial margin deposits. A futures contract held by a Fund is
valued daily at the official settlement price of the exchange on
which it is traded. Each day the Fund pays or receives cash,
called "variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking-to-
market." Variation margin paid or received by a Fund does not
represent a borrowing or loan by a Fund but is instead settlement
between the Fund and the broker of the amount one would owe the
other if the futures contract had expired at the close of the
previous trading day. In computing daily net asset value, each
Fund will mark-to-market its open futures positions.
A Fund is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by
it. Such margin deposits will vary depending on the nature of the
underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying security
or index, and delivery month). If an offsetting purchase price is
less than the original sale price, the Fund realizes a capital
gain, or if it is more, the Fund realizes a capital loss.
Conversely, if an offsetting sale price is more than the original
purchase price, the Fund realizes a capital gain, or if it is
less, the Fund realizes a capital loss. The transaction costs
must also be included in these calculations.
Risks Associated with Futures
There are several risks associated with the use of futures
contracts and futures options as hedging techniques. A purchase
or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract. In trying to
increase or reduce market exposure, there can be no guarantee that
there will be a correlation between price movements in the futures
contract and in the portfolio exposure sought. In addition, there
are significant differences between the securities and futures
markets that could result in an imperfect correlation between the
markets, causing a given transaction not to achieve its
objectives. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand for
futures, futures options and debt securities, including technical
influences in futures trading and futures options and differences
between the financial instruments and the instruments underlying
the standard contracts available for trading in such respects as
interest rate levels, maturities, and creditworthiness of issuers.
A decision as to whether, when and how to hedge involves the
exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at
a time when a Fund seeks to close out a futures or a futures
option position. The Fund would be exposed to possible loss on
the position during the interval of inability to close and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active
secondary market will develop or continue to exist.
Limitations on Options and Futures
If other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
each Bond Fund may also use those investment vehicles, provided
the Board of Trustees determines that their use is consistent with
the Fund's investment objective.
A Bond Fund will not enter into a futures contract or
purchase an option thereon if, immediately thereafter, the initial
margin deposits for futures contracts held by that Fund plus
premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," /4/ would
exceed 5% of the Fund's total assets.
- ---------
/4/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- ---------
When purchasing a futures contract or writing a put on a
futures contract, a Fund must maintain with its custodian (or
broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contract. When
writing a call option on a futures contract, the Fund similarly
will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is
in-the-money until the option expires or is closed out by the
Fund.
A Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent the Fund has written
call options on specific securities in its portfolio, the value of
those securities will be deducted from the current market value of
the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," each Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within the
meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of a Fund, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into [in
the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section 190.01(x)
of the Commission Regulations) may be excluded in computing such
5%].
Taxation of Options and Futures
If a Bond Fund exercises a call or put option that it holds,
the premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by a Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by a Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by a Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by a Fund was in-the-
money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If a Fund
delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, a Fund generally is required
to recognize as income for each taxable year its net unrealized
gains and losses as of the end of the year on options, futures and
futures options positions ("year-end mark-to-market"). Generally,
any gain or loss recognized with respect to such positions (either
by year-end mark-to-market or by actual closing of the positions)
is considered to be 60% long-term and 40% short-term, without
regard to the holding periods of the contracts. However, in the
case of positions classified as part of a "mixed straddle," the
recognition of losses on certain positions (including options,
futures and futures options positions, the related securities and
certain successor positions thereto) may be deferred to a later
taxable year. Sale of futures contracts or writing of call
options (or futures call options) or buying put options (or
futures put options) that are intended to hedge against a change
in the value of securities held by a Fund: (1) will affect the
holding period of the hedged securities; and (2) may cause
unrealized gain or loss on such securities to be recognized upon
entry into the hedge.
In order for a Fund to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of
its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies or other income (including but not limited to
gains from options, futures, and forward contracts). 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.
Each Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options and
futures transactions. Such distributions are combined with
distributions of capital gains realized on the Fund's other
investments and shareholders are advised of the nature of the
payments.
The Taxpayer Relief Act of 1997 (the "Act") imposed
constructive sale treatment for federal income tax purposes on
certain hedging strategies with respect to appreciated securities.
Under these rules, taxpayers will recognize gain, but not loss,
with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act)
or futures or "forward contracts" (as defined by the Act) with
respect to the same or substantially identical property, or if
they enter into such transactions and then acquire the same or
substantially identical property. These changes generally apply
to constructive sales after June 8, 1997. Furthermore, the
Secretary of the Treasury is authorized to promulgate regulations
that will treat as constructive sales certain transactions that
have substantially the same effect as short sales, offsetting
notional principal contracts, and futures or forward contracts to
deliver the same or substantially similar property.
INVESTMENT RESTRICTIONS
Each Fund and High Yield Portfolio operate under the
following investment restrictions. A Fund or 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 (i) U.S. Government Securities, (ii) [Cash
Reserves only] repurchase agreements, or (iii) [Cash Reserves
only] securities of issuers in the financial services industry,
and [all except High Yield Portfolio] 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 [all except High
Yield Portfolio] 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;/5/
- ----------
/5/ Notwithstanding the foregoing, and in accordance with Rule 2a-
7 of the Investment Company Act of 1940 (the "Rule"), Cash
Reserves will not, immediately after the acquisition of any
security (other than a Government Security or certain other
securities as permitted under the Rule), invest more than 5% of
its total assets in the securities of any one issuer; provided,
however, that it may invest up to 25% of its total assets in First
Tier Securities (as that term is defined in the Rule) of a single
issuer for a period of up to three business days after the
purchase thereof.
- ----------
(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, [all
except High Yield Portfolio] 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, [Bond Funds only] 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, [Bond Funds only] but it may make margin
deposits in connection with transactions in options, futures, and
options on futures;
(7) make loans, although it may (a) [Bond Funds only] lend
portfolio securities and [all Funds] participate in an interfund
lending program with other Stein Roe Funds and Portfolios provided
that no such loan may be made if, as a result, the aggregate of
such loans would exceed 33 1/3% of the value of its total assets
(taken at market value at the time of such loans); (b) purchase
money market instruments and enter into repurchase agreements; and
(c) acquire publicly distributed or privately placed debt
securities;
(8) borrow except that it may (a) borrow for nonleveraging,
temporary or emergency purposes, (b) engage in reverse repurchase
agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law, and [Bond Funds only] (c) enter into futures and
options transactions; [all Funds] it may borrow from banks, other
Stein Roe Funds and Portfolios, and other persons to the extent
permitted by applicable law;
(9) act as an underwriter of securities, except insofar as
it may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 on disposition of securities acquired
subject to legal or contractual restrictions on resale, [all
except High Yield Portfolio] 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 a 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.
Each 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 a Fund from investing all or substantially all of its
assets in another investment company having the same investment
objective and substantially similar investment policies as the
Fund. Unless otherwise indicated, a Fund or 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; /6/
- -------------
/6/ The Funds have been informed that the staff of the Securities
and Exchange Commission takes the position that the issuers of
certain CMOs and certain other collateralized assets are
investment companies and that subsidiaries of foreign banks may be
investment companies for purposes of Section 12(d)(1) of the
Investment Company Act of 1940, which limits the ability of one
investment company to invest in another investment company.
Accordingly, the Funds intend to operate within the applicable
limitations under Section 12(d)(1)(A) of that Act.
- -------------
(C) purchase portfolio securities from, or sell portfolio
securities to, any of the officers and directors or trustees of
the Trust or of its investment adviser;
(D) purchase shares of other open-end investment companies,
except in connection with a merger, consolidation, acquisition, or
reorganization;
(E) invest more than 5% of its net assets (valued at time of
investment) in warrants, nor more than 2% of its net assets in
warrants which are not listed on the New York or American Stock
Exchange;
(F) [Bond Funds only] purchase a put or call option if the
aggregate premiums paid for all put and call options exceed 20% of
its net assets (less the amount by which any such positions are
in-the-money), excluding put and call options purchased as closing
transactions;
(G) [Bond Funds only] write an option on a security unless
the option is issued by the Options Clearing Corporation, an
exchange, or similar entity;
(H) [Bond Funds only] invest in limited partnerships in real
estate unless they are readily marketable;
(I) sell securities short unless (i) it owns or has the
right to obtain securities equivalent in kind and amount to those
sold short at no added cost or (ii) the securities sold are "when
issued" or "when distributed" securities which it expects to
receive in a recapitalization, reorganization, or other exchange
for securities it contemporaneously owns or has the right to
obtain and [Bond Funds only] provided that transactions in
options, futures, and options on futures are not treated as short
sales;
(J) [Bond Funds only] invest more than 15% of its total
assets (taken at market value at the time of a particular
investment) in restricted securities, other than securities
eligible for resale pursuant to Rule 144A under the Securities Act
of 1933;
(K) invest more than 10% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities /7/, including repurchase agreements maturing in more
than seven days.
- ----------
/7/ In the judgment of the Adviser, Private Placement Notes, which
are issued pursuant to Section 4(2) of the Securities Act of 1933,
generally are readily marketable even though they are subject to
certain legal restrictions on resale. As such, they are not
treated as being subject to the limitation on illiquid securities.
- ----------
ADDITIONAL INVESTMENT CONSIDERATIONS
The Adviser seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. In working to
build wealth for generations, it has been guided by three primary
objectives which it believes are the foundation of a successful
investment program. These objectives are preservation of capital,
limited volatility through managed risk, and consistent above-
average returns, as appropriate for the particular client or
managed account.
Because every investor's needs are different, Stein Roe
mutual funds are designed to accommodate different investment
objectives, risk tolerance levels, and time horizons. In
selecting a mutual fund, investors should ask the following
questions:
What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goals.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize your
investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks which
will vary depending on investment objective and security type.
However, mutual funds seek to reduce risk through professional
investment management and portfolio diversification.
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no guarantee
that they will be able to maintain a stable net asset value of
$1.00 per share, money market funds emphasize safety of principal
and liquidity, but tend to offer lower income potential than bond
funds. Bond funds tend to offer higher income potential than
money market funds but tend to have greater risk of principal and
yield volatility.
In addition, the Adviser believes that investment in a high
yield fund provides an opportunity to diversify an investment
portfolio because the economic factors that affect the performance
of high-yield, high-risk debt securities differ from those that
affect the performance of high-quality debt securities or equity
securities.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectuses
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information is
incorporated herein by reference. The Prospectuses disclose 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 Income Trust disclose in its
Statement of Additional Information, as a reminder to any such
bank or institution, that it must be registered as a dealer in
Texas.
Each Fund's net asset value is determined on days on which
the New York Stock Exchange (the "NYSE") is open for trading. The
NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in Jan., the third Monday in Feb.,
Good Friday, the last Monday in May, Independence Day, Labor Day,
Thanksgiving, and Christmas. If one of these holidays falls on a
Saturday or Sunday, the NYSE will be closed on the preceding
Friday or the following Monday, respectively. Net asset value
will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, net asset value of a Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., central time.
Income Trust reserves the right to suspend or postpone
redemptions of shares of any Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the Securities
and Exchange Commission, or the NYSE is closed for other than
customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c)
an emergency, as determined by the Securities and Exchange
Commission, exists, making disposal of portfolio securities or
valuation of net assets of such Fund not reasonably practicable.
Although Cash Reserves does not currently charge a fee to its
shareholders for the use of the special Check-Writing Redemption
Privilege offered by that Fund, as described under How to Redeem
Shares in the Money Market Funds Prospectus, Cash Reserves pays
for the cost of printing and mailing checks to its shareholders
and pays charges of the bank for payment of each check. The Trust
reserves the right to establish a direct charge to shareholders
for use of the Privilege and both the Trust and the bank reserve
the right to terminate this service.
Income Trust intends to pay all redemptions in cash and is
obligated to redeem shares of a Fund solely in cash up to the
lesser of $250,000 or one percent of the net assets of that Fund
during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly
by a distribution in kind of securities. If redemptions were made
in kind, the redeeming shareholders might incur transaction costs
in selling the securities received in the redemptions.
Due to the relatively high cost of maintaining smaller
accounts, 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 WITH PRINCIPAL OCCUPATION(S)
NAME AGE INCOME TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
Gary A. Anetsberger 41 Senior Vice-President; Chief financial officer of the Mutual Funds division of
(4) Treasurer Stein Roe & Farnham Incorporated (the "Adviser");
senior vice president of the Adviser since Apr. 1996;
vice president of the Adviser prior thereto
Timothy K. Armour 49 President; Trustee President of the Mutual Funds division of the Adviser
(1)(2)(4) and director of the Adviser
Jilaine Hummel Bauer 42 Executive Vice-President; General counsel and secretary (since Nov. 1995) and
(4) Secretary senior vice president of the Adviser
Kenneth L. Block 77 Trustee Chairman Emeritus of A. T. Kearney, Inc. (international
(3)(4) management consultants)
William W. Boyd 70 Trustee Chairman and director of Sterling Plumbing Group, Inc.
(3)(4) (manufacturer of plumbing products)
Thomas W. Butch (4) 40 Executive Vice-President Senior vice president of the Adviser since Sept. 1994;
first vice president, corporate communications, of
Mellon Bank Corporation prior thereto
Lindsay Cook (1)(4) 45 Trustee Executive vice president of Liberty Financial
Companies, Inc. (the indirect parent of the Adviser)
since Mar. 1997; senior vice president prior thereto
Philip J. Crosley 51 Vice-President Senior vice president of the Adviser since Feb. 1996;
vice president, institutional sales - advisor sales,
Invesco Funds Group prior thereto
Douglas A. Hacker 42 Trustee Senior vice president and chief financial officer of
(3)(4) United Airlines, since July 1994; senior vice president
- finance, United Airlines, Feb. 1993 to July 1994;
vice president, American Airlines prior thereto
Janet Langford Kelly 39 Trustee Senior vice president, secretary and general counsel of
(3)(4) Sara Lee Corporation (branded, packaged, consumer-
products manufacturer), since 1995; partner, Sidley &
Austin (law firm) prior thereto
Michael T. Kennedy 35 Vice-President Senior vice president of the Adviser since Oct. 1994;
vice president of the Adviser prior thereto
Stephen F. Lockman 36 Vice-President Senior vice president, portfolio manager, and credit
analyst of the Adviser; portfolio manager for Illinois
State Board of Investment prior thereto
Lynn C. Maddox 56 Vice-President Senior vice president of the Adviser
Anne E. Marcel 39 Vice-President Vice president of the Adviser since Apr. 1996; manager,
mutual fund sales & services of the Adviser since Oct.
1994; supervisor of the Counselor Department of the
Adviser prior thereto
Francis W. Morley 77 Trustee Chairman of Employer Plan Administrators and
(2)(3)(4) Consultants Co. (designer, administrator, and
communicator of employee benefit plans)
Jane M. Naeseth 47 Vice-President Senior vice president of the Adviser
Charles R. Nelson 55 Trustee Van Voorhis Professor of Political Economy of the
(3)(4) University of Washington
Nicolette D. Parrish 47 Vice-President; Senior compliance administrator and assistant secretary
(4) Assistant Secretary of the Adviser since Nov. 1995; senior legal assistant
for the Adviser prior thereto
Sharon R. Robertson 35 Controller Accounting manager for the Adviser's Mutual Funds
(4) division
Janet B. Rysz (4) 42 Assistant Secretary Senior compliance administrator and assistant secretary
of the Adviser
Thomas C. Theobald 60 Trustee Managing director, William Blair Capital Partners (
(3)(4) private equity fund) since 1994; chief executive
officer and chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994
Heidi J. Walter (4) 30 Vice-President Legal counsel for the Adviser since Mar. 1995;
associate with Beeler Schad & Diamond PC (law firm)
prior thereto
Stacy H. Winick (4) 32 Vice-President Senior legal counsel for the Adviser since Oct. 1996;
associate of Bell, Boyd & Lloyd (law firm) from June
1993 to Sept. 1996; associate of Debevoise & Plimpton
(law firm) prior thereto
Hans P. Ziegler (4) 56 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 31 Assistant Treasurer Project manager for the Adviser's Mutual Funds division
(4) since Apr. 1997; compliance manager, Aug. 1995 to Apr.
1997; compliance accountant, Jan. 1995 to July 1995;
section manager, Jan. 1994 to Jan. 1995; supervisor
prior thereto
<FN>
______________________
(1) Trustee who is an "interested person" of the Trust and of the
Adviser, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope and
results of the audit.
(4) This person holds the corresponding officer or trustee
position with 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, Mr. Cook, and Ms.
Walter are also vice presidents of the Funds' distributor, Liberty
Securities Corporation. The address of Mr. Block is 11 Woodley
Road, Winnetka, Illinois 60093; that of Mr. Boyd is 2900 Golf
Road, Rolling Meadows, Illinois 60008; that of Mr. Cook is 600
Atlantic Avenue, Boston, MA 02210; that of Mr. Hacker is P.O. Box
66100, Chicago, IL 60666; that of Ms. Kelly is Three First
National Plaza, Chicago, Illinois 60602; that of Mr. 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; and that of the officers is
One South Wacker Drive, Chicago, Illinois 60606.
Associated with the Adviser since 1977, Ms. Naeseth has been
portfolio manager of Cash Reserves since 1980. From 1973 to 1977,
she was with the First Trust Company of Ohio. She received her
B.A. degree from the University of Illinois in 1972. As of June
30, 1997, she was responsible for managing $576 million in mutual
fund assets.
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 standing committee thereof attended at which business
for that Fund is conducted. The attendance fees (other than for a
Nominating Committee or Compensation Committee meeting) are based
on each Fund's net assets as of the preceding Dec. 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 $751 million to $1 billion, $650; and with
over $1 billion in net assets, $800. For a Fund participating in
the master fund/feeder fund structure, the trustees' attendance
fees are paid solely by the master portfolio. Each non-interested
trustee also receives $500 from Income Trust for attending each
meeting of the Nominating Committee or Compensation Committee.
Income Trust has no retirement or pension plan. The following
table sets forth compensation paid during the fiscal year ended
June 30, 1997, to the trustees:
Aggregate
Name of Compensation Total Compensation from
Trustee from Income Trust the Stein Roe Fund Complex*
- ---------------- ----------------- ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Kenneth L. Block $15,567 $70,693
William W. Boyd 17,867 80,593
Douglas A. Hacker 16,867 76,593
Janet Langford Kelly 9,200 51,600
Francis W. Morley 16,867 76,943
Charles R. Nelson 17,867 80,593
Thomas C. Theobald 16,867 76,593
_______________
* At June 30, 1997, the Stein Roe Fund Complex consisted of six
series of Income Trust, four series of Stein Roe Municipal Trust,
ten series of Stein Roe Investment Trust, seven series of Stein
Roe Advisor Trust, one series of Stein Roe Institutional Trust,
one series of Stein Roe Trust, and nine series of Base Trust.
FINANCIAL STATEMENTS
Please refer to the Funds' June 30, 1997 Financial Statements
(balance sheets and schedules of investments as of June 30, 1997
and the statements of operations, changes in net assets, and notes
thereto) and the reports of independent auditors contained in the
June 30, 1997 Annual Reports of the Money Market Funds and the
Bond Funds. The Financial Statements and the reports of
independent auditors (but no other material from the Annual
Reports) are incorporated herein by reference. The Annual Reports
may be obtained at no charge by telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of Sept. 30, 1997, the only persons known by Income Trust
to own of record or "beneficially" 5% or more of outstanding
shares of any Fund within the definition of that term as contained
in Rule 13d-3 under the Securities Exchange Act of 1934 were as
follows:
NAME AND ADDRESS FUND APPROXIMATE % OF
OUTSTANDING
SHARES HELD
- ---------------------- --------------------- -----------------
First Bank National Cash Reserves 11%
Association* Intermediate Bond Fund 12%
410 N. Michigan Avenue Income Fund 15%
Chicago, IL 60611 High Yield Fund 45%
Charles Schwab & Co., Intermediate Bond Fund 39%
Inc.* Income Fund 18%
Attn: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104
The Northern Trust Co.** Income Fund 22%
F/B/O Liberty Mutual
Daily Valuation Transitions
P.O. Box 92956
Chicago, IL 60675
Liberty Financial High Yield Fund 21%
Companies, Inc.
600 Atlantic Avenue
Boston, MA 02210
Smith Barney, Inc.* Intermediate Bond Fund 5%
333 West 34th Street
7th Floor, Mutual
Funds Division
New York, NY 10013
National Financial Income Fund 13%
Service Corp.*
P.O. Box 3908,
Church Street Station
New York, NY 10008
_______________________
*Shares held of record, but not beneficially.
**Northern Trust Company holds shares of record on behalf of the
Liberty Mutual Employees' Thrift-Incentive Plan.
The following table shows shares of the Funds held by the
categories of persons indicated as of Sept. 30, 1997, and in each
case the approximate percentage of outstanding shares represented:
Clients of the Adviser Trustees and
in their Client Accounts* Officers
------------------------ -------------------
Shares Held Percent Shares Held Percent
----------- ------- ----------- -------
Cash Reserves 58,799,329 12% 377,404 **
Intermediate Bond Fund 7,345,813 18% 57,109 **
Income Fund 8,897,295 22% 41,019 **
High Yield Fund 384,317 15% 2,780 **
______________
*The Adviser may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by the Adviser under Rule 13d-3. However, the
Adviser disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated provides administrative
services to each Fund and High Yield Portfolio and portfolio
management services to Cash Reserves, Intermediate Bond Fund,
Income Fund, and 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, Harold
W. Cogger, C. Allen Merritt, Jr., Timothy K. Armour, and Hans P.
Ziegler. Mr. Leibler is President and Chief Executive Officer of
Liberty Financial; Mr. Cogger is Executive Vice President of
Liberty Financial; Mr. Merritt is Executive Vice President and
Treasurer of Liberty Financial; Mr. Armour is President of the
Adviser's Mutual Funds division; and Mr. Ziegler is Chief
Executive Officer of the Adviser. The business address of Messrs.
Leibler, Cogger, and Merritt is Federal Reserve Plaza, Boston,
Massachusetts 02210; and that of Messrs. Armour 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, 1997, the Adviser managed
over $28 billion in assets: over $9 billion in equities and over
$19 billion in fixed income securities (including $1.7 billion in
municipal securities). The $28 billion in managed assets included
over $7.9 billion held by open-end mutual funds managed by the
Adviser (approximately 15% of the mutual fund assets were held by
clients of the Adviser). These mutual funds were owned by over
259,000 shareholders. The $7.9 billion in mutual fund assets
included over $766 million in over 50,000 IRA accounts. In
managing those assets, the Adviser utilizes a proprietary
computer-based information system that maintains and regularly
updates information for approximately 7,000 companies. The
Adviser also monitors over 1,400 issues via a proprietary credit
analysis system. At June 30, 1997, the Adviser employed 16
research analysts and 55 account managers. The average
investment-related experience of these individuals was 24 years.
Stein Roe Counselor [service mark] and Stein Roe Personal
Counselor [service mark] are professional investment advisory
services offered by the Adviser to Fund shareholders. Each is
designed to help shareholders construct Fund investment portfolios
to suit their individual needs. Based on information shareholders
provide about their financial goals and objectives in response to
a questionnaire, the Adviser's investment professionals create
customized portfolio recommendations. Shareholders participating
in Stein Roe Counselor [service mark] are free to self direct
their investments while considering the Adviser's recommendations;
shareholders participating in Stein Roe Personal Counselor
[service mark] enjoy the added benefit of having the Adviser
implement portfolio recommendations automatically for a fee of 1%
or less, depending on the size of their portfolios. In addition
to reviewing shareholders' goals and objectives periodically and
updating portfolio recommendations to reflect any changes, the
Adviser provides shareholders participating in these programs with
a dedicated Counselor [service mark] representative. Other
distinctive services include specially designed account statements
with portfolio performance and transaction data, newsletters, and
regular investment, economic, and market updates. A $50,000
minimum investment is required to participate in either program.
Please refer to the descriptions of the Adviser, the
management and administrative agreements, fees, expense
limitations, and transfer agency services under Management and Fee
Table in the Prospectuses, which are incorporated herein by
reference. The advisory agreement relating to each Fund (other
than High Yield Fund) was replaced on July 1, 1996 with separate
management and administrative agreements. The table below shows
gross fees paid and any expense reimbursements by the Adviser
during the past three fiscal years:
YEAR YEAR YEAR
TYPE OF ENDED ENDED ENDED
FUND PAYMENT 6/30/97 6/30/96 6/30/95
- ------------- ------------ ---------- ---------- ----------
Cash Reserves Advisory fee -- $2,432,015 $2,648,885
Management fee $1,207,715 -- --
Administrative fee 1,207,715 -- --
Intermediate
Bond Fund Advisory fee -- 1,533,498 1,491,075
Management fee 1,090,523 -- --
Administrative fee 465,614 -- --
Reimbursement 54,108 157,406 25,687
Income Fund Advisory fee -- 1,482,696 1,011,101
Management fee 1,630,122 -- --
Administrative fee 446,018 -- --
Reimbursement 40,778 149,999 48,232
High Yield
Fund Administrative fee 9,385 -- --
Reimbursement 81,211 -- --
High Yield
Portfolio Management fee 52,997 -- --
The Adviser provides office space and executive and other
personnel to the Funds and bears any sales or promotional
expenses. Each Fund pays all expenses other than those paid by
the Adviser, including but not limited to printing and postage
charges and securities registration and custodian fees and
expenses incidental to its organization.
Each Fund's 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 such 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 such Fund under
that agreement for such year. In addition, in the interest of
further limiting the Funds' expenses, the Adviser may voluntarily
waive its management fee and/or absorb certain expenses for a
Fund, as described in the Prospectuses under Fee Table. Any such
reimbursements will enhance the yields of such Fund.
Each management agreement also provides that neither the
Adviser nor any of its directors, officers, stockholders (or
partners of stockholders), agents, or employees shall have any
liability to Income Trust or Base Trust or any shareholder of the
Fund or 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 a 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, 1996 and 1997, the Adviser received
aggregate fees of $114,541, $173,384 and $116,135, respectively,
from Income Trust for services performed under this agreement.
DISTRIBUTOR
Shares of the Funds are distributed by Liberty Securities
Corporation ("LSC") under a Distribution Agreement as described
under Management in each 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 the Funds to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. No sales commission or "12b-1" payment is paid by any
Fund. LSC offers the Funds' shares only on a best-efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for Income
Trust, as described under Management in each Prospectus. For
performing these services, SSI receives a fee based on an annual
rate of 0.150 of 1% of average daily net assets from Cash Reserves
and 0.140 of 1% of average daily net assets from each Bond Fund
(but not High Yield Portfolio). 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.) Under a separate agreement, SSI also provides certain
investor accounting services to High Yield Portfolio.
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, receiving and paying for securities
purchased, delivering against payment securities sold, receiving
and collecting income from investments, making all payments
covering expenses, and performing other administrative duties, all
as directed by authorized persons. The Bank does not exercise any
supervisory function in such matters as purchase and sale of
portfolio securities, payment of dividends, or payment of
expenses.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network, and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.
Each Board of Trustees reviews, at least annually, whether it
is in the best interests of each 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 a Fund, and the value of its
shares, will not be adversely affected by acts of foreign
governments, financial or operational difficulties of the foreign
sub-custodians, difficulties and costs of obtaining jurisdiction
over, or enforcing judgments against, the foreign sub-custodians,
or application of foreign law to a Fund's foreign sub-custodial
arrangements. Accordingly, an investor should recognize that the
non-investment risks involved in holding assets abroad are greater
than those associated with investing in the United States.
The Funds may invest in obligations of the Bank and may
purchase or sell securities from or to the Bank.
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.
PORTFOLIO TRANSACTIONS
For purposes of discussion under Portfolio Transactions, the
term "Fund" refers to Cash Reserves, Intermediate Bond Fund,
Income Fund, 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
Bond Funds. Purchases and sales of portfolio securities are
ordinarily transacted with the issuer or with a primary market
maker acting as principal or agent for the securities on a net
basis, with no brokerage commission being paid by a Fund.
Transactions placed through dealers reflect the spread between the
bid and asked prices. Occasionally, a Fund may make purchases of
underwritten issues at prices that include underwriting discounts
or selling concessions.
The Adviser's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price
and execution. The best net price, giving effect to transaction
charges, if any, and other costs, normally is an important factor
in this decision, but a number of other judgmental factors may
also enter into the decision. These include: the Adviser's
knowledge of current transaction costs; the nature of the security
being traded; the size of the transaction; the desired timing of
the trade; the activity existing and expected in the market for
the particular security; confidentiality; the execution, clearance
and settlement capabilities of the broker or dealer selected and
others that are considered; the Adviser's knowledge of the
financial stability of the broker or dealer selected and such
other brokers or dealers; and the Adviser's knowledge of actual or
apparent operational problems of any broker or dealer.
Recognizing the value of these factors, a Fund may incur a
transaction charge in excess of that which another broker or
dealer may have charged for effecting the same transaction.
Evaluations of the reasonableness of the costs of portfolio
transactions, based on the foregoing factors, are made on an
ongoing basis by the Adviser's staff and reports are made annually
to the Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to be
capable of providing the best combination of price and execution
with respect to a particular portfolio transaction for a Fund, the
Adviser often selects a broker or dealer that has furnished it
with research products or services such as research reports,
subscriptions to financial publications and research compilations,
compilations of securities prices, earnings, dividends and similar
data, and computer databases, quotation equipment and services,
research-oriented computer software and services, and services of
economic and other consultants. Selection of brokers or dealers
is not made pursuant to an agreement or understanding with any of
the brokers or dealers; however, the Adviser uses an internal
allocation procedure to identify those brokers or dealers who
provide it with research products or services and the amount of
research products or services they provide, and endeavors to
direct sufficient commissions generated by its clients' accounts
in the aggregate, including the Funds, to such brokers or dealers
to ensure the continued receipt of research products or services
the Adviser feels are useful. In certain instances, the Adviser
receives from brokers and dealers products or services which are
used both as investment research and for administrative,
marketing, or other non-research purposes. In such instances, the
Adviser makes a good faith effort to determine the relative
proportions of such products or services which may be considered
as investment research. The portion of the costs of such products
or services attributable to research usage may be defrayed by the
Adviser (without prior agreement or understanding, as noted above)
through brokerage commissions generated by transactions of clients
(including the Funds), while the portion of the costs attributable
to non-research usage of such products or services is paid by the
Adviser in cash. No person acting on behalf of a Fund is
authorized, in recognition of the value of research products or
services, to pay a price in excess of that which another broker or
dealer might have charged for effecting the same transaction. The
Adviser may also receive research in connection with selling
concessions and designations in fixed price offerings in which the
Funds participate. Research products or services furnished by
brokers and dealers through whom transactions are effected may be
used in servicing any or all of the clients of the Adviser and not
all such research products or services are used in connection with
the management of such Fund.
The Board has reviewed the legal developments pertaining to
and the practicability of attempting to recapture underwriting
discounts or selling concessions when portfolio securities are
purchased in underwritten offerings. The Board has been advised
by counsel that recapture by a mutual fund currently is not
permitted under the Rules of the Association of the National
Association of Securities Dealers ("NASD"). Therefore, except
with respect to purchases by Income Fund of municipal securities
which are not subject to NASD Rules, the Funds will not attempt to
recapture underwriting discounts or selling concessions. If
Income Fund were to purchase municipal securities, it would
attempt to recapture selling concessions included in prices paid
by Income Fund in underwritten offerings; however, the Adviser
would not be able to negotiate discounts from the fixed offering
price for those issuers for which there is a strong demand, and
will not allow the failure to obtain a discount to prejudice its
ability to purchase an issue for Income Fund.
The following table shows any commissions paid by the Bond
Funds on futures transactions during the past three fiscal years.
The Funds did not pay commissions on any other transactions.
Intermediate High Yield
Bond Fund Income Fund Portfolio
----------- ----------- ----------
Total brokerage commissions
paid during year ended
6/30/97 -0- -0- -0-
Number of futures contracts -0- -0- -0-
Total brokerage commissions
paid during year ended
6/30/96 -0- -0- --
Total brokerage commissions
paid during year ended
6/30/95 $25,000 -0- --
The Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian as
a soliciting dealer in connection with any tender offer for
portfolio securities. The custodian will credit any such fees
received against its custodial fees.
During the last fiscal year, certain Funds held securities
issued by one or more of their regular broker-dealers or the
parent of such broker-dealers that derive more than 15% of gross
revenue from securities-related activities. Such holdings were as
follows at June 30, 1997:
Amount of Securities
Fund Broker-Dealer Held (in thousands)
- -------------- --------------------------- -------------------
Cash Reserves Associates Corp. of N.A. $16,250
Merrill Lynch 3,996
Intermediate Bond
Fund Paine Webber Group Inc. 5,664
Prudential Property 5,983
Income Fund Goldman Sachs Group L.P. 6,033
Lehman Brothers, Inc. 3,902
Merrill Lynch 3,140
Morgan Stanley Group 3,917
ADDITIONAL INCOME TAX CONSIDERATIONS
Each 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.
Each Fund expects that none of its dividends will qualify for
the deduction for dividends received by corporate shareholders.
ADDITIONAL INFORMATION ON THE DETERMINATION OF NET
ASSET VALUE OF THE MONEY MARKET FUNDS
Please refer to Net Asset Value in the Money Market Funds
Prospectus, which is incorporated herein by reference. Cash
Reserves values its portfolio by the "amortized cost method" by
which it attempts to maintain its net asset value at $1.00 per
share. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. Although
this method provides certainty in valuation, it may result in
periods during which value as determined by amortized cost is
higher or lower than the price the Fund would receive if it sold
the instrument. Other assets are valued at a fair value
determined in good faith by the Board of Trustees.
In connection with the use of amortized cost and the
maintenance of a per share net asset value of $1.00, the Trust has
agreed, with respect to Cash Reserves: (i) to seek to maintain a
dollar-weighted average portfolio maturity appropriate to its
objective of maintaining relative stability of principal and not
in excess of 90 days; (ii) not to purchase a portfolio instrument
with a remaining maturity of greater than thirteen months; and
(iii) to limit its purchase of portfolio instruments to those
instruments that are denominated in U.S. dollars which the Board
of Trustees determines present minimal credit risks and that are
of eligible quality as determined by any major rating service as
defined under SEC Rule 2a-7 or, in the case of any instrument that
is not rated, of comparable quality as determined by the Board.
Cash Reserves has also agreed to establish procedures
reasonably designed to stabilize its price per share as computed
for the purpose of sales and redemptions at $1.00. Such
procedures include review of the portfolio holdings by the Board
of Trustees, at such intervals as it deems appropriate, to
determine whether the net asset values calculated by using
available market quotations or market equivalents deviate from
$1.00 per share based on amortized cost. Calculations are made to
compare the value of its investments valued at amortized cost with
market value. Market values are obtained by using actual
quotations provided by market makers, estimates of market value,
values from yield data obtained from reputable sources for the
instruments, values obtained from the Adviser's matrix, or values
obtained from an independent pricing service. Any such service
might value investments based on methods which include
consideration of: yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. The service may also
employ electronic data processing techniques, a matrix system or
both to determine valuations.
In connection with Cash Reserves' use of the amortized cost
method of portfolio valuation to maintain its net asset value at
$1.00 per share, it might incur or anticipate an unusual expense,
loss, depreciation, gain or appreciation that would affect its net
asset value per share or income for a particular period. The
extent of any deviation between net asset value based upon
available market quotations or market equivalents and $1.00 per
share based on amortized cost will be examined by the Board of
Trustees as it deems appropriate. If such deviation exceeds 1/2
of 1%, the Board of Trustees will promptly consider what action,
if any, should be initiated. In the event the Board of Trustees
determines that a deviation exists that may result in material
dilution or other unfair results to investors or existing
shareholders, it will take such action as it considers appropriate
to eliminate or reduce to the extent reasonably practicable such
dilution or unfair results. Actions which the Board might take
include: selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio
maturity; increasing, reducing, or suspending dividends or
distributions from capital or capital gains; or redeeming shares
in kind. The Board might also establish a net asset value per
share by using market values, as a result of which the net asset
value might deviate from $1.00 per share.
INVESTMENT PERFORMANCE
Money Market Funds
A Money Market Fund may quote a "Current Yield" or "Effective
Yield" or both from time to time. The Current Yield is an
annualized yield based on the actual total return for a seven-day
period. The Effective Yield is an annualized yield based on a
daily compounding of the Current Yield. These yields are each
computed by first determining the "Net Change in Account Value"
for a hypothetical account having a share balance of one share at
the beginning of a seven-day period ("Beginning Account Value"),
excluding capital changes. The Net Change in Account Value will
always equal the total dividends declared with respect to the
account, assuming a constant net asset value of $1.00.
The yields are then computed as follows:
Net Change in Account Value 365
--------------------------- ----
Current Yield = Beginning Account Value x 7
[1 + Net Change in Account Value]365/7
--------------------------------------
Effective Yield = Beginning Account Value - 1
For example, the yields of Cash Reserves for the seven-day
period ended June 30, 1997, were:
$.000951233 365
----------- ---
Current Yield = $1.00 x 7 = 4.96%
[1+$.000951233]35/7
-------------------
Effective Yield = $1.00 - 1 = 5.08%
The average dollar-weighted portfolio maturity of Cash
Reserves for the seven days ended June 30, 1997, was 44 days.
In addition to fluctuations reflecting changes in net income
of a Money Market Fund resulting from changes in income earned on
its portfolio securities and in its expenses, yield also would be
affected if the Fund were to restrict or supplement its dividends
in order to maintain its net asset value at $1.00. (See Net Asset
Value in the Money Market Funds' Prospectus and Additional
Information on the Determination of Net Asset Value of the Money
Market Funds herein.) Portfolio changes resulting from net
purchases or net redemptions of Fund shares may affect yield.
Accordingly, the yield of Cash Reserves may vary from day to day
and the yield stated for a particular past period is not a
representation as to its future yield. The yield of Cash Reserves
is not assured, and its principal is not insured; however, it will
attempt to maintain its net asset value per share at $1.00.
Comparison of Cash Reserves' yield with those of alternative
investments (such as savings accounts, various types of bank
deposits, and other money market funds) should be made with
consideration of differences between the Fund and the alternative
investments, differences in the periods and methods used in the
calculation of the yields being compared, and the impact of income
taxes on alternative investments.
Bond Funds
A Bond Fund may quote yield figures from time to time. The
"Yield" of a Bond Fund is computed by dividing the net investment
income per share earned during a 30-day period (using the average
number of shares entitled to receive dividends) by the net asset
value per share on the last day of the period. The Yield formula
provides for semiannual compounding which assumes that net
investment income is earned and reinvested at a constant rate and
annualized at the end of a six-month period. For a given period,
an "Average Annual Total Return" may be computed by finding the
average annual compounded rate that would equate a hypothetical
initial amount invested of $1,000 to the ending redeemable value.
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.
For example, the Yields of the Bond Funds for the 30-day
period ended June 30, 1997, were:
Intermediate Bond Fund Yield = 6.83%
Income Fund Yield = 6.93%
High Yield Fund = 8.12%
_____________________
Each Fund may quote total return figures from time to time.
A "Total Return" on a per share basis is the amount of dividends
received per share plus or minus the change in the net asset value
per share for a period. A "Total Return Percentage" may be
calculated by dividing the value of a share at the end of a period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
n
Average Annual Total Return is computed as follows: ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion thereof).
For example, for a $1,000 investment in a Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at June 30, 1997 were:
TOTAL RETURN AVERAGE ANNUAL
TOTAL RETURN PERCENTAGE TOTAL RETURN
------------ ------------- --------------
Cash Reserves
1 year $1,049 4.92% 4.92%
5 years 1,223 22.33 4.11
10 years 1,709 70.94 5.51
Intermediate Bond Fund
1 year 1,093 9.31 9.31
5 years 1,401 40.11 6.98
10 years 2,209 120.87 8.25
Income Fund
1 year 1,103 10.34 10.34
5 years 1,498 49.76 8.41
10 years 2,350 134.95 8.92
High Yield Fund
Life of Fund* 1,169 16.94 16.94
_______
*Since commencement of operations on Nov. 1, 1996.
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of future
results. The performance of a Fund is a result of conditions in
the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful
in reviewing a Fund's performance and in providing some basis for
comparison with other investment alternatives, it should not be
used for comparison with other investments using different
reinvestment assumptions or time periods.
A Fund may note its mention in newspapers, magazines, or
other media from time to time. However, the Funds assume no
responsibility for the accuracy of such data. Newspapers and
magazines that might mention the Funds include, but are not
limited to, the following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Associated Press
Barron's
Bloomberg
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Decoder
Gourmet
Individual Investor
Investment Adviser
Investment Dealers' Digest
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
In advertising and sales literature, a Fund may compare its
yield and performance with that of other mutual funds, indexes or
averages of other mutual funds, indexes of related financial
assets or data, and other competing investment and deposit
products available from or through other financial institutions.
The composition of these indexes or averages differs from that of
the Funds. Comparison of a Fund to an alternative investment
should be made with consideration of differences in features and
expected performance. All of the indexes and averages noted below
will be obtained from the indicated sources or reporting services,
which the Funds believe to be generally accurate.
All of the Funds may compare their performance to the
Consumer Price Index (All Urban), a widely-recognized measure of
inflation.
A Fund's performance may be compared to the following as
indicated below:
Benchmark Fund(s)
- ----------------------------------- -----------------------
CS First Boston High Yield Index High Yield Fund
Donoghue's Money Fund Averages
[trademark]--Aggressive Cash Reserves
Donoghue's Money Fund Averages
[trademark]--All Taxable Cash Reserves
Donoghue's Money Fund Averages
[trademark]--Prime Cash Reserves
Donoghue's Money Fund Averages [
trademark]--Prime and Eurodollar Cash Reserves
Donoghue's Money Fund Averages
[trademark]--Prime, Eurodollar,
and Yankeedollar Cash Reserves
Donoghue's Money Fund Averages
[trademark]--Taxable
(Includes the previous four
categories) Cash Reserves
Lehman Aggregate Index Intermediate Bond Fund
Lehman Government/Corporate Index Intermediate Bond Fund
Lehman High Yield Bond Index High Yield Fund
Lehman High Yield Corporate Bond Index High Yield Fund
Lehman Intermediate Corporate Bond Index Income Fund
Lehman Intermediate Government/
Corporate Index Intermediate Bond Fund
Lipper All Long-Term Fixed Income Intermediate Bond Fund,
Funds Average Income Fund
Lipper Corporate Bond Funds (A Rated)
Average Intermediate Bond Fund
Lipper Corporate Bond Funds (BBB
Rated) Average Income Fund
Lipper Intermediate-Term (5-10 Year)
Investment Grade Debt Funds Average Intermediate Bond Fund
Lipper Long-Term Taxable Bond Funds Intermediate Bond Fund,
Average Income Fund
Lipper Money Market Instrument Funds
Average Cash Reserves
Lipper Short-Term Income Fund Average Cash Reserves
Merrill Lynch Corporate and Government Intermediate Bond Fund,
Master Index Income Fund
Merrill Lynch High-Yield Master Index Income Fund,
High Yield Fund
Morningstar All Long-Term Fixed Intermediate Bond Fund,
Income Funds Average Income Fund
Morningstar Corporate Bond (General) Income Fund,
Average High Yield Fund
Morningstar Corporate Bond (High
Quality) Average Intermediate Bond Fund
Morningstar Long-Term Taxable Bond Intermediate Bond Fund,
Funds Average Income Fund
Salomon Brothers Broad Investment Intermediate Bond Fund,
Grade Bond Index Income Fund
Salomon Brothers Extended High Yield
Market Index High Yield Fund
Salomon Brothers High Yield Market Index High Yield Fund
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 Funds may also use
comparative performance as computed in a ranking by these services
or category averages and rankings provided by another independent
service. Should these services reclassify a Fund to a different
category or develop (and place a Fund into) a new category, that
Fund may compare its performance or rank against other funds in
the newly-assigned category (or the average of such category) as
published by the service.
In advertising and sales literature, a Fund may also cite its
rating, recognition, or other mention by Morningstar or any other
entity. Morningstar's rating system is based on risk-adjusted
total return performance and is expressed in a star-rating format.
The risk-adjusted number is computed by subtracting a fund's risk
score (which is a function of its monthly returns less the 3-month
T-bill return) from its load-adjusted total return score. This
numerical score is then translated into rating categories, with
the top 10% labeled five star, the next 22.5% labeled four star,
the next 35% labeled three star, the next 22.5% labeled two star,
and the bottom 10% one star. A high rating reflects either above-
average returns or below-average risk, or both.
The Merrill Lynch High-Yield Master Index measures the total
return performance of corporate debt issues rated less than
investment grade but not in default. The Merrill Lynch Corporate
and Government Master Index measures total return performance of a
broad range of U.S. Treasury, federal agency, and corporate debt
securities, but excluding mortgage-backed securities. The Salomon
Brothers Broad Investment Grade Bond Index measures the market-
weighted total return of a wide range of debt securities,
including U.S. Treasury/agency securities, investment-grade
corporate bonds, and mortgage pass-through securities.
A Money Market Fund may compare its after-tax yield (computed
by multiplying the yield by one minus the highest marginal federal
individual tax rate) to the average yield for the tax-free
categories of the aforementioned services.
Investors may desire to compare the performance and features
of Cash Reserves to those of various bank products. Cash Reserves
may compare its yield to the average rates of bank and thrift
institution money market deposit accounts, Super N.O.W. accounts,
and certificates of deposit. The rates published weekly by the
BANK RATE MONITOR [copyright], a North Palm Beach (Florida)
financial reporting service, in its BANK RATE MONITOR [copyright]
National Index are averages of the personal account rates offered
on the Wednesday prior to the date of publication by one hundred
leading banks and thrift institutions in the top ten Consolidated
Standard Metropolitan Statistical Areas. Account minimums range
upward from $2,500 in each institution and compounding methods
vary. Super N.O.W. accounts generally offer unlimited checking,
while money market deposit accounts generally restrict the number
of checks that may be written. If more than one rate is offered,
the lowest rate is used. Rates are subject to change at any time
specified by the institution. Bank account deposits may be
insured. Shareholder accounts in a Fund are not insured. Bank
passbook savings accounts compete with money market mutual fund
products with respect to certain liquidity features but may not
offer all of the features available from a money market mutual
fund, such as check writing. Bank passbook savings accounts
normally offer a fixed rate of interest while the yield of a Fund
fluctuates. Bank checking accounts normally do not pay interest
but compete with money market mutual funds with respect to certain
liquidity features (e.g., the ability to write checks against the
account). Bank certificates of deposit may offer fixed or
variable rates for a set term. (Normally, a variety of terms are
available.) Withdrawal of these deposits prior to maturity will
normally be subject to a penalty. In contrast, shares of a Fund
are redeemable at the next determined net asset value (normally,
$1.00 per share) after a request is received, without charge.
Of course, past performance is not indicative of future
results.
____________________
To illustrate the historical returns on various types of
financial assets, the Funds may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment
firm. Ibbotson constructs (or obtains) very long-term (since
1926) total return data (including, for example, total return
indexes, total return percentages, average annual total returns
and standard deviations of such returns) for the following asset
types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
____________________
A Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such example
is reflected in the chart below, which shows the effect of tax
deferral on a hypothetical investment. This chart assumes that an
investor invested $2,000 a year on Jan. 1, for any specified
period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 3%, 5%, 7%, or 9%
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.)
</TABLE>
<TABLE>
<CAPTION>
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
Interest
Rate 3% 5% 7% 9% 3% 5% 7% 9%
- --------------------------------------------------------------------------------
Com-
pound-
ing
Years Tax-Deferred Investment Taxable Investment
- ---- ------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30 $82,955 $108,031 $145,856 $203,239 $80,217 $98,343 $121,466 $151,057
25 65,164 80,337 101,553 131,327 63,678 75,318 89,528 106,909
20 49,273 57,781 68,829 83,204 48,560 55,476 63,563 73,028
15 35,022 39,250 44,361 50,540 34,739 38,377 42,455 47,025
10 22,184 23,874 25,779 27,925 22,106 23,642 25,294 27,069
5 10,565 10,969 11,393 11,840 10,557 10,943 11,342 11,754
1 2,036 2,060 2,085 2,109 2,036 2,060 2,085 2,109
</TABLE>
Average Life Calculations. From time to time, a Fund may
quote an average life figure for its portfolio. Average life is
the weighted average period over which the Adviser expects the
principal to be paid, and differs from stated maturity in that it
estimates the effect of expected principal prepayments and call
provisions. With respect to GNMA securities and other mortgage-
backed securities, average life is likely to be substantially less
than the stated maturity of the mortgages in the underlying pools.
With respect to obligations with call provisions, average life is
typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an average life equal to their
stated maturity.
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average cost
per share. Like any investment strategy, dollar cost averaging
can't guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
From time to time, a Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[service mark] and Stein Roe Personal Counselor [service mark]
programs and asset allocation and other investment strategies.
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion
as to the credit quality of the security being rated. However,
the ratings are general and are not absolute standards of quality
or guarantees as to the creditworthiness of an issuer.
Consequently, the Adviser believes that the quality of debt
securities should be continuously reviewed and that individual
analysts give different weightings to the various factors involved
in credit analysis. A rating is not a recommendation to purchase,
sell or hold a security because it does not take into account
market value or suitability for a particular investor. When a
security has received a rating from more than one service, each
rating should be evaluated independently. Ratings are based on
current information furnished by the issuer or obtained by the
rating services from other sources that they consider reliable.
Ratings may be changed, suspended or withdrawn as a result of
changes in or unavailability of such information, or for other
reasons.
The following is a description of the characteristics of
ratings used by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P").
CORPORATE BOND RATINGS
Ratings By Moody's
Aaa. Bonds rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or an exceptionally stable margin and
principal is secure. Although the various protective elements are
likely to change, such changes as can be visualized are more
unlikely to impair the fundamentally strong position of such
bonds.
Aa. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa. Bonds rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
Ratings By S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only
in small degree.
A. Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than for debt in higher rated categories.
BB, B, CCC, CC, and C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no
interest is being paid.
D. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears. The D rating is also
used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories. Foreign debt is rated on the same basis
as domestic debt measuring the creditworthiness of the issuer;
ratings of foreign debt do not take into account currency exchange
and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility
or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or
interest return is indexed to equities, commodities, or
currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
COMMERCIAL PAPER RATINGS
Ratings By Moody's
Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment
capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or
entities, Moody's, in assigning ratings to such issuers, evaluates
the financial strength of the indicated affiliated corporations,
commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating
assessment.
Ratings By S&P
A brief description of the applicable rating symbols and
their meaning follows:
A. Issues assigned this highest rating are regarded as
having the greatest capacity for timely payment. Issues in this
category are further refined with the designations 1, 2, and 3 to
indicate the relative degree of safety.
A-1. This designation indicates that the degree of safety
regarding timely payment is very strong. Those issues determined
to possess overwhelming safety characteristics will be denoted
with a plus (+) sign designation.
____________
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) 1. Financial statements included in Part A of this Amendment
to the Registration Statement: Financial Highlights.
2. Financial statements included in Part B of this Amendment:
The following financial statements are incorporated by
reference to Registrant's June 30, 1997 annual reports:
Investments as of June 30, 1997 of Stein Roe Cash Reserves
Fund, Stein Roe Intermediate Bond Fund, Stein Roe Income
Fund and SR&F High Yield Portfolio; and balance sheets as
of June 30, 1997, statements of operations for the period
ended June 30, 1997, statements of changes in net assets
for each of the two years in the period ended June 30,
1997, notes thereto and report of independent auditors of
Stein Roe Cash Reserves Fund, Stein Roe Intermediate Bond
Fund, Stein Roe Income Fund, Stein Roe High Yield Fund and
SR&F High Yield Portfolio.
(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. (Exhibit
2 to PEA #29.)*
3. None.
4. None. Registrant no longer issues share certificates.
5. Management agreement between Registrant and Stein Roe
& Farnham Incorporated (the "Adviser") as amended
through 11/1/96. (Exhibit 5(a) to PEA #30.)*
6. Underwriting agreement between the Stein Roe Funds and
Liberty Securities Corporation as amended through
10/28/92. (Exhibit 6 to PEA #29.)*
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. as amended
through 11/1/96. (Exhibit 9(a) to PEA #30.)*
(b) Accounting and Bookkeeping Agreement between
Registrant and the Adviser as amended through November
1, 1996. (Exhibit 9(b) to PEA #30.)*
(c) Administrative Agreement between Registrant and the
Adviser as amended through November 1, 1996. (Exhibit
9(c) to PEA #30.)*
(d) Sub-transfer agent agreement between SteinRoe Services
Inc. and Colonial Investors Service Center, Inc. as
amended through June 30, 1997.
10. (a) Opinions and consents of Ropes & Gray. (Exhibit 10(a)
to PEA #29.)*
(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,
and SteinRoe Managed Bonds (now named Stein Roe
Intermediate Bond Fund). (Exhibit 10(b) to PEA #29.)*
(c) Opinion and consent of Bell, Boyd & Lloyd with respect
to the series Stein Roe High Yield Fund. (Exhibit
10(c) to PEA #30.)*
11. (a) Consent of Ernst & Young LLP, independent auditors.
(b) Consent of Morningstar, Inc. (Exhibit 11(b) to PEA
#29.)*
12. None.
.
13. Inapplicable.
14. (a) Stein Roe Funds Individual Retirement Account Plan.
(b) Stein Roe & Farnham Prototype Paired Defined
Contribution Plan.
15. None.
16. (a) Schedules for computation of yield and total return of
SteinRoe High-Yield Bonds (now named Stein Roe Income
Fund), SteinRoe Managed Bonds (now named Stein Roe
Intermediate Bond Fund), and Stein Roe Cash Reserves.
(Exhibit 16 to PEA #29.)*
(b) Schedule for computation of yield and total return of
Stein Roe High Yield Fund.
17. (a) Financial Data Schedule, 6/30/97--Income Fund.
(b) Financial Data Schedule, 6/30/97--Intermediate Bond Fund.
(c) Financial Data Schedule, 6/30/97--Cash Reserves Fund.
(d) Financial Data Schedule, 6/30/97--High Yield Fund.
18. Inapplicable.
19. (Miscellaneous.)
(a) Fund Application.
(b) Automatic Redemption Services Application. (Exhibit
19(b) to PEA #29.)*
________
*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 September 30, 1997
--------------- -----------------------
Stein Roe Cash Reserves Fund......................19,058
Stein Roe Income Fund............................. 4,533
Stein Roe Intermediate Bond Fund.................. 5,318
Stein Roe High Yield Fund ........................ 1,445
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, 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 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. 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,
SR&F Base Trust, and/or other investment companies managed by the
Adviser. (The listed entities are located at One South Wacker
Drive, Chicago, Illinois 60606, except for SteinRoe Variable
Investment Trust and Keyport Variable Investment Trust, which are
located at Federal Reserve Plaza, Boston, MA 02210 and LFC
Utilities Trust, which is located at One Financial Center, Boston,
MA 02111.) A list of such capacities is given below.
POSITION FORMERLY
HELD WITHIN
CURRENT POSITION PAST TWO YEARS
------------------- ------------------
STEINROE SERVICES INC.
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President; Secretary
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 Sr. Vice-President; Treasurer
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President; Secy.
Thomas W. Butch Executive 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
STEIN ROE INCOME TRUST; STEIN ROE INSTITUTIONAL TRUST; AND STEIN
ROE TRUST
Gary A. Anetsberger Sr. Vice-President; Treasurer
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary
Thomas W. Butch Executive Vice-President Vice-President
Philip J. Crosley Vice-President
Michael T. Kennedy Vice-President
Stephen F .Lockman 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
STEIN ROE INVESTMENT TRUST; STEIN ROE ADVISOR TRUST
Gary A. Anetsberger Sr. Vice-President; Treasurer
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary
Bruno Bertocci Vice-President
David P. Brady Vice-President
Thomas W. Butch Executive Vice-President 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
Harvey B. Hirschhorn Vice-President
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Arthur J. McQueen Vice-President
Richard B. Peterson Vice-President
Marion Gerry Sandel 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 Sr. Vice-President; Treasurer
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary
Thomas W. Butch Executive Vice-President Vice-President
Joanne T. Costopoulos Vice-President
Philip J. Crosley 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
STEINROE VARIABLE INVESTMENT TRUST
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer 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
Deborah A. Jansen Vice President
KEYPORT VARIABLE INVESTMENT TRUST
Ophelia L. Barsketis Vice President
Deborah A. Jansen 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
Stein Roe Institutional Trust
Stein Roe 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
Bruce F. Ripepi Vice President, General Counsel None
and Assistant Secretary
Timothy K. Armour Vice President Pres.; Trustee
Lindsay Cook Vice President Trustee
Ralph E. Nixon Vice President None
Joyce B. Riegel Vice President None
Heidi J. Walter Vice President V-P
Glenn E. Williams Assistant Vice President None
Philip J. Iudice Treasurer None
John A. Benning Secretary None
John A. Davenport Assistant Secretary None
Marjorie M. Pluskota Assistant Secretary None
C. Allen Merritt, Jr. Assistant Treasurer; Assistant
Secretary; Director None
The principal business address of Mr. Armour, Ms. Bauer, Ms.
Pluskota, Ms. Riegel and Ms. Walter is One South Wacker Drive,
Chicago, IL 60606; that of Mr. Williams is Two Righter Parkway,
Wilmington, DE 19803; that of Mr. Ripepi is 100 Manhattanville
Road, Purchase, NY 10577; 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.
If requested to do so by the holders of at least 10% of the
Trust's outstanding shares, the Trust will call a special
meeting for the purpose of voting upon the question of removal
of a trustee or trustees and will assist in the communications
with other shareholders as if the Trust were subject to Section
16(c) of the Investment Company Act of 1940.
Since the information called for by Item 5A for the Funds (other
than Stein Roe Cash Reserves Fund, 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 such Funds upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it
meets all of the requirements for effectiveness of this
registration statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago and
State of Illinois on the 31st day of October, 1997.
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 October 31, 1997
Timothy K. Armour
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice-President October 31, 1997
Gary A. Anetsberger and Treasurer
Principal Financial Officer
SHARON R. ROBERTSON Controller October 31, 1997
Sharon R. Robertson
Principal Accounting Officer
KENNETH L. BLOCK Trustee October 31, 1997
Kenneth L. Block
WILLIAM W. BOYD Trustee October 31, 1997
William W. Boyd
LINDSAY COOK Trustee October 31, 1997
Lindsay Cook
DOUGLAS A. HACKER Trustee October 31, 1997
Douglas A. Hacker
JANET LANGFORD KELLY Trustee October 31, 1997
Janet Langford Kelly
FRANCIS W. MORLEY Trustee October 31, 1997
Francis W. Morley
CHARLES R. NELSON Trustee October 31, 1997
Charles R. Nelson
THOMAS C. THEOBALD Trustee October 31, 1997
Thomas C. Theobald
*This Registration Statement has also been signed by the above
persons in their capacities as trustees and officers of SR&F Base
Trust as it relates to Stein Roe High Yield Fund.
<PAGE>
STEIN ROE INCOME TRUST
INDEX TO EXHIBITS FILED WITH THIS AMENDMENT
Exhibit
Number Description
- ------- -------------
9(d) Sub-Transfer Agent Agreement
11(a) Consent of Ernst & Young LLP
14(a) Stein Roe Funds Individual Retirement Account Plan
14(b) Stein Roe & Farnham Prototype Paired Defined
Contribution Plan
16(b) Schedule for Computation of Yield of Stein Roe High
Yield Fund
17(a) Financial Data Schedule--Stein Roe Income Fund
17(b) Financial Data Schedule--Stein Roe Intermediate Bond Fund
17(c) Financial Data Schedule--Stein Roe Cash Reserves Fund
17(d) Financial Data Schedule--Stein Roe High Yield Fund
19(a) Fund Application
<PAGE> 1
EXHIBIT 9(d)
SUB-TRANSFER AGENT AGREEMENT
Agreement dated as of July 3, 1996, between SteinRoe
Services Inc. ("SSI"), a Massachusetts corporation, for
itself and on behalf SteinRoe Municipal Trust, SteinRoe
Income Trust and SteinRoe Investment Trust, each a
Massachusetts business trust (all referred to herein as the
"Trust") comprised of the series of portfolios listed in
Schedule A (as the same may from time to time be amended to
add or to delete one or more series, all referred to herein
as the "Fund"), and Colonial Investors Service Center, Inc.
("CISC"), a Massachusetts corporation.
WHEREAS, the Trust has appointed SSI as Transfer Agent,
Registrar and Dividend Disbursing Agent for the Fund, a
registered investment company, pursuant to Restated Agency
Agreement dated August 1, 1995 ("Transfer Agent Agreement");
WHEREAS, SSI is a registered transfer agent duly
authorized to appoint CISC as its agent for purposes of
performing certain transfer agency, registration and dividend
disbursement services in respect of the Trust;
WHEREAS, CISC desires to accept such appointment and to
perform such services upon the terms and subject to the
conditions set forth herein; and
WHEREAS, Stein Roe & Farnham, Inc. ("SRF") is the
investment adviser to the Fund and Liberty Securities
Corporation is the principal underwriter of its shares.
NOW THEREFORE, in consideration of the mutual promises
and covenants set forth herein, the parties hereto agree as
follows:
1. Appointment. SSI hereby appoints CISC to act as its
agent in respect of the purchase, redemption and transfer of
Fund shares and dividend disbursing services in connection
with such shares other than with respect to Fund shares (a)
held under Stein Roe Counselor [service mark] for which SSI
shall perform such services and (b) held in omnibus accounts
with respect to which such services are performed by third
party financial institutions as described in the Fund's
Prospectus from time to time. CISC accepts such appointments
and will perform the duties and functions described herein in
the manner hereinafter set forth. In respect of its duties
and obligations pursuant to this Agreement, CISC will act as
agent of SSI and not as agent of the Trust nor the Fund.
CISC agrees to provide the necessary facilities,
equipment and personnel to perform its duties and obligations
hereunder in accordance with the practice of transfer agents
of investment companies registered with the Securities and
Exchange Commission and in compliance with all laws
applicable to mutual fund transfer agents and the Fund.
<PAGE> 2
CISC agrees that it shall perform usual and ordinary
services as transfer agent, registrar and dividend disbursing
agent, which are necessary and appropriate for investment
companies registered with the Securities and Exchange
Commission, except as otherwise specifically excluded herein,
including but not limited to: receiving and processing
payments for purchases of Fund shares, opening shareholder
accounts, receiving and processing requests for liquidation
of Fund shares , transferring and canceling stock
certificates, maintaining all shareholder accounts, preparing
annual shareholder meetings lists, corresponding with
shareholders regarding transaction rejections, providing
order room services to brokers, withholding taxes on
accounts, disbursing income dividends and capital gains
distributions, preparing and filing U.S. Treasury Department
Form 1099 for shareholders, preparing and mailing
confirmation forms to shareholders for all purchases and
liquidations of Fund shares and other confirmable
transactions in shareholder accounts, recording reinvestment
of dividends and distributions in Fund shares, and causing
liquidation of shares and disbursements to be made to
withdrawal plan holders. The services to be performed by
CISC under this Agreement may be set forth in a procedures
manual and other documents as mutually agreed to by CISC and
SSI. Specifically excluded from the services to be provided
by CISC are the following: mailing proxy materials,
receiving and tabulating proxies, mailing shareholder reports
and prospectuses, account research, shareholder
correspondence and telephone services regarding general
inquiries, information requests and all other matters except
transaction rejections, all of which SRS agrees to continue
to perform directly on behalf of the Trust and the Fund.
2. Fees and Charges. SSI will pay CISC for the services
provided hereunder in accordance with and in the manner set
forth in Schedule B to this Agreement.
3. Representations and Warranties of CISC. CISC
represents and warrants to SSI that:
(a) It is a corporation duly organized and existing in
good standing under the laws of the Commonwealth of
Massachusetts;
(b) It is duly qualified to carry on its business in the
Commonwealth of Massachusetts;
(c) It is empowered under applicable state and federal
laws and by its Articles of Organization and By-Laws
to enter into and perform the services contemplated
by this Agreement and it is in compliance and shall
continue during the term of this Agreement to be in
compliance with all such applicable laws;
(d) All requisite corporate proceedings have been taken
to authorize it to enter into and perform this
Agreement;
(e) It has and shall continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement; and
<PAGE> 3
(f) It has filed a Registration Statement on SEC Form TA-
1 and will file timely an amendment to same
respecting this Sub-Transfer Agent Agreement with the
Securities and Exchange Commission, it is duly
registered as a transfer agent as provided in Section
17Ac of the Securities and Exchange Act of 1934, and
it will remain so registered and will comply with all
state and federal laws and regulations relating to
transfer agents throughout the term of this
Agreement.
4. Representations and Warranties of SSI. SSI
represents and warrants to CISC that:
(a) It is a corporation duly organized and existing in
good standing under the laws of the Commonwealth of
Massachusetts;
(b) It is duly qualified to carry on its business in the
State of Illinois;
(c) It is empowered under applicable state and federal
laws and by its Articles of Organization and By-Laws
to enter into and perform the services contemplated
in this Agreement and in the Transfer Agent Agreement
and it is in compliance and shall continue during the
term of this Agreement to be in compliance with the
Transfer Agent Agreement and all such applicable
laws;
(d) All requisite corporate proceedings have been taken
to authorize it to enter into and perform this
Agreement;
(e) It has and shall continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement and the Transfer Agent Agreement; and
(f) It has filed a Registration Statement on SEC Form TA-
1 and will file timely an amendment to same
respecting this Sub-Transfer Agent Agreement with the
Securities and Exchange Commission; it is duly
registered as a Transfer Agent as provided in Section
17Ac of the Securities Exchange Act of 1934; and it
will remain so registered and comply with all state
and federal laws and regulations relating to transfer
agents throughout the term of this Agreement.
5. Representations and Warranties of the Trust. The
Trust represents and warrants to CISC that:
(a) It is a business trust duly organized and existing
and in good standing under the laws of the State of
Massachusetts;
(b) The Fund is an open-end diversified management
investment company registered under the Investment
Company Act of 1940;
<PAGE> 4
(c) Registration statements under the Securities Act of
1933 and applicable state laws are currently
effective and will remain effective at all times with
respect to all shares of the Fund being offered for
sale;
(d) The Trust is empowered under applicable laws and
regulations and by its Agreement and Declaration of
Trust and By-Laws to enter into and perform this
Agreement; and
(e) All requisite proceedings and actions have been
taken to authorize it to enter into and perform this
Agreement.
6. Copies of Documents. SSI promptly from time to time
will furnish CISC with copies of the following Trust and Fund
documents and all amendments or supplements thereto: the
Agreement and Declaration of Trust ; the By-Laws; and the
Registration Statement under Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended,
together with any other information reasonably requested by
CISC. The Prospectus and Statement of Additional Information
contained in such Registration Statement, as from time to
time amended and supplemented, are herein collectively
referred to as the "Fund's Prospectus."
On or before the date of effectiveness of this
Agreement, or as soon thereafter as is reasonably
practicable, and from time-to-time thereafter, SSI will
furnish CISC with certified copies of the resolutions of the
Trustees of the Trust authorizing this Agreement and
designating authorized persons to give instructions to CISC;
if applicable, a specimen of the certificate for shares of
the Fund in the form approved by the Trustees of the Trust,
with a certificate of the Secretary of the Trust as to such
approval; and certificates as to any change in any officer,
director, or authorized person of the SSI and the Trust.
7. Share Certificates. The Fund has resolved that all
of the Fund's shares shall hereafter be issued in
uncertificated form. Thus, CISC shall not be responsible for
the issuance of certificates representing shares in the Fund.
However, CISC shall maintain a record of each certificate
previously issued and outstanding, the number of shares
represented thereby, and the holder of record of such shares.
8. Lost or Destroyed Certificates. In case of the
alleged loss or destruction of any share certificate, no new
certificate shall be issued in lieu thereof, unless there
shall first be furnished to CISC an affidavit of loss or non-
receipt by the holder of shares with respect to which a
certificate has been lost or destroyed, supported by an
appropriate bond paid for by the shareholder which is
satisfactory to CISC and issued by a surety company
satisfactory to CISC. CISC shall place and maintain stop
transfer instructions on all lost certificates as to which it
receives notice.
9. Receipt of Funds for Investment. CISC will maintain
one or more accounts with The First National Bank of Boston
("Bank"),in the name of SSI into which
<PAGE> 5
it will deposit funds payable to CISC or SSI as agent for, or
otherwise identified as being for the account of, the Trust
or the Fund.
10. Shareholder Accounts. Upon receipt of any funds
referred to in paragraph 9, CISC will compute the number of
shares purchased by the shareholder according to the net
asset value of Fund shares determined in accordance with
applicable federal laws and regulations and as described in
the Prospectus of the Fund and:
(a) In the case of a new shareholder, open and maintain
an open account for such shareholder in the name or
names set forth in the subscription application form;
(b) Send to the shareholder a confirmation indicating the
amount of full and fractional shares purchased (in
the case of fractional shares, rounded to three
decimal places) and the price per share;
(c) In the case of a request to establish a plan or
program being offered by the Fund's Prospectus, open
and maintain such plan or program for the shareholder
in accordance with the terms thereof; and
(d) Perform such other services and initiate and maintain
such other books and records as are customarily
undertaken by transfer agents in maintaining
shareholder accounts for registered investment
company investors;
all subject to requirements set forth in the Fund's
Prospectus with respect to rejection of orders.
For closed accounts, CISC will maintain account records
through June of the calendar year following the year in which
the account is closed, or such other period of time as CISC
and SSI shall mutually agree in writing from time to time.
11. Unpaid Checks; Accounts Assigned for Collection.
If any check or other order for payment of money on the
account of any shareholder or new investor is returned unpaid
for any reason, CISC will:
(a) Give prompt notification to SRS of such non-payment
by facsimile sent prior to 9 a.m. E.S.T.; and
(b) Upon SSI's written instruction, received by facsimile
delivery not later than 11 a.m. E.S.T., authorize
payment of such order notwithstanding insufficient
shareholder account funds, on the condition that SSI
shall indemnify CISC and payor bank in respect of
such payment.
12. Dividends and Distributions. SSI will promptly
notify CISC of the declaration of any dividend or
distribution with respect to Fund shares, the amount of
<PAGE> 6
such dividend or distribution, the date each such dividend or
distribution shall be paid, and the record date for
determination of shareholders entitled to receive such
dividend or distribution. As dividend disbursing agent, CISC
will, on or before the payment date of any such dividend or
distribution, notify the Trust's custodian of the estimated
amount of cash required to pay such dividend or distribution,
and the Trust agrees that on or before the mailing date of
such dividend or distribution it will instruct its custodian
to make available to CISC sufficient funds in the dividend
and distribution account maintained by CISC with the Bank.
As dividend disbursing agent, CISC will prepare and
distribute to shareholders any funds to which they are
entitled by reason of any dividend or distribution and, in
the case of shareholders entitled to receive additional
shares by reason of any such dividend or distribution, CISC
will make appropriate credits to their accounts and cause to
be prepared and mailed to shareholders confirmation
statements and, of such additional shares. CISC will maintain
all records necessary to reflect the crediting of dividends
and distributions which are reinvested in shares of the Fund.
13. Redemptions. CISC will receive and process for
redemption in accordance with the Fund's Prospectus, share
certificates and requests for redemption of shares as
follows:
(a) If such certificate or request complies with
standards for redemption, CISC will, in accordance
with the Fund's current Prospectus, pay to the
shareholder from funds deposited by the Fund from
time to time in the redemption account maintained by
CISC with the Bank, the appropriate redemption price
as set forth in the Fund's Prospectus; and
(b) If such certificate or request does not comply with
the standards for redemption, CISC will promptly
notify the shareholder and shall effect the
redemption at the price in effect at the time of
receipt of documents complying with the standard.
14. Transfer and Exchanges. CISC will review and
process transfers of shares of the Fund and to the extent, if
any, permitted in the Prospectus of the Fund, exchanges
between series of the Trust received by CISC. If shares to
be transferred are represented by outstanding certificates,
CISC will, upon surrender to it of the certificates in proper
form for transfer, credit the same to the transferee on its
books. If shares are to be exchanged for shares of another
Fund, CISC will process such exchange in the same manner as a
redemption and sale of shares, in accordance with the Fund's
Prospectus may in its.
15. Plans. CISC will process such plans or programs
for investing in shares, and such systematic withdrawal
plans, as are provided for in the Fund's Prospectus.
16. Tax Returns and Reports. CISC will prepare and
file tax returns and reports with the Internal Revenue
Service and any other federal, state or local governmental
agency which may require such filings, including state
abandoned
<PAGE> 7
property laws, and conduct appropriate communications
relating thereto, and, if required, mail to shareholders such
forms for reporting dividends and distributions paid by the
Fund as are required by applicable laws, rules and
regulations, and CISC will withhold such sums as are required
to be withheld under applicable Federal and state income tax
laws, rules and regulations. CISC will periodically provide
SSI with reports showing dividends and distributions paid and
any amounts withheld. CISC will also make reasonable attempt
to obtain such tax withholding information from shareholders
as is required to be obtained on behalf of the Trust under
applicable federal or state laws.
17. Record Keeping. CISC will maintain records, which
at all times will be the property of the Trust and available
for inspection by SSI, showing for each shareholder's account
the following information and such other information as CISC
and SSI shall mutually agree in writing from time to time:
(a) Name, address, and United States taxpayer
identification or Social Security number, if provided
(or amounts withheld with respect to dividends and
distributions on shares if a taxpayer identification
or Social Security number is not provided);
(b) Number of shares held for which certificates have not
been issued and for which certificates have been
issued;
(c) Historical information regarding the account of each
shareholder, including dividends and distributions
paid, if any, gross proceeds of sales transactions,
and the date and price for transactions on a
shareholder's account;
(d) Any stop or restraining order placed against a
shareholder's account of which SSI has notified CISI;
(e) Information with respect to withholdings of taxes as
required under applicable Federal and state laws and
regulations;
(f) Any capital gain or dividend reinvestment order and
plan application relating to the current maintenance
of a shareholder's account; and
(g) Any instructions as to record addresses and any
correspondence or instructions relating to the
current maintenance of a shareholder's account.
SSI hereby agrees that CISC shall have no liability or
obligation with respect to the accuracy or completeness of
shareholder account information received by CISC on or about
the Operational Date.
<PAGE> 8
By mutual agreement of CISC and SSI, CISC shall
administer a program whereby reasonable attempt is made to
identify current address information from shareholders whose
mail from the Trust is returned.
CISC shall maintain at its expense those records
necessary to carry out its duties under this Agreement. In
addition, CISC shall maintain at its expense for periods
prescribed by law all records which the Fund or CISC is
required to keep and maintain pursuant to any applicable
statute, rule or regulation, including without limitation
Rule 31(a)-1 under the Investment Company Act of 1940,
relating to the maintenance of records in connection with the
services to be provided hereunder. Upon mutual agreement of
CISC and SSI, CISC shall also maintain other records
requested from time to time by SSI, at SSI's expense.
At the end of the period in which records must be
retained by law, such records and documents will either be
provided to the Trust or destroyed in accordance with prior
written authorization from the Trust.
18. Retirement Plan Services. CISC shall provide sub-
accounting services for retirement plan shareholders
representing group relationships with special recordkeeping
needs.
19. Other Information Furnished. CISC will furnish to
SSI such other information, including shareholder lists and
statistical information as may be agreed upon from time to
time between CISC and SSI. CISC shall notify SSI and the
Trust of any request or demand to inspect the share records
of the Fund, and will not permit or refuse such inspection
until receipt of written instructions from the Trust as to
such permission or refusal unless required by law.
CISC shall provide to the Trust any results of studies
and evaluations of systems of internal accounting controls
performed for the purpose of meeting the requirements of
Regulation 240.17Ad-13(a) of the Securities Exchange Act of
1934.
20. Shareholder Inquiries. CISC will not respond to
written correspondence from fund shareholders or others
relating to the Fund other than those regarding transaction
rejections and clarification of transaction instructions, but
shall forward all such correspondence to SSI.
21. Communications to Shareholders and Meetings. CISC
will determine all shareholders entitled to receive, and will
cause to be addressed and mailed, all communications by the
Fund to its shareholders, including quarterly and annual
reports, proxy material for meetings, and periodic
communications. CISC will cause to be received, examined and
tabulated return proxy cards for meetings of shareholders and
certify the vote to the Trust Fund.
22. Other Services by CISC. CISC shall provide SSI,
with the following additional services:
<PAGE> 9
(a) All CTRAN, CIMAGE, Price Waterhouse Blue Sky 2, and
Pegashares functionality and enhancements (on a
remote basis) as they now exist and as they are
developed and made available to CISC clients;
(b) Initial programs and report enhancements to the CTRAN
System which are necessary to accommodate the Fund as
a no-load fund group;
(c) Development, systems training, technical support,
implementation, and maintenance of special programs
and systems to enhance overall shareholder servicing
capability;
(d) Product and system training for personnel of
institutional servicing agents.
23. Insurance. CISC will not reduce or allow to lapse
any of its insurance coverages from time to time in effect,
including but not limited to errors and omissions, fidelity
bond and electronic data processing coverage, without the
prior written consent of SSI. Attached as Schedule D to this
Agreement is a list of the insurance coverage which CISC has
in effect as of the date of execution of this Agreement and,
if different, will have in effect on the Operational Date.
24. Duty of Care and Indemnification. CISC will at all
times use reasonable care, due diligence and act in good
faith in performing its duties hereunder. CISC will not be
liable or responsible for delays or errors by reason of
circumstances beyond its control, including without
limitation acts of civil or military authority, national or
state emergencies, labor difficulties, fire, mechanical
breakdown, flood or catastrophe, acts of God, insurrection,
war, riots or failure of transportation, communication or
power supply.
CISC may rely on certifications of those individuals
designated as authorized persons to give instructions to CISC
as to proceedings or facts in connection with any action
taken by the shareholders of the Fund or Trustees of the
Trust, and upon instructions not inconsistent with this
Agreement from individuals who have been so authorized. Upon
receiving authorization from an individual designated as an
authorized person to give instructions to CISC, CISC may
apply to counsel for the Trust, or counsel for SSI or the
Fund's investment adviser, at the Fund's expense, for advice.
With respect to any action reasonably taken on the basis of
such certifications or instructions or in accordance with the
advice of counsel of the Trust, or counsel for SSI or the
Fund's investment adviser, the Fund will indemnify and hold
harmless CSC from any and all losses, claims, damages,
liabilities and expenses (including reasonable counsel fees
and expenses).
SSI will indemnify CISC against and hold CISC harmless
from any and all losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) in
respect of any claim, demand, action or suit not resulting
from CISC's bad faith, negligence, lack of due diligence or
willful misconduct and arising out of, or in connection with
its duties under this Agreement.
<PAGE> 10
CISC shall indemnify SSI against and hold SSI harmless
from any and all losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) in
respect to any claim, demand, action or suit resulting from
CISC's bad faith, negligence, lack of due diligence or
willful misconduct, and arising out of, or in connection
with, its duties under this Agreement. For purposes of this
Sub-Transfer Agent Agreement, "lack of due diligence" shall
mean the processing by CISC of a Fund share transaction in
accordance with a practice that is not substantially in
compliance with (1) a transaction processing practice of SSI
approved by Fund Trustees, (2) insurance coverages, or (3)
generally accepted industry practices of mutual fund agents.
CISC shall also be indemnified and held harmless by SSI
against any loss, claim, damage, liability and expenses
(including reasonable counsel fees and expenses) by reason of
any act done by it in good faith with due diligence and in
reasonable reliance upon any instrument or certificate for
shares reasonably believed by it (a) to be genuine and (b) to
be signed, countersigned or executed by any person or persons
authorized to sign, countersign, or execute such instrument
or certificate.
In addition, SSI will indemnify and hold CISC harmless
against any loss, claim, damage, liability and expense
(including reasonable counsel fees and expenses) in respect
of any claim, demand, action or suit as a result of the
negligence of the Fund, Trust SRF or SSI, or as a result of
CISC's acting upon any instructions reasonably believed by
CISC to have been executed or orally communicated by a duly
authorized officer or employee of the Fund, Trust SRF or SSI,
or as a result of acting in reliance upon written or oral
advice reasonably believed by CISC to have been given by
counsel for the Fund, Trust SRF or SSI.
In any case in which a party to this Agreement may be
asked to indemnify or hold harmless the other party hereto,
the party seeking indemnification shall advise the other
party of all pertinent facts concerning the situation giving
rise to the claim or potential claim for indemnification, and
each party shall use reasonable care to identify and notify
the other promptly concerning any situation which presents or
appears likely to present a claim for indemnification.
Prior to admitting to or agreeing to settle any claim subject
to this Section, each party shall give the other reasonable
opportunity to defend against said claim in either party's
name.
25. Employees. CISC and SSI are separately
responsible for the employment, control and conduct of their
respective agents and employees and for injury to such agents
or employees or to others caused by such agents or employees.
CISC and SSI severally assume full responsibility for their
respective agents and employees under applicable statues and
agree to pay all employer taxes thereunder. The conduct of
their respective agents and employees shall be included in
any reference to the conduct of CISC or SSI for all purposes
hereunder.
26. Termination and Amendment. This Agreement shall
continue in effect for eighteen (18) months from the
Operational Date, and will automatically be
<PAGE> 11
renewed for successive one year terms thereafter. After
eighteen (18) months from the Operational Date the Agreement
may be terminated at any time by not less than one hundred
eighty (180) days written notice. Upon termination hereof,
SSI shall pay CISC such compensation as may be due to CISC as
of the date of such termination for services rendered and
expenses incurred, as described in Schedule B. This
Agreement may be modified or amended from time to time by
mutual agreement between SSI and CISC.
27. Successors. In the event that in connection with
termination of this Agreement a successor to any of CISC's
duties or responsibilities hereunder is designated by SSI by
written notice to CISC, CISC shall promptly at the expense of
SSI, transfer to such successor, or if no successor is
designated, transfer to the Trust, a certificate list of the
shareholders of the Fund (with name, address and taxpayer
identification or Social Security number), a historical
record of the account of each shareholder and the status
thereof, all other relevant books, records, correspondence
and other data established or maintained by CISC under this
Agreement in machine readable form and will cooperate in the
transfer of such duties and responsibilities, and in the
establishment of books, records and other data by such
successor. CISC shall be entitled to reimbursement of its
reasonable out-of-pocket expenses in respect of assistance
provided in accordance with the preceding sentence.
28. Miscellaneous. This Agreement shall be construed
in accordance with and governed by the laws of The
Commonwealth of Massachusetts.
The captions in this Agreement are included for
convenience of reference only and in no way define or limit
any of the provisions of this Agreement or otherwise affect
their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which
shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
CISC shall keep confidential all records and information
provided to CISC by the Trust, SSI, SRF, and prior, present
or prospective shareholders of the Fund, except, after notice
to SSI , to the extent disclosures are required by this
Agreement, by the Fund's registration statement, or by a
reasonable request or a valid subpoena or warrant issued by a
court, state or federal agency or other governmental
authority.
Neither CISC nor SSI may use each other's name in any
written material without written consent of such other party,
provided , however, that such consent shall not unreasonably
withheld. CISC and SSI hereby consent to all uses of their
respective names which refer in accurate terms to appointment
and duties under this Agreement or which are required by any
governmental or regulatory authority including required
filings. SSI, SRF, the Trust and the Fund consent to use of
their respective names and logos by CISC for shareholder
correspondence and statements
This Agreement shall be binding upon and shall inure to
the benefit of SSI and CISC and their respective successors
and assigns. Neither SSI nor CISC shall assign this
<PAGE> 12
Agreement nor its rights and obligations under this Agreement
without the express written consent of the other party.
This Agreement may be amended only in writing by mutual
agreement of the parties.
Any notice and other instrument in writing authorized or
required by this Agreement t be given to SSI or CISC shall
sufficiently be given if addressed to that party and mailed
or delivered to it as its office set for the below or at such
other place as it may from time to time designate in writing.
SSI, the Trust and the Fund:
SteinRoe Services Inc.
One South Wacker Drive
Suite 3300
Chicago, Illinois 60606
Attn: Jilaine Hummel Bauer, Esq.
CISC:
Colonial Investors Service Center, Inc.
One Financial Center
Boston, Massachusetts 02111
Attn: Mary McKenzie; with a separate copy to
Attn: Nancy L. Conlin, Esq., Legal Department
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and sealed as of the date first
above written.
STEINROE SERVICES INC.
By: TIMOTHY K. ARMOUR
Name:
Title: Vice President
COLONIAL INVESTORS SERVICE CENTER, INC.
By: D.S. SCOON
Name: Davey S. Scoon
Title: President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
STEIN ROE INCOME TRUST
STEIN ROE INVESTMENT TRUST
STEIN ROE MUNICIPAL TRUST
By: TIMOTHY K. ARMOUR
Name: Timothy K. Armour
Title: President
<PAGE>
SCHEDULE A
Stein Roe Mutual Funds (the "Fund"), consists of the
following series of portfolios:
Stein Roe Investment Trust
- --------------------------
Stein Roe Growth & Income Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Balanced Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Income Trust
- ----------------------
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Municipal Trust
- -------------------------
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Municipal Money Market Fund
Stein Roe Managed Municipals Fund
<PAGE>
SCHEDULE B
This Schedule B is attached to and is part of a certain
Sub-Transfer Agent Agreement ("Agreement") dated July 3, 1996
between SteinRoe Services Inc. ("SSI") and Colonial Investors
Center, Inc. ("CISC").
A. SSI will pay CISC for services rendered under the
Agreement and in accordance with a negotiated allocation of
revenues and reimbursement of costs as follows:
1. As of the Operational Date, CISC and SSI shall agree upon
a fixed monthly per account fee to be paid under the
Agreement, which shall be in an amount equal to 1/12 (a) the
estimated total, determined on an annualized basis, of (1)
all incremental costs incurred by CISC in connection with the
sub-transfer agency relationship, plus (2) 1/2 the net
economic benefit derived by Liberty Financial Companies, the
parent company of both CISC and SSI, as a result of the sub-
transfer agency relationship, (b) divided by the number of
shareholder accounts to be serviced by CISC pursuant to the
Agreement as of the Operational Date.
2. For the first eighteen (18) months of the Agreement, SSI
shall pay CISC, monthly in arrears, commencing with the first
day of August, 1996, and on the first day of each month
thereafter, the greater of (a) the product of the fixed per
account fee determined as provided in paragraph 1. above
multiplied by the number of shareholder accounts serviced by
CISC pursuant to the Agreement as of the end of the preceding
month, and (b) 1/12 the annualized estimated total costs and
benefit determined pursuant to (a) of paragraph 1. above.
All estimates under this paragraph shall be determined no
later than September 30, 1996. The annual fee for the first
eighteen months shall not be less than $1.4 million.
3. Commencing January 1, 1998, and during each calendar year
thereafter, SSI shall pay CISC a fee equal to CISC's budgeted
annual per account expense of providing services pursuant to
the Agreement. Said fee shall be paid monthly in arrears, on
the first day of each month, in an amount equal to the
product of 1/12 the budgeted annual per account fee
multiplied by the number of shareholder accounts serviced by
CISC pursuant to the Agreement as of the end of the preceding
month. All budgeted numbers under this paragraph shall be
determined no later than November 30 each year.
B. The Fund shall be credited each month with balance
credits earned on all Fund cash balances.
Upon thirty (30) days' notice to SSI, CISC may increase
the fees it charges to the extent the cost to CISC of
providing services increases (i) because of changes in the
Fund's Prospectus, or (ii) on account of any change after the
date hereof in law or regulations governing performance of
obligations hereunder.
Fees for any additional services not provided herein, ad
hoc reports or special programming requirements to be
provided by CISC shall be agreed upon by SSI and CISC at such
time as CISC agrees to provide any such services.
In addition to paying CISC fees as described herein, SSI
agrees to reimburse CISC for any and all out-of-pocket
expenses and charges in performing services under the
Agreement (other than charges for normal data processing
services and related software, equipment and facilities)
including, but not limited to, mailing service, postage,
printing of shareholder statements, the cost of any and all
forms of the Trust and other materials used in communicating
with shareholders of the Trust, the cost of any equipment or
service used for communicating with the Trust's custodian
bank or other agent of the Trust, and all costs of telephone
communication with or on behalf of shareholders allocated in
a manner mutually acceptable to CISC and SSI.
<PAGE>
SCHEDULE C
SRS and CSC hereby agree that the date on which the
complete services began ("Operational Date") under the Sub-
Transfer Agent Agreement between them dated July 3, 1996, is:
July , 1996
STEINROE SERVICES INC.
By:________________________________________
Name:
Title: Vice President
COLONIAL INVESTORS SERVICE CENTER, INC.
By:________________________________________
Name:
Title:
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of January 1, 1997, and
effective that date unless otherwise indicated below, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust and Stein Roe Investment Trust
(collectively the "Trust") and Colonial Investors Service
Center, Inc. ("CISC") to add Stein Roe Advisor Trust
(effective February 14, 1997), Stein Roe Institutional Trust
(effective January 2, 1997) and Stein Roe Trust (effective
February 14, 1997), comprised of the Series listed on
Schedule A, as amended, and assenting parties to the contract
and to add new series of the existing Trusts. The amended
Schedule A is as follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
STEIN ROE ADVISOR TRUST
Stein Roe Advisor Balanced Fund
Stein Roe Advisor Growth & Income Fund
Stein Roe Advisor Growth Stock Fund
Stein Roe Advisor International Fund
Stein Roe Advisor Special Fund
Stein Roe Advisor Special Venture Fund
Stein Roe Advisor Young Investor Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date first
above written.
SteinRoe Services Inc.
By: HEIDI J. WALTER
Name:: Heidi J. Walter
Title: Vice President
Colonial Investors Service Center, Inc.
By: MARY DILLON MCKENZIE
Name: Mary Dillon McKenzie
Title: Senior Vice President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: JILAINE HUMMEL BAUER
Name: Jilaine Hummel Bauer
Title: Executive Vice President and Secretary
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of June 30, 1997, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust, Stein Roe Investment Trust,
Stein Roe Advisor Trust, Stein Roe Trust and Stein Roe
Institutional Trust (collectively the "Trust") and Colonial
Investors Service Center, Inc. ("CISC") to add additional
series of the existing Trusts. The amended Schedule A is as
follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Reserves Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe Municipal Money Market Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
Stein Roe Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
STEIN ROE ADVISOR TRUST
Stein Roe Advisor Balanced Fund
Stein Roe Advisor Growth & Income Fund
Stein Roe Advisor Growth Stock Fund
Stein Roe Advisor International Fund
Stein Roe Advisor Special Fund
Stein Roe Advisor Special Venture Fund
Stein Roe Advisor Young Investor Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date first
above written.
SteinRoe Services Inc.
By: HEIDI J. WALTER
Name:: Heidi J. Walter
Title: Vice President
Colonial Investors Service Center, Inc.
By: JOHN W. BYRNE
Name: John W. Byrne
Title: Vice President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: HEIDI J. WALTER
Name: Heidi J. Walter
Title: Vice President
Exhibit 11(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights" and "Independent Auditors" and to
the incorporation by reference of our reports dated
July 25, 1997 with respect to Stein Roe Stein Roe
Cash Reserves Fund, and August 11, 1997 with respect
to Stein Roe Intermediate Bond Fund, Stein Roe Income Fund,
Stein Roe High Yield Fund and SR&F High Yield Portfolio in the
Registration Statement (Form N-1A) of Stein Roe Income Trust
and related Prospectus and Statement of Additional
Information, filed with the Securities and Exchange
Commission in this Post-Effective Amendment No. 33
to the Registration Statement under the Securities Act of 1933
(Registration No. 33-02633) and in this Amendment No. 34
to the Registration Statement under the
Investment Company Act of l940 (Registration No. 811-4552).
ERNST & YOUNG LLP
Chicago, Illinois
October 30, 1997
Stein Roe Funds
Individual Retirement Account
Inside you will find:
How to Establish an IRA
IRA Disclosure Statement
Stein Roe IRA Plan
<PAGE> 1
TABLE OF CONTENTS
Page
IRA Disclosure Statement ...........1
Revocation Rights...................1
Eligibility.........................2
Contributions.......................2
Contribution Corrections............5
Rollover Contributions and
Asset Transfers...................5
Spousal IRA Contributions...........7
Distribution of Benefits............7
Taxation of Distributions...........8
Reporting to the Internal
Revenue Service...................9
Prohibited Transactions............10
The Custodian and the Plan Sponsor.10
Investment of Contributions........10
Charges and Fees...................11
Simplified Employee Pension Plans..12
Stein Roe Funds Individual
Retirement Account Plan..........14
IRA DISCLOSURE STATEMENT
We are required to give you this Disclosure Statement in order to
assure that you are informed and understand the nature of an
Individual Retirement Account ("IRA"). The Individual Retirement
Account Plan and the Application Form transmitted with this
booklet are considered a single document which, in a
substantially similar form, was approved by the Internal Revenue
Service as a tax-qualified Individual Retirement Account Plan
("IRA" or the "Plan") and received Internal Revenue Service
Prototype Plan No. D100035d dated September 19, 1996. We intend
to apply to the Service for approval of the Plan as amended and
restated in this booklet and will advise Plan Participants when
the Service responds to our application. Internal Revenue Service
approval is a determination only as to the form of the documents
and does not mean that the Service approves the merits of the
Plan.
By adopting the Plan, your IRA is qualified under the
Internal Revenue Code. Use of the Plan also simplifies and
minimizes the administration and investment of your IRA assets.
Please note that this is not a SIMPLE retirement plan document
under code section 408(p).
We urge you to read this booklet carefully before adopting
the Plan.
REVOCATION RIGHTS
If you establish an IRA under the Stein Roe Funds Individual
Retirement Account Plan and you receive this booklet less than
seven days preceding the date on which you established your IRA,
you have the right to revoke your IRA. (If you receive this
booklet at least seven days prior to the date on which you
establish your IRA, you do not have this right.) If you revoke
your IRA, the full amount of your contributions will be refunded
without reduction for fees, expenses or market fluctuations. In
order to avoid possible losses in market values of
<PAGE> 2
contributions during the seven-day revocation period, the
Custodian reserves the right not to invest your contributions in
excess of $2,000 until the end of the revocation period unless
you invest them in Stein Roe Cash Reserves Fund. For your
convenience, initial contributions of $2,000 or less generally
will be invested as soon as possible.
Should you decide to revoke your IRA as described above, you
may do so and will receive a full refund only if you call
SteinRoe Services Inc. ("SSI"), agent of the Custodian, during
normal business hours within seven days from the date on which
your IRA is established -- you may call toll free at 800-338-
2550. Your telephone IRA revocation instructions will be tape-
recorded. If you fail to properly revoke your IRA within seven
days after it is established, you may not revoke your IRA at a
later date.
The rest of this Disclosure Statement is a general outline
of the provisions of the Plan and certain important
considerations involved in a decision to adopt the Plan for
retirement savings.
ELIGIBILITY
If you are employed (or self-employed) and under age 70 1/2 at
the end of a taxable year, you may establish an IRA. A spouse
with little or no compensation can establish a Spousal IRA if at
the end of a taxable year he or she is under age 70 1/2 and still
married. For federal income tax purposes, your IRA contributions
may be treated as deductible or nondeductible as discussed below.
You may establish an IRA for the purpose of making a rollover
contribution, regardless of your age or employment status.
CONTRIBUTIONS
In General
As long as you are eligible, you may make annual contributions to
an IRA in an amount of up to the lesser of 100 percent of
compensation or $2,000. Similarly, you may contribute up to
$2,000 to an eligible spouse's IRA as long as the combined total
contributions to both spouse's IRAs do not exceed the combined
compensation of you and your spouse. You must file a joint
federal income tax return and your spouse's taxable compensation
for the year must be less than yours. This means that total
combined contributions to both IRAs can be as much as $4,000 a
year. The amount contributed may be divided between your IRAs in
any way you decide as long as not more than $2,000 is contributed
to either spouse's IRA for a single year. If you reach age 70 1/2
before your spouse does and you are still employed, you may no
longer make contributions to your IRA, but you may continue to
make spousal contributions to your spouse's account until the
year your spouse reaches age 70 1/2. Contributions that exceed
the maximum limits are excess contributions subject to penalties
described later in this booklet.
Compensation includes salary, bonuses, wages, overtime pay,
tips, professional fees, earned income from self-employment, and
taxable alimony or separate maintenance payments. It does not
include rental income, dividends or interest, or amounts received
as pension, annuity or deferred compensation income.
Your IRA contributions are held in a Custodial Account
exclusively for your benefit and the benefit of any beneficiaries
you may designate on a Beneficiary Form delivered to the
Custodian. The assets in your IRA generally may not be combined
with those of another individual, and your right to the entire
balance in your IRA is nonforfeitable.
IRA contributions for a given year may be made until the due
date for filing your federal income tax return for that year
(generally April 15) but not including extensions. You must
designate the tax year for which each contribution is made. If
you do not designate the desired year for a contribution, your
contribution will be applied to the current year.
<PAGE> 3
Under the Plan, the minimum initial contribution is $500 per
Mutual Fund account. This minimum amount must be contributed in a
single payment when you establish your IRA. Thereafter,
contributions can be made in amounts as small as $50 each. These
minimums do not apply to IRAs established as part of a Simplified
Employee Pension Plan ("SEP") in which there is more than one
participant. Stein Roe & Farnham also may waive or reduce these
minimums.
Deductible Contribution Limit
General - If neither you nor your spouse, if married, has been an
active participant in an employer-maintained retirement plan
during the year for which your contribution is made,
contributions are deductible to the full extent of the
contribution limit. For individual accounts this means you may
deduct your contribution up to the lesser of $2,000 or 100
percent of your individual compensation. The deductibility of
contributions to a Spousal IRA is determined by the same rules as
those applicable to regular contributions. You may deduct the
contribution to the IRA of a spouse with less compensation in the
amount of the lesser of: i) $2,000; or ii) the compensation of
both spouses, reduced by any deduction allowed for contributions
to the IRA of the spouse with more compensation. The deduction
for contributions to both spouse's IRAs may be further limited if
either spouse is covered by an employer-maintained retirement
plan.
If either you or, if you are married, your spouse, is an
active participant in an employer-maintained retirement plan, the
deductibility of your contribution depends upon your modified
adjusted gross income ("MAGI") and filing status for the year for
which your contribution is made. Your contribution is fully
deductible if your MAGI is less than $40,000 if you are married,
or $25,000 if you are unmarried. Your deduction is eliminated
when your MAGI reaches $50,000 if you are married, or $35,000 if
you are unmarried. Your deduction is phased out if your MAGI is
between these amounts as explained below. These rules assume
that, if you are married, you are going to file a joint
tax return.
For active participants who are married but do not live with
a spouse, for any part of the year and file a separate return,
the deductibility of contributions is determined as if you were
unmarried. If you are married and living together but file
separate tax returns, you and your spouse can take only a partial
deduction for your respective IRA contributions if your
individual MAGI is less than $10,000, and no deduction if your
individual MAGI is $10,000 or over.
Active Participant - Your annual IRS Form W-2 from your employer
should indicate whether you are an active participant for
purposes of your IRA deduction. In general, you (or your spouse)
are considered an active participant in an employer-maintained
retirement plan for any year if you participate in a qualified
defined benefit plan, a defined contribution plan (such as a
money purchase pension, profit-sharing, 401(k), stock bonus or
annuity plan), a SEP, a SIMPLE, or a government plan (excluding
unfunded deferred compensation plans under section 457 of the
Internal Revenue Code) during any part of the plan year ending
with or within the year for which you make an IRA contribution.
You are treated as an active participant even if your plan
benefits are not yet fully vested and nonforfeitable, but you are
not treated as an active participant if you have not yet
satisfied the plan's eligibility requirements for minimum age or
service. You also are treated as an active participant for any
year in which you make a voluntary or mandatory contribution to
an employer-maintained retirement plan, even if your employer
makes no contribution to the plan on your behalf.
<PAGE> 4
Modified Adjusted Gross Income ("MAGI") - If you are an active
participant in an employer-maintained retirement plan, your MAGI
must be calculated to determine what portion, if any of your IRA
contribution is deductible. It is not necessarily the same as the
amount shown on the "adjusted gross income" line of your federal
income tax return. Refer to IRS Publication 590 for details. Note
that for purposes of your IRA deduction limit, your MAGI includes
any taxable Social Security benefits you receive for the year, as
well as passive activity losses or credits derived from the
conduct of a trade or business in which you do not materially
participate. If you are married and file a joint return, your
deductible contribution limit is determined on the basis of the
combined MAGI of you and your spouse.
Nondeductible Contribution Limit
To the extent you are not eligible to make a deductible
contribution, you may make a nondeductible contribution to your
IRA up to the excess of (i) your aggregate contribution limit
(100 percent of compensation up to $2,000 for individuals, 100
percent of combined compensation up to $4,000 for a married
couple) over (ii) the applicable deductible contribution limit.
You must designate nondeductible contributions for a given
year on IRS Form 8606, which must be filed with your federal
income tax return for that year. You should retain a copy of your
return and IRS Form 8606 for your reference in determining the
amount of cumulative deductible and nondeductible contributions.
Your return and IRS Form 8606 will be needed to determine the
taxable portion of any withdrawals you make. You need not specify
whether a contribution is deductible to the Custodian of your IRA
because it does not differentiate between deductible and
nondeductible contributions on its records.
Determining Your Deductible and Nondeductible Contribution Limits
Active participants in employer-maintained retirement plans (at
certain income levels) will need to determine deductible and
nondeductible contribution limits for a regular IRA. For single
individuals with MAGI between $25,000 and $35,000, or for a
married individual with combined MAGI between $40,000 and
$50,000:
1. Determine Excess MAGI by subtracting the applicable threshold
amount (i.e., subtract $40,000, if filing jointly; $25,000 or
$0 if not) from your actual MAGI; if the result is more than
$10,000 or less than zero, this calculation is not applicable;
your contribution is either completely nondeductible or fully
deductible--see above.
2. Subtract the Excess MAGI determined in Step 1 from $10,000.
3. Multiply the result in Step 2 by 20 percent and round the
product up to the next highest multiple of $10. This is your
deductible contribution limit. If, however, the product is
less than $200 but greater than $0, your deductible
contribution limit is $200.
4. Subtract your deductible contribution limit from your
contribution limit (100 percent of compensation up to $2,000
for individuals). This is your nondeductible contribution
limit.
Example: A single working individual with MAGI of $32,000, who is
an active participant in an employer-maintained retirement plan.
The contribution limit is $2,000 and the applicable threshold
is $25,000.
Step 1: Excess MAGI: $32,000 - $25,000 = $7,000
Step 2: Margin: $10,000 - $7,000 = $3,000
Step 3: Deductible Portion: $3,000 x 20% = $600
Step 4: Nondeductible Contribution Limit:
$2,000 - $600 = $1,400
<PAGE> 5
Note: This computation applies separately to each working
spouse with a regular IRA (contributions are limited by each
individual's income). Consult your tax advisor or IRS Publication
590 for details about figuring the deductibility of contributions
to a Spousal IRA.
CONTRIBUTION CORRECTIONS
Contributions in excess of your maximum allowable annual
contribution limit are treated as excess contributions whether or
not you deduct them. You will be liable for a nondeductible
excise tax of 6 percent on the amount of the excess for the year
the excess contribution is made unless (i) you withdraw the
excess and the income earned on the excess prior to the due date
for filing your federal income tax return (including extensions)
and (ii) you do not deduct the excess on your federal income tax
return.
You may direct the Custodian to return the excess or apply
the excess as a contribution for a subsequent year by completing
an Excess Contribution Correction Form. The Custodian will
automatically treat contributions to your IRA account in excess
of the maximum dollar contribution limit ($2,000 per individual
account) as a contribution for the subsequent year unless you
direct the Custodian in writing to distribute to you such excess
and the income earned on the excess prior to the deadline for
filing your federal income tax return for the year for which the
excess contribution was made. If contributions to your account
are less than $2,000, but are in excess of your compensation, the
Custodian will not take any action unless you direct the
Custodian to make a corrective distribution by properly
completing an Excess Contribution Correction Form.
If an excess contribution remains in your IRA after the due
date for filing your tax return, you will be subject to the 6
percent excise tax for each year the excess remains uncorrected.
If you withdraw the excess after the date for filing your federal
income tax return for the year in which the excess contribution
was made and the total contribution for that year exceeded
$2,250, the amount withdrawn may be taxed as ordinary income and
also may be subject to a nondeductible excise tax on premature
distributions equal to 10 percent of the amount withdrawn. The
withdrawal penalty (but not the 6 percent excise tax) may be
avoided if you correct your excess contribution by applying the
excess as a contribution for a later year.
Contributions you deduct in excess of your deductible
contribution limit also are treated as excess contributions to
the extent you do not designate them as nondeductible
contributions or, if permitted, correct them by withdrawal or
reallocation to a subsequent year as described above.
ROLLOVER CONTRIBUTIONS AND ASSET TRANSFERS
Eligible Rollover Distributions
You may defer taxation on an eligible rollover distribution from
your employer's tax-qualified plan or 403(b) plan by making a
rollover contribution of the distribution to an IRA within 60
days of the date of the distribution. In addition, if you are a
spouse or former spouse who is receiving an eligible rollover
distribution paid by reason of your spouse's death or pursuant to
a qualified domestic relations order (within the meaning of
section 414(p) of the Internal Revenue Code) issued in a divorce
or similar proceeding, you may make a rollover contribution of
that distribution. An "eligible rollover distribution" is a
distribution of all or any part of the taxable portion of the
balance to your credit in your employer's tax-qualified plan
except (i) any distribution that is required to be made because
you have reached age 70 1/2 ; (ii) any distribution made over
your life or life
<PAGE> 6
expectancy (or the lives or life expectancies of you and a
designated beneficiary); and (iii) any distribution which is part
of a series of substantially equal payments over a period of 10
or more years.
You may roll over all or any portion of an eligible rollover
distribution, but only that portion which is properly rolled over
into an IRA will be eligible for the tax deferral. The remainder
will generally be included in your gross income as ordinary
income subject to federal income tax in the year in which you
receive it. If your qualifying distribution includes property
other than cash, you may sell the property and roll over cash
equal to the fair market value of the property or, with the
consent of the Custodian, you may roll over
the property.
Eligible rollover distributions are subject to mandatory 20
percent federal income tax withholding unless you elect a direct
rollover to an IRA or tax-qualified plan. If you elect a direct
rollover, your distribution proceeds must be made payable to the
trustee or custodian of the IRA or tax-qualified plan to which
the rollover is made. If the proceeds are made payable to you, 20
percent mandatory withholding will apply, but you still may roll
over an amount equal to all or any portion of your eligible
rollover distribution. Accordingly, in the case of an eligible
rollover distribution paid to you (less the amount withheld), you
may roll over an amount equal to the eligible rollover
distribution by supplementing the rollover with cash from other
sources.
IRA Rollover Contributions and Asset Transfers
You also may make an IRA-to-IRA rollover contribution, but you
are limited to one IRA-to-IRA rollover every 12 months (beginning
on the date you receive your IRA distribution, and not on the
date you make your rollover contribution). However, a tax-free
IRA asset transfer from one custodian to another is not treated
as a rollover and, therefore, is not subject to the 12-month
limitation. You may make an IRA asset transfer to a Stein Roe IRA
by completing the Asset Transfer section of the Application Form.
An asset transfer from your Stein Roe IRA to another custodian
will be made upon receipt by SSI of a written request signed by
both you and your successor custodian in a form acceptable to
SSI. If you make an asset transfer from your Stein Roe IRA in the
year you reach age 70 1/2 or any subsequent year, the amount
transferred will be reduced by any amount required to satisfy the
minimum distribution requirement for the year of transfer as
provided in Section 4 of the Plan. The amount by which the
transfer is reduced shall be distributed to you.
In general, asset transfers and rollover contributions may
be invested in the same IRA as regular contributions. However, if
assets are transferred or rolled over from a plan ("transferor
plan") after distribution from the transferor plan required by
sections 401(a)(9), 408(a)(6) or 408(b)(3) of the Code has
commenced ("required distribution"), the assets must be placed in
a separate IRA if you are receiving required distributions from
your preexisting IRA over a period longer than the period over
which you were receiving required distributions from the
transferor plan. (The assets from the transferor plan must be
distributed over a period no longer than the period established
under the transferor plan.) In addition, an eligible rollover
distribution must be rolled over into a separate IRA if you wish
to preserve the ability to later roll over those assets to
another qualified plan.
If you wish to make a rollover contribution to the Plan, you
must complete the appropriate sections of the Application Form.
If you decide to make a rollover from your Stein Roe IRA to
another IRA, you must complete and return a Distribution Request
Form to SSI. To avoid income and premature distribution
<PAGE> 7
taxes, a rollover must be made within 60 days of the date of the
distribution.
The Stein Roe Funds IRA Plan is not a SIMPLE retirement
plan. You may not transfer or roll over SIMPLE IRA assets into
this Plan.
SPOUSAL IRA
If you are married and employed (or self-employed), you may be
able to contribute to a Spousal IRA for your spouse who has
little or no compensation, as long as you file a joint federal
income tax return. For more information about contributions to
Spousal IRAs, see the earlier discussion in the section entitled
"Contributions."
Under this arrangement, each spouse must sign a separate
Application Form to establish separate IRAs. Because a separate
IRA is established for each of you, you may make regular IRA
contributions to a Spousal IRA that was established in a previous
year. Conversely, Spousal IRA contributions may be made to an IRA
established in a prior year for the purpose of making regular
contributions. Except for the limitations discussed above, a
Spousal IRA is identical to a regular IRA.
DISTRIBUTION OF BENEFITS
General
You may request a distribution from your IRA by completing and
returning to SSI a Distribution Request Form acceptable to the
Custodian. Distributions must begin no later than April 1
following the year in which you attain age 70 1/2. (If you and
your spouse maintain IRAs under a spousal arrangement, then your
age determines whether you are required to take distributions
from your IRA and your spouse's age is the relevant age for your
spouse's IRA.)
You may elect to receive your distribution in cash or in
Mutual Fund shares by either one, or a combination of, the
following methods:
- - In a lump sum; or
- - In installment payments payable over a period of time not
greater than your life expectancy or the joint and last
survivor life expectancy of you and your designated
beneficiary.
Minimum Distribution Requirements
Beginning with the year in which you reach age 70 1/2, you must
begin to receive a minimum distribution amount each year. Your
initial minimum distribution must be made no later than April 1
following the year you reach age 70 1/2; thereafter, your minimum
distribution must be made no later than December 31 of each year.
Thus, if you defer your first minimum distribution until the year
following the year you reach age 70 1/2, you will be required to
withdraw a minimum distribution amount for both the prior and
current year.
In general, the minimum distribution amount you are required
to withdraw each year is equal to the balance in your Stein Roe
IRA (aggregating all Mutual Fund accounts maintained under your
IRA) on December 31 of the prior year divided by the applicable
life expectancy. Your aggregate account balance, however, is
increased by any rollover contributions to your Stein Roe IRA
received after December 31 that were distributed from another IRA
or tax-qualified plan before December 31. If you establish an
installment plan, you are responsible for verifying that you have
withdrawn the requisite minimum distribution amount each year and
making additional withdrawals, if necessary. If you maintain more
than one IRA, your minimum distribution amount must be determined
separately for each IRA.
The applicable life expectancy used to determine your
minimum distribution amount each year is either your life
expectancy or the joint and last survivor life expectancy of you
and your designated beneficiary (who is either an individual or a
trust meeting certain requirements)
<PAGE> 8
determined in the year you reach age 70 1/2 by using Internal
Revenue Service life expectancy tables, reduced by one for each
year elapsed since that year, unless you elect to recalculate
life expectancy. You may recalculate your life expectancy or, if
your spouse is your designated beneficiary, your spouse's life
expectancy, or the joint and last survivor life expectancy of you
and your spouse each year. Your election to recalculate or not
recalculate life expectancy becomes irrevocable on the April 1
following the year you reach age 70 1/2. If you elect to
recalculate life expectancy and you (or your spouse, if
applicable) die after payments have commenced, the life
expectancy of the deceased will be reduced to zero and the
maximum period over which the remaining benefits may be paid to
your beneficiaries will be correspondingly reduced. If your
method of distribution is based on the joint and last survivor
life expectancy of you and a non-spouse beneficiary, the method
must comply with regulations designed to assure at least 50
percent of the present value of the amount available for
distribution is paid within your life expectancy. These
regulations require certain minimum distributions based on an IRS
table.
Distribution of Death Benefits
You may designate one or more beneficiaries to receive the
benefits in your IRA upon your death by filing a properly
executed Beneficiary Form with the Custodian. If you do not
designate a beneficiary, your death benefits will be distributed
to your surviving spouse if you are married or, if you have no
surviving spouse, to your estate. If your beneficiary fails to
elect a method of distribution, your death benefits will be
distributed in a lump sum.
If distributions to you have commenced before your death,
and you die on or after April 1 of the year following the year
you reach age 70 1/2, your death benefits must be distributed at
least as rapidly as under the method by which you were receiving
distributions. If you die before April 1 of the year following
the year you reach age 70 1/2, regardless of whether
distributions to you have commenced, your death benefits must be
distributed no later than five years after the last day of the
year in which you die unless your designated beneficiary (who is
either an individual or a trust meeting certain requirements)
elects the alternative distribution method described in the next
paragraph.
If he or she qualifies to elect the alternative distribution
method, your designated beneficiary may elect to receive your
death benefits in installments over a period of as long as his or
her life expectancy, provided such installments commence no later
than the last day of the year following the year in which you
die. If your sole beneficiary is your surviving spouse,
commencement of such payments may be further delayed until the
end of the calendar year in which you would have reached age 70
1/2. Under this alternative method, your designated beneficiary's
life expectancy is determined as of his or her birthday in the
year payments commence. In addition, if your designated
beneficiary is your surviving spouse, your spouse may elect to
treat his or her share of your death benefits as his or her own
IRA, subject to the distribution requirements applicable to a
participant.
For more complete information on the distribution of death
benefits, please refer to Sections 4.4 and 4.5 of the Plan and
the Beneficiary Form.
TAXATION OF DISTRIBUTIONS
General
In general, distributions from your IRA are taxed to the
recipient as ordinary income in the year of receipt and do not
receive the more favorable federal income tax treatment afforded
recipients of distributions from certain kinds of tax-qualified
retirement plans, such as special income averaging. However,
recipients are
<PAGE> 9
eligible to utilize the general income averaging provisions of
the Internal Revenue Code. In some instances, installment
payments may reduce the total tax paid by the recipient by
extending taxation over a number of years.
If you have made nondeductible contributions to any IRA, a
portion of your distribution will be nontaxable. The nontaxable
amount is the portion of your distribution that bears the same
ratio to the distribution as (i) your aggregate nondeductible
contributions to all of your IRAs bear to (ii) the aggregate
balance in all of your IRAs on the last day of the year in which
you received your distribution plus the amount of your
distribution. For this purpose, the balances in all IRAs that you
maintain (including rollovers and SEPs) and all distributions you
receive during the year must be aggregated.
Distributions are subject to withholding of federal income
tax at a rate of 10 percent unless you elect not to have
withholding apply.
Additional Taxes on Distributions
If you receive a distribution prior to age 59 1/2, the taxable
portion of your distribution generally will be treated as a
premature distribution subject to a 10 percent additional tax.
This additional tax normally does not apply, however, to
distributions: 1) by reason of your death or permanent
disability; 2) to the extent of your payment of unreimbursed
medical expenses in excess of 7.5 percent of your adjusted gross
income; 3) to the extent of your payment for health insurance for
yourself, your spouse and dependents during a period of extended
unemployment; 4) payable in substantially equal installments over
a period no greater than your life expectancy or the joint and
last survivor life expectancy of you and your designated
beneficiary; 5) to an alternate payee pursuant to a qualified
domestic relations order; or 6) of the principal amount of an
excess deferral in accordance with applicable rules and
regulations.
If you fail to withdraw the minimum distribution amount for
any year after reaching age 70 1/2, you will be subject to a 50
percent additional tax on the amount by which the required
minimum distribution amount exceeds the amount withdrawn. Prior
to 1997, if aggregate distributions from all of your IRAs and any
tax-qualified retirement plans exceeded $155,000, you were
subject to a 15 percent additional tax on the excess amount. This
excess distribution tax has been repealed. As a result, beginning
in 1997, if you are age 59 1/2 you may withdraw an unlimited
amount (subject to regular income taxes) without the additional
15 percent tax. You should consult your tax and legal advisors to
determine if this is an appropriate strategy in your particular
case.
The 15 percent tax on excess retirement accumulations also
has been repealed for purposes of all estates and decedents dying
after December 31, 1996.
REPORTING TO THE INTERNAL REVENUE SERVICE
Each year the Custodian will send you IRS Form 5498, which
reports contributions made to your IRA for the prior year. The
Custodian also will report to you your prior year distributions
on IRS Form 1099-R. Copies of these reports also
are filed with the Internal Revenue Service ("IRS").
If you make a nondeductible contribution to your IRA, you
must report it to the IRS on IRS Form 8606, which must be filed
with your federal income tax return for the year for which the
contribution is made. If you owe additional taxes on excess
contributions, on premature distributions or for insufficient or
excessive distributions, you must file IRS Form 5329 with the
IRS. IRS Form 5330 must be filed in connection with a prohibited
transaction.
<PAGE> 10
PROHIBITED TRANSACTIONS
If you engage in a "prohibited transaction" with your IRA, your
IRA will lose its tax exemption and you will be treated as having
received a distribution of your IRA as of the first day of the
year in which you engaged in the prohibited transaction. The
deemed distribution would be subject to federal income tax and,
if you are under age 59 1/2, to the additional 10 percent tax on
premature distributions on the balance in your IRA. Prohibited
transactions include such transactions as the selling to, buying
from, leasing any property to or from, lending to or borrowing
from, furnishing goods or services to, or receiving goods or
services from, a "party in interest" (i.e., a party related in
some way to your IRA). You also are prohibited from improperly
using the income or assets of your IRA, or allowing certain other
"disqualified persons" to do so. However, a transfer of all or a
portion of your IRA pursuant to a "qualified domestic relations
order" such as a property settlement agreement under a divorce
decree is not considered a prohibited transaction.
Further, your IRA may not be invested in life insurance, nor
may any part of your IRA be pledged as security for a loan. If
you do pledge your IRA, you will be treated as if you received a
taxable distribution of the portion of your IRA assets used as
security for the loan. This portion of your IRA would be subject
to federal income tax and, if you are under age 59 1/2, the
additional 10 percent tax on premature distributions.
THE CUSTODIAN AND THE PLAN SPONSOR
The Custodian is named in the Application Form and is responsible
for the administration of the Plan in accordance with the terms
of the Application Form and Plan. The Custodian has engaged
SteinRoe Services Inc. ("SSI"), the parent of the Plan Sponsor,
Stein Roe & Farnham Incorporated, to perform most of the
ministerial functions in connection with the maintenance of Stein
Roe Mutual Fund accounts established under the Plan. SSI also
serves as transfer agent for each of the Stein Roe Mutual Funds.
Stein Roe & Farnham, as Plan Sponsor, has the authority to amend
the Plan on behalf of all participants.
INVESTMENT OF CONTRIBUTIONS
The Plan provides a wide range of investment alternatives from
which you may construct a portfolio to suit your own retirement
planning needs. You may invest your IRA in shares of one or any
combination of the no-load Stein Roe Mutual Funds (the "Mutual
Funds" or "Funds") listed on the Application Form. If you have at
least $250,000 in your IRA, you also may invest your IRA in other
investments in addition to (or in lieu of) the Stein Roe Funds.
However, at least 50 percent of your IRA must be invested in the
Stein Roe Funds and/or be subject to an investment advisory
agreement with Stein Roe & Farnham. Stein Roe & Farnham may elect
to reduce or waive these minimums.
The investment minimum required to establish an account with
any of the Funds is $500, unless Stein Roe & Farnham waives or
reduces this minimum. Subsequent contributions to the same Mutual
Fund account can be as small as $50. If your retirement
investment objectives change, you may change your portfolio by
exchanging shares of one Fund for those of another. The Stein Roe
Mutual Funds levy no sales commissions or 12b-1 charges.
In selecting a Stein Roe Mutual Fund for investment, it is
important that the investment objective of the Mutual Fund
selected be consistent with your retirement and investment
objectives. Important information concerning the Stein Roe
<PAGE> 11
Mutual Funds and their investment objectives, policies and
restrictions is contained in the Funds' prospectuses and
financial reports. Growth in value is not guaranteed or
projected. All income dividends and capital gains distributions
paid on Mutual Fund shares are invested in accordance with the
Mutual Fund's prospectus.
For more complete information on the Mutual Funds, including
management fees and expenses, obtain the Mutual Funds'
prospectuses by calling toll free 800-338-2550. Read the
prospectuses carefully before you invest or send money. You can
get information about the Mutual Funds, including prospectuses
and daily share price information, by accessing Stein Roe's
Internet address at http://www.steinroe.com.
CHARGES AND FEES
Stein Roe Fund Fees
All of the Stein Roe Funds are pure no-load investments. You pay
no sales commissions or 12b-1 charges for purchasing or
exchanging Fund shares. With the exception of the Emerging Market
Fund, no Fund charges redemption fees. In the case of the
Emerging Markets Fund, a redemption fee of 1 percent is charged
only on shares held less than 90 days. It is payable to the Fund
for the benefit of remaining shareholders. Each Fund does,
however, pay certain operational expenses, including management
fees. For complete information about Fund expenses and the method
of calculating each Fund's net asset value per share, please read
the Fund prospectuses available in writing and via the Stein Roe
web site at http://www.steinroe.com.
Custodial Fees
Your IRA is subject to custodial fees as provided in the IRA
Plan. These custodial fees will be paid by converting Fund Shares
in IRA accounts to cash, as determined by Stein Roe Mutual Funds.
In general, these fees are for the maintenance of your IRA
account(s)--Stein Roe Mutual Funds are no-load funds and no fees
are charged based on your contributions.
SteinRoe Services Inc. performs most of the ministerial
functions in maintaining Fund accounts. As a result, it receives
a substantial portion of your IRA custodial fees. Following are
descriptions of custodial fees for Stein Roe IRA accounts. These
fees may be changed upon 45 days' written notice to you. The
Custodian also reserves the right to waive or reduce any of its
charges or fees.
1. Fund Account Annual Maintenance Fee: $10 (maximum $30)
For IRA accounts for which the aggregate balance of all Fund
accounts is less than $10,000 on the valuation date, a Fund
Account Annual Maintenance Fee will apply. A fee of $10 will be
charged for each Fund account maintained by you during any part
of the subject calendar year -- limit three Fund accounts. Stein
Roe Mutual Funds will determine which Fund accounts are charged.
2. Distribution Fee: $10
For all IRA accounts, a distribution fee will be charged for each
distribution from a Fund account--in the case of installment
payments, however, this fee is charged only at the time the
installment plan is established.
3. Termnation fee: $10
For all IRA accounts, a termination fee will be charged for each
Fund account liquidated in connection with the termination or
transfer of your IRA. This fee is not applicable to accounts
which are distributed pursuant to an installment plan.
4. Other Services
For all IRA accounts for which the Custodian is required to
perform services not ordinarily provided under the Plan,
including making participant-directed investments of large
Custodial accounts of
<PAGE> 12
$250,000 or more pursuant to Section 7.3 of the Plan, the
Custodian may charge such additional fees as are appropriate.
SIMPLIFIED EMPLOYEE PENSION PLANS
The Internal Revenue Code permits certain employers to establish
Simplified Employee Pension Plans ("SEPs") to which annual
contributions may be made on behalf of all employees meeting
certain eligibility requirements ("non-elective contributions").
If adopted before January 1, 1997, an additional feature may
allow employees to make pretax salary reduction contributions
("elective deferrals"). In general, except as otherwise
specifically stated in the Plan, the provisions of the Plan apply
to IRAs to which SEP contributions are made and each participant
in the SEP has all the rights described herein with respect to an
ordinary IRA, including, for example, the right to select the
Funds in which contributions shall be invested.
As an employer, you may establish a SEP either by designing
your own SEP or by executing IRS Form 5305-SEP. If you do not
presently maintain any other qualified plan (except another SEP)
and you have never maintained a defined benefit plan, you may
establish a SEP by using IRS Form 5305-SEP. If you are a member
of an affiliated service group or a controlled group of
corporations, trades or business (described in Internal Revenue
Code sections 414 (m), (b) and (c), respectively) all eligible
employees of the member employers must participate. You also may
not use IRS Form 5305-SEP if you have any leased employees
(described in Internal Revenue Code section 414(n)). You may
establish a SEP up until your tax return due date (including
extensions) for the year for which contributions are first made.
If you decide to adopt a SEP, you must cover all employees
who have attained a minimum age requirement (which cannot be more
than 21 years) and performed services for you for a minimum
period (which cannot be more than any part of three of the
preceding five calendar years). Except as described below, for
any year for which you make a non-elective employer contribution,
contributions must be made for each employee who was eligible for
any part of the year, including those who are no longer employed
by you as of the SEP contribution date. Under a SEP, each
eligible employee must establish an IRA. If an eligible employee
does not establish an IRA, you must establish one for that
individual. Otherwise, your other employees may not participate
and other adverse tax consequences may result.
Prior to January 1, 1997, SEP plans could adopt a salary
deferral option pursuant to which contributions also could be
made at the election of the employee through "pretax" salary
reduction contributions ("elective deferrals"). Although this
option is no longer available, SEP plans having the salary
deferral option in place as of December 31, 1996, can continue to
operate in all respects, including adding new employees and
making contributions. In such a plan, an elective deferral is
permitted in a given year only if at least 50 percent of all
eligible employees elect to make them. In addition, the elective
deferrals of certain highly compensated employees, as a
percentage of each employee's compensation, may not exceed 125
percent of the average amount deferred as a percentage of
compensation by all other eligible employees.
Excluded Employees
Under a SEP, a contribution need not be made on behalf of any
eligible employee whose compensation is less than a specified
amount indexed for inflation for the calendar year. (For 1997,
you need not make a contribution on behalf of an individual whose
compensation is less than $400.) The following groups of persons
also may be excluded:
1. Employees who are members of a
<PAGE> 13
collective bargaining unit, represented by a collective
bargaining agent, and covered by a collective bargaining
agreement where retirement benefits were the subject of good
faith bargaining; and
2. Employees who are nonresident aliens and who receive from the
employer no earned income that constitutes income from
sources in the United States as defined by the Internal
Revenue Code.
SEP Contributions
Each year, total contributions for any participant under a SEP
(including elective deferrals) are limited to the lesser of 15
percent of an employee's compensation up to $160,000 (for 1997),
or $30,000. For SEP plans with an elective deferral feature,
eligible employees may make elective deferrals that reduce gross
income of up to $9,500 (for 1997), subject to the overall $30,000
and 15 percent limits. All three of these dollar limits are
subject to adjustment each year for cost-of-living increases.
Deductible non-elective contributions in excess of the
maximum allowable annual contribution limit are excess
contributions and are subject to the regular IRA excess
contribution rules. Elective deferrals in excess of the maximum
allowable annual deferral limit are excess elective deferrals
subject to special rules. For more information on the treatment
of excess elective deferrals, please refer to Section 3.5 of the
Plan. SEP contributions are in addition to any regular IRA
contributions your employees make as individuals. Although you
are neither required to make non-elective contributions each
year, nor to make them at the same percentage rate each year, for
each year in which you make a non-elective contribution your
contribution must be made on behalf of each eligible employee who
has met the age and service requirement of your SEP and you are
responsible for allocating your contributions among all eligible
employees in proportion to their respective compensation. Your
non-elective contributions may be made for a year up to the date
on which your business tax return is due (including extensions).
Miscellaneous
As an employer, you are responsible for all aspects of the
interpretation, operation and administration of your SEP,
including the determination of contributions and their
allocation.
If in any year an employee's account does not qualify as an
IRA or the SEP contribution is not properly made, contributions
to that employee's account may be treated as compensation and any
deduction for the contribution (plus any regular IRA
contributions the employee makes) may be subject to the regular
IRA contribution limitations and the regular IRA excess
contribution and premature distribution rules.
This Disclosure Statement is not intended as a complete or
definitive explanation or interpretation of the laws and
regulations applicable to IRAs or the Stein Roe Mutual Funds
Individual Retirement Account Plan. Establishing an IRA for
retirement savings represents a decision that has significant
legal, financial and tax implications. If you are considering
adopting an IRA, we suggest that you consult with counsel
regarding the legal, financial and tax consequences of doing so.
Further information also can be obtained from any district office
of the Internal Revenue Service.
<PAGE> 14
STEIN ROE FUNDS
INDIVIDUAL RETIREMENT ACCOUNT PLAN
SECTION 1 - INTRODUCTION
The Custodian designated in the Application Form, by separate
agreement and by facsimile signature of its authorized officer
thereon, agrees that an individual retirement account is
established under section 408(a) of the Code and the terms of
this Plan pursuant to which it agrees to serve as Custodian when
it is appointed under a properly executed Application Form sent
to the Custodian in accordance with the terms of the Application
Form and the Plan.
SECTION 2 - DEFINITIONS
As used herein:
2.1 "Beneficiary" means any person designated by a Participant
in accordance with Section 4.5 hereof to receive any death
benefits which shall be payable under the Plan.
2.2 "Code" means the Internal Revenue Code of 1986, as from time
to time amended, any regulations issued thereunder and any
subsequent Internal Revenue Code.
2.3 "Compensation" means the total compensation received by a
Participant for each Plan Year during which he is a
Participant, including wages, salary, professional fees, or
other amounts derived from or received for personal service
actually rendered (including, but not limited to, salesmen's
commissions, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums,
tips and bonuses) and Earned Income (reduced by the
deduction, if any, taken for contributions by a self-
employed individual to a tax-qualified retirement plan
covering such self-employed individual). Compensation also
includes any amount includible in a Participant's gross
income under section 71 of the Code with respect to a
divorce or separation instrument described in section
71(b)(2)(A). Compensation does not include amounts derived
from or received as earnings or profits from property
(including, but not limited to, interest and dividends) or
amounts not includible in gross income. Compensation also
does not include any amount received as a pension or annuity
or as deferred compensation.
2.4 "Custodial Account" means the individual retirement account
established for the Participant under the Plan.
2.5 "Custodian" means the financial institution named in the
Application Form and any successor thereto.
2.6 "Disabled" or "Disability" means the inability to engage in
any substantial gainful activity because of a medically
determinable physical or mental impairment that can be
expected to result in death or be of a long, continued and
indefinite duration.
2.7 "Earned Income" means Earned Income of a Participant after
deductions under section 404 of the Code but before federal
income taxes for each taxable year for which a contribution
is made to his Custodial Account by him or on his behalf.
Earned Income shall equal his net earnings from self-
employment to the extent that such net earnings constitute
compensation for personal services actually rendered by him
for such year; provided, however, that his personal services
must be a material income-producing factor in his
profession, trade or business. If a Participant derives
income from services as an author or inventor, the term
Earned Income includes gain (other than any gain from the
sale or exchange of a capital asset) and net
<PAGE> 15
earnings derived from the sale or other disposition of, the
transfer of any interest in, or the licensing of the use of
property (other than goodwill) by the Participant if
personal efforts created such property.
2.8 "Excess Deferral" means, for any taxable year, the amount of
any excess contribution made under a cash or deferral
arrangement to an annuity plan described in section 403(a)
of the Code, an annuity contract described in section 403(b)
of the Code, a SEP, or a plan described in section
501(c)(18) of the Code.
2.9 "Mutual Fund" or "Mutual Funds" means the Mutual Fund(s)
specified in the Application Form in which assets of the
Custodial Account may be invested. No Mutual Fund shall be
available for investment under the Plan (i) prior to the
date the prospectus for such Mutual Fund discloses its
availability or (ii) with respect to any Participant who
resides in any state in which shares of the Mutual Fund are
not available for sale.
2.10 "Nonworking Spouse" means a Participant's spouse who has
less taxable compensation than the Participant for the year
for which a contribution is made.
2.11 "Participant" means the person who executes the Application
Form effective on the date of execution.
2.12 "Plan" means the Individual Retirement Account Plan as
provided in this document and the Application Form (the
provisions of which are incorporated herein by reference)
and any amendments thereof.
2.13 "Rollover Contribution" means a rollover contribution as
described in section 402(c), section 403(a)(4), section
403(b)(8), section 408(d)(3), or, prior to their repeal,
sections 405(d)(3), 409(b)(3)(C) or 409(b)(D) of the Code.
2.14 "SEP Contribution" means a contribution made by the
employer of a Participant pursuant to section 408(k) of the
Code under a Simplified Employee Pension Plan ("SEP") established
by the use of Internal Revenue Service Form 5305-SEP or
Internal Revenue Service Form 5305A-SEP.
2.15 "Sponsor" means Stein Roe & Farnham Incorporated ("Stein
Roe & Farnham"), or such other person qualified to act as
sponsor as from time to time designated by Stein Roe &
Farnham.
SECTION 3 - CONTRIBUTIONS
3.1 Restriction on Contributions. Except for Rollover
Contributions under Section 5.2 hereof, all contributions
shall be made in cash. Each contribution must be accompanied
by written instructions on a form, provided or permitted by
the Custodian, specifying the Participant's Custodial
Account to which they are to be credited and the manner in
which they are to be invested. Except for Rollover
Contributions and SEP Contributions, no contributions may be
made by or on behalf of any Participant for any taxable year
beginning in the year the Participant reaches age 70 1/2.
The Custodian may accept such contributions by or on behalf
of the Participant as it may receive from time to time,
provided, however, that except in the case of Rollover
Contributions, the Custodian shall not accept contributions
made by or on behalf of a Participant for any taxable year
in excess of the maximum dollar amount specified in Section
3.3 hereof (or such other maximum dollar amount as may from
time to time be permitted under the Code). This Plan is not
a SIMPLE retirement plan and no participant shall make
<PAGE> 16
SIMPLE plan contributions by rollover or otherwise.
3.2 Minimum Contribution Amounts. The minimum initial
contribution is $500 per Mutual Fund account. This minimum
amount must be contributed in a single payment when an IRA
is established, and at such time as a Participant makes his
or her initial investment in each additional Mutual Fund.
Thereafter, contributions can be made in amounts of not less
than $50. These minimums do not apply to IRAs established as
part of a Simplified Employee Pension Plan ("SEP"). Stein
Roe & Farnham also may waive or reduce these minimums.
3.3 Maximum Contribution Amounts.
(a) Regular Contributions. Except as otherwise expressly
provided in this Section and Section 5 hereof, the
aggregate amount of contributions by or on behalf of a
Participant for the taxable year shall be not more than
an amount equal to the lesser of 100 percent of the
Compensation of the Participant within the taxable year
or $2,000.
(b) SEP Contributions. For any taxable year, the aggregate
amount of contributions to a Simplified Employee Pension
plan ("SEP Contribution") made by an employer on behalf
of a Participant may not exceed the lesser of $30,000
(or such other amount as may from time to time be
permitted under the Code or regulations thereunder) or
15 percent of the Participant's Compensation paid by the
employer determined without regard to such contribution
or Compensation in excess of the annual compensation
limit set forth by the Omnibus Budget Reconciliation Act
of 1993 (OBRA'93). The OBRA'93 annual compensation limit
is $160,000 (in 1997), as adjusted by the Internal
Revenue Service for increases in the cost of living in
accordance with section 401(a)(17) - 1(b) of the Code.
The cost-of-living adjustment in effect for a calendar
year applies to any period, not exceeding 12 months,
over which compensation is determined (determination
period) beginning in such calendar year. If a
determination period consists of fewer than 12 months,
the OBRA'93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of
months in the determination period, and the denominator
of which is 12. SEP Contributions made on behalf of a
Participant to a SEP providing for elective employee
deferrals may not exceed $9,500 for 1997 (or such other
amount as may from time to time be permitted under the
Code). SEP Contributions may be made in addition to
regular or rollover contributions made by or on behalf
of the Participant as described elsewhere herein.
(c) Spousal Contributions. For any taxable year in which a
Participant is married (as described in section 143(a)
of the Code) to a Nonworking Spouse with whom a joint
tax return is filed, the Participant may elect to make
contributions on behalf of the Nonworking Spouse to a
Custodial Account that the Nonworking Spouse has
established by executing an Application Form. Under this
arrangement, the aggregate contributions made to the
Custodial Accounts of both the Participant and the
Nonworking Spouse for any taxable year may
<PAGE> 17
not exceed the lesser of $4,000 or 100 percent of the
combined compensation of both spouses; provided,
however, that the contribution to the Participant's
account cannot exceed the lesser of his or her
compensation or $2,000, and that to the Nonworking
Spouse's account may not exceed the remaining balance of
the couple's contribution limit up to $2,000.
A Nonworking Spouse who establishes a Custodial
Account under this Subsection shall be treated as a
Participant under the Plan for all purposes and, for any
taxable year in which the Nonworking Spouse has
Compensation, the Participant and the Nonworking Spouse
may make contributions to their respective Custodial
Accounts as provided in Section 3.3(a).
3.4 Contribution Corrections. If, for any taxable year,
aggregate contributions of a type specified in Section 3.3
hereof made by or on behalf of a Participant exceed the
maximum permissible amount, and provided no deduction is
allowed for the excess amount, then, no later than April 15
of the following year, the Custodian shall eliminate the
excess by: (a) treating it as a contribution for the
following year to the maximum extent allowable an amount
equal to the lesser of (i) the balance in the Custodial
Account of the Participant, or (ii) the excess amount
(together with an amount equal to the net income earned on
the excess amount); and (b) distributing the remainder, if
any, to the Participant. If a contribution: (a) exceeds the
maximum permissible percentage amounts set forth in Section
3.3 hereof; (b) exceeds the amount permitted after
application of the special discrimination tests under
section 408(k)(6) of the Code or, in the case of a
contribution intended to be a Rollover Contribution, exceeds
the amount qualifying as such; or (c) is an excess
contribution within the meaning of section 4973 of the Code,
the Participant must direct the Custodian in proper written
form to either return the excess amount or apply it as a
contribution for the following year--in the absence of such
direction, the Custodian shall take no action.
3.5 Treatment of Excess Deferrals. If the Participant directs
the Custodian in writing, not later than the first March 1
following the end of the year for which an Excess Deferral
was made, to distribute the amount of the Excess Deferral
contributed to the Plan and any earnings thereon, then the
Custodian shall distribute such amount and any earnings
thereon to the Participant no later than the first April 15
following the end of the year for which the Excess Deferral
was made. In the absence of such notification and direction,
the Custodian shall take no action.
SECTION 4 - DISTRIBUTIONS
4.1 General. The Custodian shall distribute the amount credited
to the Custodial Account of a Participant at such times and
in such amounts as the Participant shall direct on a form
provided or permitted by the Custodian and in a manner
consistent with the prospectus(es) of the Mutual Fund(s) in
which the Custodial Account is invested. Such distributions
to a Participant shall commence no later than April 1
following the close of the calendar year in which he or she
reaches age 70 1/2. Distributions of Excess Contributions
and Excess Deferrals shall be made in accordance with
<PAGE> 18
Sections 3.4 and 3.5 hereof, respectively. Except as
provided above, if a distribution is made from the
Participant's Custodial Account prior to the date the
Participant attains age 59 1/2 for reasons other than (i)
Disability or death; (ii) to the extent of your payment of
unreimbursed medical expenses in excess of 7.5 percent of
Adjusted Gross Income; (iii) to the extent of payments for
health insurance for the Participant, his or her spouse and
dependents, where the Participant has been unemployed and
received federal or state unemployment compensation for at
least 12 weeks; (iv) as part of a series of substantially
equal periodic payments made over the life expectancy of the
Participant or the joint and last survivor life expectancy
of the Participant and the Participant's Beneficiary; (v) as
a distribution to an alternate payee under a qualified
domestic relations order (within the meaning of section
414(p) of the Code); or (vi) as a distribution of the
principal amount of an Excess Deferral pursuant to Section
3.5 hereof; then the tax on such distribution shall be
increased by an amount equal to 10 percent of the taxable
portion thereof. The Participant may direct either an
immediate distribution that shall be made or commence on the
date (or as near thereto as is practicable) the Custodian
receives the Participant's written request in proper form,
or a future distribution that shall commence on a date
specified in such request which shall be within a reasonable
time after the filing of such form. The Participant
represents and warrants that all distribution instructions
provided to the Custodian shall be in accordance with the
terms of the Plan.
If the Custodian does not receive instructions to effect
distribution to a Participant prior to the time the
distribution is required to commence, the Custodian will not
effect a distribution.
If any installment payment to a Participant or
Beneficiary is less than a minimum amount that may be
established from time to time by Stein Roe & Farnham or the
Custodian, then, at the option of either of them, one or
more payments under such method may be paid less frequently
or the value of the Custodial Account may be paid in one sum
to the person then entitled to receive such payments--the
contingent interest of any Beneficiary notwithstanding.
4.2 Payment on Disability. If a Participant becomes Disabled,
the amount credited to the Custodial Account may be
distributed, in accordance with the distribution provision
of Sections 4.1 and 4.3 hereof, commencing on the date the
Custodian receives notification from the Participant of
Disability in a form acceptable to the Custodian. Before
making any distribution in the case of the Disability of a
Participant prior to the date the Participant reaches age 59
1/2, the Custodian shall be furnished with proof of such
Disability. Proof of Disability shall mean either (1) proof
that such Participant's application for disability benefits
under the federal Social Security Act has been approved, or
(2) submission of a Certificate of Disability form provided
or permitted by the Custodian showing the same degree of
proof as would be required by such Participant in applying
for disability benefits under the federal Social Security
Act.
4.3 Method of Distribution.
(a) Distributions to a Participant made for any reason other
than the death of the Participant may be paid in cash or in
kind in one or a
<PAGE> 19
combination of the following ways:
(i) in a lump sum; or
(ii) in annual or more frequent installments over a
period certain not to exceed the life expectancy of
the Participant, or the joint and last survivor life
expectancy, determined as provided in Section 4.6
hereof, of the Participant and the Participant's
individual Beneficiary. Even if installment payments
have commenced pursuant to this option, the
Participant may receive a distribution of the
balance in his Custodial Account, or of any part
thereof, upon written request as described in
Section 4.1 hereof to the Custodian.
(b) If the Participant elects to receive installment
payments, then (except as otherwise permitted under
regulations for distributions required to commence prior
to January 1, 1988), beginning with the year the
Participant reaches age 70 1/2, the minimum distribution
required for that year shall be at least equal to the
lesser of the balance in the Participant's Custodial
Account or the quotient obtained by dividing the balance
in the Custodial Account as of the close of business on
December 31 of the prior year [reduced, in the case of
the year ("Second Distribution Year") following the year
in which the Participant reached age 70 1/2, by any
distribution made during the Second Distribution Year on
or prior to April 1 to satisfy the minimum distribution
requirement for the year the Participant reached age 70
1/2 by the life expectancy of the Participant (or, if
applicable, the joint and last survivor life expectancy
of the Participant and the Participant's Beneficiary),
determined as provided in Section 4.6 hereof.
Distributions for the year in which a Participant
reaches age 70 1/2 will be deemed timely made if made on
or prior to April 1 of the succeeding calendar year.
(c) For purposes of determining the minimum amount required
to be distributed under Section 4.3(b) hereof, the
balance in the Custodial Account as of December 31 of
any year shall be increased by the amount of any
Rollover Contribution from another individual retirement
account or tax-qualified retirement plan that was
received after December 31 and was distributed from such
other individual retirement account or a tax-qualified
retirement plan on or prior to December 31.
(d) In the case of a Rollover Contribution or an amount
transferred to the Plan pursuant to Section 5 hereof
that was distributed (or transferred) from an individual
retirement account or tax-qualified retirement plan
("transferor plan") after the April 1 of the year
following the year in which the Participant reached age
70 1/2, such assets must be held in a Custodial Account
separate from any other Custodial Account from which the
Participant is receiving installment payments in
accordance with Section 4.3(b) hereof, which payments
are being made over a period longer than the period over
which the Participant was receiving installment payments
from the transferor plan. Distribution from such
separate Custodial Account shall begin no later than the
year following the year of the rollover or transfer with
payments over a
<PAGE> 20
period established under the transferor plan. The
designated beneficiary under the transferor plan shall
be substituted for the Beneficiary designated hereunder
if the distribution period for such separate Custodial
Account period is determined based on the joint and last
survivor life expectancy of the Participant and
designated Beneficiary.
(e) Notwithstanding any other provisions in this Plan,
effective for distributions made before the
Participant's death, where the distribution period is
longer than the Participant's life expectancy and the
Participant's spouse is not the Beneficiary, the minimum
amount required to be distributed each year, beginning
with the year the Participant reaches age 70 1/2, shall
be at least the quotient obtained by dividing the
balance in the Custodial Account as of the close of
business on December 31 of the prior year [reduced, in
the case of the year ("Second Distribution Year")
following the year in which the Participant reached age
70 1/2, by any distribution made during the Second
Distribution Year on or prior to April 1 to satisfy the
minimum distribution requirement for the year the
Participant reached age 70 1/2] by the lesser of (i) the
joint and last survivor life expectancy of the
Participant and the Participant's Beneficiary determined
as provided in Section 4.6 hereof, or (ii) the
applicable divisor determined from the table set forth
in Q&A-4 or Q&A-5, as applicable, of Prop. Treas. Reg.
Section 1.401(a)(9)-2.
4.4 Distribution on Death of Participant.
(a) If the Participant dies after payment has commenced
under Section 4.3 hereof, and on or after the April 1
following the year in which the Participant reached age
70 1/2, the balance in his or her Custodial Account
shall be distributed to the Participant's Beneficiary,
designated in accordance with Section 4.5 hereof, at
least as rapidly as under the method of distribution by
which payments were being made to the Participant prior
to death.
(b) If a Participant dies before the April 1 following the
year in which the Participant reaches age 70 1/2, the
balance in his or her Custodial Account shall be
distributed to the Participant's Beneficiary, designated
in accordance with Section 4.5 hereof, as the
Beneficiary shall elect:
(i) in a lump sum no later than December 31 of the year
that contains the fifth anniversary of the
Participant's death or, if later, if the
Participant's sole Beneficiary is the Participant's
surviving spouse, December 31 of the calendar year
in which the Participant would have reached age 70
1/2; or
(ii) in annual or more frequent installment payments over
a period certain not to exceed the life expectancy,
determined in accordance with Section 4.6 hereof, of
the Beneficiary. If the Participant's sole
Beneficiary is the Participant's surviving spouse,
payments shall commence no later than the later of
December 31 of the year following the year in which
the Participant died, or December 31 of the calendar
year in which the Participant would have reached age
70 1/2. In all
<PAGE> 21
other cases, payments shall commence no later than
December 31 of the calendar year immediately
following the year in which the Participant died.
Even if installment payments have commenced pursuant
to this option, the Beneficiary may receive a
distribution of the balance in his Custodial
Account, or any part thereof, upon written request
as described in Section 4.1 hereof to the Custodian.
(c) If a Participant's spouse is named as Beneficiary in
accordance with Section 4.5 hereof, then notwithstanding
the provisions of Sections 4.4(a) and (b) hereof, the
Participant's spouse may elect to treat the interest in
the Participant's Custodial Account to which the spouse
becomes entitled upon the Participant's death as the
spouse's own individual retirement account subject to
the distribution provisions of Section 4.3 hereof by
execution of a new Application Form establishing the
spouse's own Custodial Account not later than the date
of filing the Participant's federal estate tax return
or, if earlier, the due date (including any extensions)
for such return. The determination of whether an
election has been made by a Participant's spouse to
treat the spouse's portion of death benefits as his or
her own individual retirement account will be made in
accordance with applicable rulings and regulations.
(d) Before making any distribution in the case of death of a
Participant, the Custodian shall be furnished with such
certified death certificates, inheritance tax releases,
indemnity agreements and other documents as may be
required by the Custodian.
(e) If a Participant dies before the total amount in the
Custodial Account has been distributed and the
Participant's Beneficiary is other than the
Participant's spouse, no additional cash contributions
or Rollover Contributions may be accepted by the
Custodian.
(f) To the extent prescribed by regulation under the Code,
for purposes of this Section 4.4, any amount paid to a
child of the Participant will be treated as if it had
been paid to the surviving spouse, provided the balance
in the Participant's Custodial Account when the child
reaches the age of majority (or when any other
designated event permitted under regulations occurs)
will become payable to the surviving spouse.
4.5 Beneficiary Designation. A Participant shall have the right
to designate or to change the Beneficiary to receive the
balance in the Custodial Account at the time of the
Participant's death. Such designation may include contingent
or successive Beneficiaries. A Beneficiary designated by a
Participant shall select the method by which benefits
payable to him or her shall be paid. Designations by a
Participant and selection of a distribution method by a
Beneficiary shall be subject to the provisions of Section
4.4 hereof and shall be made on a form provided or permitted
by the Custodian. A designation properly completed by a
Participant shall be effective upon receipt by the Custodian
no later than 30 days after the death of the Participant. If
no properly completed Beneficiary designation is received by
the Custodian within 30 days after the Participant's death,
the Custodial Account shall be distributed in cash
<PAGE> 22
or kind, as the Custodian directs, in a lump sum to the
Participant's surviving spouse or, if there is no surviving
spouse, to the Participant's estate. A selection of
distribution method properly completed by a Beneficiary
shall be effective upon receipt by the Custodian no later
than the earliest of (i) the date the Custodian receives
instructions to distribute the Custodial Account of the
deceased Participant, which instructions it determines to be
in good order, or (ii) December 1 of the year that contains
the fifth anniversary of the Participant's death. If the
Custodian fails to receive from a Beneficiary a properly
completed designation of distribution method within the time
prescribed above, the Participant's Custodial Account shall
be distributed over the course of five (5) years in
substantially equal installments commencing no later than
December 31 of the year of the Participant's death.
The Custodian shall be responsible for determining the
identity of persons who qualify as the Beneficiaries
entitled to receive distributions upon the death of a
Participant and the identity of the person who qualifies as
the executor or administrator of the Participant's estate in
accordance with applicable regulations. If any person to
whom all or a portion of the Participant's interest is
payable is a minor, payment of such minor's interest shall
be made on behalf of such minor to the person designated by
the Participant in his Beneficiary Designation to receive
such minor's interest as a custodian under the Illinois
Uniform Transfers Act or similar statute. If the Participant
does not designate a custodian to receive the minor's
interest on behalf of such minor, or if the person
designated refuses or is unable to act, the Custodian may in
his sole discretion:
(a) distribute the interest to the legal guardian of such
minor; or
(b) designate an adult member of the minor's family, a
guardian or a trust company (including the Custodian),
as those terms are defined in the Illinois Uniform
Transfers Act, as custodian for such minor under the
Illinois Uniform Transfers Act or similar statute and
distribute such minor's interest to the person so
designated. The person designated as custodian under the
Illinois Uniform Transfers Act or similar statute shall
hold, manage and distribute such property in accordance
with the provisions of such statute.
The Participant shall be responsible for determining
the Beneficiary whose life expectancy is to be used in
determining the maximum period of time over which the
Custodian Account may be distributed under Section 4.3 or
4.4 hereof. The designation of such Beneficiary shall be
irrevocable as of April 1 of the year following the year in
which the Participant attains age 70 1/2. If a Participant
designates more than one individual Beneficiary, the
Beneficiary (other than a Beneficiary whose receipt of
benefits is contingent on the death of a prior Beneficiary)
with the shortest life expectancy shall be the Beneficiary
whose life expectancy is used to determine the maximum
period over which installment distributions may be made from
the Custodial Account. If a Participant has a Beneficiary
(other than a trust described in the next sentence) that is
not an individual, then distributions from the Custodial
Account shall not be made under a method that takes into
account the life expectancy of a Beneficiary. If a
Participant designates
<PAGE> 23
a trust as a Beneficiary, and as of the later of the date on
which the trust is named as a beneficiary or April 1 of the
year following the year in which the Participant attains age
70 1/2, and as of all subsequent times the following
requirements are met, the individual beneficiary of the
trust having the shortest life expectancy shall be the
Beneficiary considered in determining the appropriate
Beneficiary life expectancy to be used hereunder:
(a) There are no beneficiaries of the trust (other than
beneficiaries whose receipt of benefits is contingent on
the death of a prior beneficiary) who are not
individuals.
(b) The trust is a valid trust under state law, or would be
but for the fact that there is no corpus.
(c) The trust is irrevocable.
(d) The beneficiaries of the trust who are Beneficiaries
with respect to the Custodial Account are identifiable
from the trust instrument.
(e) A copy of the trust is provided to the Custodian.
The Custodian and its officers, employees, attorneys and
agents shall be fully discharged from all liability to any
and all persons making a claim to the Participant's
Custodial Account under the Plan in relying on evidence by
affidavit or otherwise as shall be satisfactory to the
Custodian in determining any questions of fact relative to
payments under the Plan, including the existence or identity
of any Beneficiary or trustee designated by the Participant,
the administrator or executor of the Participant's estate or
any person authorized to act on behalf of any such person.
Further, any amount paid to any such person in accordance
with the terms of the Plan shall fully discharge the
Custodian for the amount so paid.
4.6 Determination of Life Expectancies.
(a) General Rule. For purposes of this Section 4, life
expectancy and joint and last survivor life expectancy
shall be computed by the Participant (and, if applicable
after the Participant's death, by the Beneficiary) by
using the Tables V and VI life return multiples in
Regulation 1.72-9 under the Code. The life expectancy of
the Participant and a spouse Beneficiary may be
redetermined, but not more frequently than annually. The
Participant's election to determine life expectancy will
become irrevocable on April 1 of the year following the
year in which the Participant reaches age 70 1/2. In the
case of distributions pursuant to Section 4.4(b)(ii)
hereof, a spousal Beneficiary election to redetermine
life expectancy will become irrevocable on the date
distributions are required to commence thereunder. If no
election concerning redetermination of life expectancy
is made by the date such election would be irrevocable,
life expectancy will not be redetermined.
(b) Life Expectancy Not Recalculated. If the life expectancy
of the Participant and the Beneficiary are not
recalculated, then the following provisions apply to the
determination of life expectancy. If distribution is
being made under Section 4.3(b) hereof, the life
expectancy of the Participant and the Beneficiary shall
be determined as of their respective attained ages as of
their respective birthdays in the calendar year in which
the Participant reached age 70 1/2, reduced by one for
each year that has elapsed since the year the
Participant reached age 70 1/2. If distribution is
being made
<PAGE> 24
under Section 4.4(b)(ii) hereof, the life expectancy of
the Beneficiary shall be determined as of the
Beneficiary's attained age as of his birthday in the
calendar year in which distributions are required to
commence thereunder, reduced by one for each year that
has elapsed since such calendar year.
(c) If the life expectancy of the Participant and/or a
spouse Beneficiary is to be recalculated, then the
following provisions shall apply to determine life
expectancy, and the Participant (or, if applicable, the
spouse Beneficiary) shall be solely responsible for
advising the Custodian of the redetermined life
expectancy annually, no later than 30 days prior to the
beginning of each calendar year in which an installment
payment is to be made.
If distribution is being made under Section 4.3(b)
hereof, the Participant's life expectancy (or the joint
and last survivor life expectancy of the Participant and
his or her spouse Beneficiary) each year beginning with
the year in which the Participant reached age 70 1/2,
using the Participant's (and, if applicable, the spouse
Beneficiary's) attained age as of the Participant's
birthday (and, if applicable, the spouse Beneficiary's
birthday) in each such year.
If distribution is being made under Section 4.3(b)
hereof and the life expectancy of the Participant but
not his or her Beneficiary is being recalculated, the
applicable joint and last survivor life expectancy shall
be recalculated by using an adjusted age of the
Beneficiary. The adjusted age of the Beneficiary shall
be determined by reducing the life expectancy of the
Beneficiary (determined as of his attained age on his or
her birthday in the calendar year in which the
Participant reached age 70 1/2) by one for each year
that has elapsed since the calendar year in which the
Participant reached age 70 1/2, and locating the age
that corresponds to that life expectancy (rounded to the
next highest integer, if not a whole number of years) in
Table V of Regulation 1.72-9 under the Code.
If distribution is being made pursuant to Section
4.4(b)(ii) hereof and the life expectancy of the
Participant's spouse Beneficiary is being recalculated,
the life expectancy of the spouse Beneficiary will be
determined based on her attained age as of her birthday
in the calendar year in which distributions are required
to commence to her under Section 4.4(b)(ii) hereof.
Upon the death of the Participant or the Beneficiary,
the recalculated life expectancy of the decedent will be
reduced to zero in the calendar year of death. The
balance in the Custodial Account must be distributed
prior to the last day of the calendar year in which the
last applicable life expectancy is reduced to zero.
4.7 Distributions in Accordance with Regulations. In all cases,
distributions hereunder are not permitted except in
accordance with applicable regulations promulgated by the
Secretary of the Treasury.
SECTION 5 - TRANSFERS AND ROLLOVER CONTRIBUTIONS
5.1 Transfers. Any person may adopt the Plan for the sole
purpose of transferring to the Custodian in cash
<PAGE> 25
or, with the consent of the Custodian, in kind, any part of
the assets of an individual retirement account (but not a
SIMPLE document) held for the person's benefit by another
custodian, trustee or insurance company; provided however,
that the Custodian may elect not to accept a transfer unless
it is preceded by asset transfer instructions satisfactory
to the Custodian. In case of assets transferred to the Plan
and held in a separate Custodial Account in the year the
Participant reaches age 70 1/2 or in any subsequent year as
provided in Section 4.3(d) hereof, the asset transfer
instructions must be accompanied by a Distribution Request
Form and a Beneficiary Form applicable to the transferred
assets computed in accordance with the distribution method
in effect under the transferor individual retirement
account. Transfers from the Custodian to a successor
custodian or trustee shall be made in accordance with
Section 6.4 hereof.
5.2 Rollover Contributions to the Plan. Any person may adopt the
Plan for the sole purpose of making a Rollover Contribution
(but not from a SIMPLE plan) in cash or, with the consent of
the Custodian, in kind, in an amount of not less than $500
(unless waived or reduced by Stein Roe & Farnham); provided
however, that the Custodian may elect not to accept a
Rollover Contribution unless rollover contribution
instructions satisfactory to the Custodian are provided at
the time the Rollover Contribution is made or at such later
date as the Custodian may permit. A person adopting the Plan
for the sole purpose of making a Rollover Contribution shall
be treated as a Participant under the Plan for all purposes.
If the Rollover Contribution was distributed from the
distribution plan after April 1 of the year following the
year in which the Participant reaches ages 70 1/2 and the
Rollover Contribution is held in a separate Custodial
Account as provided in Section 4.3(d) hereof, the Rollover
Contribution instructions must be accompanied by a
Distribution Request Form and a Beneficiary Form applicable
to the amount rolled over computed in accordance with the
distribution method in effect under the distribution plan.
5.3 Rollover Contributions from the Plan. On, or as soon as
reasonably possible after, the date the Custodian receives
from a Participant a Distribution Request Form provided or
permitted by the Custodian, or at a future date specified in
the Form which shall be within a reasonable time after the
date the Custodian receives it, stating that the Participant
wishes to make a Rollover Contribution from the Plan, the
Custodian shall distribute such amount from the
Participant's Custodial Account as the Participant shall
direct in a manner consistent with the prospectus(es) of the
Mutual Fund(s) in which the Custodial Account is invested.
The Custodian may make such distribution to the Participant
without inquiry as to whether the statements made by the
Participant in the Distribution Request Form are correct,
and in no event shall the Custodian or any officers,
employees, attorneys or agents of the Custodian be liable
for any costs, expenses, or income or excise taxes which
might arise by virtue of the Custodian's making such
distribution. The Participant represents and warrants that
all directions contained within the Distribution Request
Form shall be and are in accordance with the terms of the
Plan.
<PAGE> 26
SECTION 6 - ADMINISTRATION
6.1 General. Except as provided herein, the Plan shall be
administered by the Participant, who shall have sole
responsibility for the operation of the Plan in accordance
with its terms and shall determine all questions arising out
of the administration, interpretation, and application of
the Plan (which determination shall be conclusive and
binding on all persons). The Participant also shall have
sole authority on behalf of any and all persons having or
claiming any interest in the Participant's Custodial
Account. The Participant shall have the sole authority and
responsibility to determine the amount of the contributions
(except for SEP Contributions, which shall be the
responsibility of both the Participant and the Participant's
employer) and distributions to be made under the Plan --
neither the Custodian nor any other person shall be
responsible therefor, or for any consequences to the
Participant resulting from making of contributions which are
in excess of those permitted, or the failure to make
distributions required, under the Plan or Code. In no event
shall the Custodian, or any of its officers, employees,
attorneys or agents be liable for any such costs, expenses,
income taxes or excise taxes that might accrue by virtue of
a failure to comply with the requirements of the Plan or the
Code.
The Participant intends that the Custodial Account under
the Plan shall qualify and be tax exempt under section 408
of the Code, but if it should ever not so qualify, all
assets held in the Custodial Account shall be distributed to
the Participant in accordance with the termination
provisions of Section 8 hereof. Until advised to the
contrary, the Custodian may assume the Custodial Account is
so qualified and tax exempt.
6.2 Establishment of Custodial Account. The Custodian shall
establish and maintain a Custodial Account for the
Participant whose interest therein shall immediately become,
and at all times shall remain, nonforfeitable.
The Participant shall promptly notify the Custodian in
writing of any changes in the Participant's name or address.
The Participant warrants that at no time shall any part of
the assets of the Custodial Account, after deducting any
expenses properly chargeable to the Custodial Account, be
used for or diverted to purposes other than for the
exclusive benefit of the Participant and his or her
Beneficiaries.
6.3 Reports of Custodian. The Custodian shall keep accurate and
detailed records of all receipts, disbursements and other
transactions relating to the Custodial Account. As soon as
practicable after the close of each taxable year (or after
the Custodian's resignation or removal pursuant to Section
6.4 hereof) and whenever required by the Code, the Custodian
shall deliver to the Participant a written report reflecting
receipts, disbursements and other transactions effected in
the Custodial Account during such period, and fair market
value of the assets and liabilities of the Custodial Account
as of the close of such period.
The Custodian shall keep such records, make such
identifications and file with the Internal Revenue Service
such returns and other information concerning the Custodial
Account as may be required of it under the Code or forms
adopted by the Treasury Department thereunder. Further, the
Participant and the Custodian shall furnish to each other
<PAGE> 27
such information relevant to the Plan and Custodial Account
as may be required by the Code or such forms.
Unless the Participant sends the Custodian written objection
to a report within 60 days of delivery, the Participant
shall be deemed to have approved such report and the
Custodian and its officers, employees, attorneys and agents
shall be forever released and discharged from all liability
and accountability to anyone with respect to their acts,
transactions, duties and obligations or responsibilities as
shown on, or reflected by, such report. Nothing in the Plan
shall prevent the Custodian from having its accounts
judicially settled by a court of competent jurisdiction.
6.4 Registration or Removal of Custodian. The Custodian may
resign at any time upon 30 days' notice in writing to the
Participant and to Stein Roe & Farnham and may be removed by
the Participant (or Stein Roe & Farnham as agent for the
Participant) at any time upon notice in writing to the
Custodian. Upon such resignation or removal, the Participant
(or Stein Roe & Farnham as agent for the Participant) shall
appoint a successor custodian, which successor shall be a
"bank" as defined in section 401(d) of the Code or such
other person who demonstrates to the satisfaction of the
Secretary of the Treasury or his delegate that the manner in
which such other person will administer the Custodial
Account will be consistent with the requirements of section
408 of the Code. Upon receipt by the Custodian of written
acceptance of such appointment by the successor custodian,
the Custodian shall transfer and pay over to such successor
the assets of the Custodial Account and all records
pertaining thereto. However, the Custodian shall, if the
transfer occurs in the year the Participant reaches age 70
1/2 or any subsequent year, distribute to the Participant
any amount required to satisfy the minimum distribution
requirements for the year of transfer, as provided in
Section 4. Further, the Custodian is authorized to reserve
such sum of money as it may deem advisable for payment of
all its fees, compensation, costs and expenses, or for
payment of any other liabilities constituting a charge on or
against the assets of the Custodial Account, or on or
against the Custodian, with any balance of such reserve
remaining after the payment of such items to be paid over to
the successor custodian. The successor custodian shall hold
the assets paid over to it under terms similar to those of
the Agreement that qualify the Custodial Account under
section 408(h) of the Code.
If, within 30 days after the Custodian's resignation or
removal the Participant (or Stein Roe & Farnham as agent for
the Participant) has not appointed a successor custodian
which has accepted the appointment, the Custodian shall,
unless it elects to terminate the Custodial Account pursuant
to Section 6.5, appoint such successor itself. The Custodian
shall not be liable for the acts or omissions of any
successor custodian whether or not the Custodian makes such
appointment itself.
6.5 Termination of Account. The Custodian may elect to terminate
the Custodial Account if, within 30 days after its
resignation or removal pursuant to Section 6.4, the
Participant (or Stein Roe & Farnham as agent for the
Participant) has not appointed a successor custodian which
has accepted such appointment. Termination of the Custodial
Account shall be effected by distributing all assets thereof
to the
<PAGE> 28
Participant pursuant to the written direction of the
Participant (who represents and warrants that such
directions shall be in accordance with the provisions of
the Plan) or, if the Participant fails or is unable to give
such directions, such distribution shall be effected in such
manner as is determined by the Custodian, in each instance
in accordance with and subject to the provisions and
limitations of the Plan. Upon the completion of such
distribution, the Custodian shall be relieved from all
further liability with respect to all amounts so paid.
6.6 Other Matters Concerning the Custodian. To the extent
permitted by federal law, the Custodian shall not be
responsible in any way for the collection of contributions
provided for under the Plan, the purpose or propriety of any
distribution made pursuant to Section 4 hereof, or any other
action taken at the Participant's direction. The Custodian
shall also not have any duty or responsibility to determine
whether information furnished to it by the Participant is
correct or whether amounts contributed to the Custodial
Account are tax deductible or whether amounts distributed
from the Custodial Account are subject to income or excise
tax or any other tax whatsoever. To the extent permitted by
federal law, nothing contained in the Plan, either expressly
or by implication, shall be deemed to impose any powers,
duties or responsibilities on the Custodian other than those
set forth herein. The Custodian and its officers, employees,
attorneys and agents shall be indemnified and saved
harmless by the Participant (and the legal representatives,
heirs, successors or agents) and from the Custodial Account
from and against any and all personal liability arising from
actions taken at the Participant's direction, and from any
and all other liability whatsoever that may arise in
connection with the administration of the Plan, except the
obligation of the Custodian to perform in accordance with
the provisions of the Plan and with respect to the Custodial
Account unless the Participant shall furnish the Custodian
with instruction in proper form and such instruction shall
have been specifically agreed to by the Custodian. The
Custodian shall be under no duty to defend or engage in any
suit with respect to the Custodial Account unless the
Custodian shall have first agreed in writing to do so and
shall have been fully indemnified to the satisfaction of the
Custodian. The Custodian shall be protected in acting upon
any order or direction from a Participant (including any
order or direction permitted by and in accordance with and
subject to the terms and conditions of the Telephone
Exchange Privilege, if applicable) or any other notice,
request, consent, certificate, or other instrument on paper
believed by it to be genuine and to have been properly
executed (including Beneficiary Designations received from a
Participant) and, so long as it acts in good faith, in
taking or omitting to take any other action.
The Custodian is authorized to allocate fiduciary
responsibilities and duties between or among itself and any
other fiduciary or fiduciaries, if any, and to delegate any
of its ministerial, clerical or administrative functions to
or among such persons as it shall deem appropriate; provided
however, that in no event shall the Custodian either
allocate or delegate its responsibilities and duties for the
management of assets held in the Custodial Account except
for Participant-directed investments of large Custodial
Accounts under Section 7.3 hereof.
<PAGE> 29
The Custodian may allocate or delegate any of its
responsibilities and duties hereunder by following a
procedure pursuant to which it shall (1) allocate or
delegate its responsibilities and duties in a written
agreement between it and each person to whom such
responsibilities and duties are allocated or delegated
(which agreement shall describe the nature and the extent of
such allocation or delegation), and (2) specify in writing
to the Participant the name of the person or persons to whom
such responsibilities and duties are allocated or delegated,
the nature and extent of the responsibilities and duties
that are allocated or delegated and the terms and conditions
of such allocation or delegation, including compensation
therefor (if any). The Custodian shall not be liable for any
act or omission of the person or persons to whom such
responsibilities and duties are allocated or delegated.
SECTION 7 - INVESTMENT OF PLAN ASSETS
7.1 General. Except as otherwise permitted under Section 7.3
hereof, contributions by or on behalf of a Participant shall
be invested by the Custodian solely in the Mutual Funds the
Participant or the Beneficiary (or the duly authorized agent
of either of them) shall elect on a form provided or
permitted by the Custodian. At such times as the Participant
or the Beneficiary (or the duly authorized agent of either
of them) shall deem appropriate, changes of investment may
be made by written instruction to the Custodian on such form
as is provided or permitted by the Custodian. If the
Telephone Exchange Privilege has been elected on the
Application Form, such changes may be made by telephone or
such other means of communication permitted by, and in
accordance with, the terms and conditions of the Telephone
Exchange Privilege. No change shall be effective until
received by the Custodian and, once effective, shall remain
in effect until properly changed. If a Participant or a
Beneficiary (or duly authorized agent of either of them)
fails to properly direct the investment of the Custodial
Account, such Participant's Custodial Account shall be
invested in shares of the Mutual Fund specified in the
Application Form for such circumstances. Instructions
concerning the investment of the assets held in a Custodial
Account shall be executed by the Custodian on, or as soon as
reasonably practicable after, the date the Custodian
receives instructions in proper form.
The Participant warrants that no investment made pursuant
to his or her direction under this Section shall cause the
Custodial Account to lose its exemption as provided in
section 408(e)(2) of the Code.
The assets of a Custodial Account shall not be commingled
with other property except in a common trust fund or a
common investment fund and shall not be invested in life
insurance contracts or in "collectibles" as defined in
section 408(m) of the Code.
7.2 Mutual Fund Investments. Plan assets invested in shares of
the Mutual Fund(s) shall be made in accordance with, and
shall be subject to, the provisions of the prospectus(es) of
such Mutual Funds(s) and such shares shall be registered in
the name of the Custodian or its nominee until distributed.
The Participant for whom such shares are acquired shall be
the beneficial owner of such shares.
<PAGE> 30
Except as otherwise provided herein, all income dividends
and capital gain distributions paid on Mutual Fund shares
held in a Custodial Account shall be invested in accordance
with the Mutual Funds' prospectuses unless the Participant
instructs the Custodian to invest the income dividends and
capital gains distributions in another Mutual Fund within
the Participant's IRA. If any distribution may be received
in shares, cash or other property at the election of the
shareholder, the Custodian shall elect to make such
distribution in shares in accordance with the Mutual Funds'
prospectuses. If over age 59 1/2, a Participant may elect to
receive income dividends and capital gain distributions in
cash as part of a distribution from the Custodial Account.
The Mutual Funds in which the assets held in the
Custodial Account are invested shall furnish to the
Custodian, and the Custodian shall promptly deliver to the
Participant, confirmation of all investments, changes of
investment and investments of distributions paid with
respect to Mutual Fund shares held in the Participant's
Custodial Account and all notices, prospectuses, financial
statements, proxies, and proxy soliciting materials relating
to such shares. To the extent required, the Custodian or its
nominee shall sign such proxies as record owner of such
shares, but shall not otherwise vote them except in
accordance with the written instructions of the Participant.
Delivery by the Custodian of any of these items to the
Participant shall be deemed to be on the date such items are
mailed by the Custodian to the Participant at the
Participant's last address of record (or to such other
address as the Participant shall direct); provided however,
that anything herein to the contrary notwithstanding, such
delivery by the Custodian shall be in compliance with the
minimum requirements of applicable securities laws.
7.3 Investment of Large Custodial Accounts.
(a) Notwithstanding the provisions of the Plan to the
contrary, a Participant who has a Custodial Account with
a balance of not less than $250,000 (unless waived or
reduced by Stein Roe & Farnham) may, if so elected on a
form acceptable to the Custodian, direct the Custodian
in writing to invest such Custodial Account and income
therefrom in such stocks, bonds, notes, shares of other
mutual funds registered under the Investment Company Act
of 1940, as amended, or other property, real or
personal, as the Participant deems appropriate. However,
if the value of the Custodial Account shall at any time
be less than $100,000 (unless waived or reduced by Stein
Roe & Farnham), the investment of the Custodial Account
shall be limited to the Mutual Funds. Further, any
amount invested pursuant to this Section in an
investment, other than securities traded on a national
stock exchange or in the over-the-counter market, shall
be subject to the prior written agreement of the
Custodian, and not less than 50 percent (unless waived
or reduced by Stein Roe & Farnham) of the Participant's
Custodial Account shall be invested in the Mutual Funds
and/or be subject to an Investment Advisory Agreement
between the Participant and Stein Roe & Farnham.
(b) The Custodian may charge the Custodial Account of the
Participant who elects to invest
<PAGE> 31
the Custodial Account pursuant to this Section such fees
as the Custodian and the Participant may from time to
time agree in writing.
(c) Subject to the direction of the Participant, the
Custodian shall have the following powers with respect
to a Custodial Account invested pursuant to this
Section:
(i) to invest all or any portion of the Custodial
Account in investment contracts issued by an
insurance company, including, but not limited to,
guaranteed income contracts, immediate participation
guarantee contracts, group annuity contracts and
deposit administration contracts, and to excise all
rights under such contracts in the manner directed
by the Participant; provided that, notwithstanding
the foregoing, no such investment shall be made in
life insurance contracts or in any other investment
which would cause the Participant's Custodial
Account to lose its exemption as provided in section
408(e)(2) of the Code;
(ii) to keep, in its sole discretion, such portion of the
Custodial Account in cash balances (regardless of
whether interest is paid on such balances) with a
bank or trust company (including the Custodian) as
the Custodian may from time to time deem to be in
the best interest of the Participant, and the
Custodian shall not be liable for any loss of
interest on cash so held; provided, however, that
any cash balances held by the Custodian shall bear a
reasonable rate of interest;
(iii) to sell, exchange, convey, transfer or otherwise
dispose of any property held by it by private sale
or contract or by public auction, and no person
dealing with the Custodian shall be bound to see to
the application of the purchase money or to inquire
into the validity, expediency or propriety of any
such sale or other disposition;
(iv) to vote (or refrain from voting), either in person
or by general or limited proxy, any securities; to
exercise any conversion privileges, subscription
rights or other options and to make any payments
incidental thereto; to consent to or otherwise
participate in reorganizations or other changes
affecting corporate securities and delegate
discretionary power and to pay any assessments or
charges in connection therewith; and to generally
exercise any powers of any owner with respect to
stocks, bonds, securities or other property (other
than shares of Mutual Funds) held in the account;
(v) to make, execute, acknowledge, and deliver any and
all documents of transfer and conveyance and any and
all other instruments that may be necessary or
appropriate to carry out the powers herein granted;
(vi) to register any investments made pursuant to this
Section in its own name or in the name of a nominee
and to hold any investment in bearer form, but the
books
<PAGE> 32
and records of the Custodian shall at all times show
that all such investments are part of the
Participant's Custodial Account;
(vii) to employ, and pay compensation to, suitable
agents, custodians, counsel and accountants as the
Custodian deems necessary or desirable to manage or
protect the Custodial Account, and if the Custodian
shall employ counsel, the Custodian shall be fully
protected in acting on the advice of such counsel;
and
(viii) to do all acts, whether or not expressly
authorized, which the Custodian may deem necessary
or proper for the protection of the property held
hereunder.
SECTION 8 - AMENDMENT AND TERMINATION
The Participant may amend the Application Form or terminate the
Custodial Account and Stein Roe & Farnham may, as agent for the
Participant, amend the Plan (including retroactive amendment of
the Plan), by delivering to the Custodian a signed copy of such
amendment or a notice of termination; provided however, that the
Custodian's duties may not be increased without its written
consent. By mutual agreement, Stein Roe & Farnham and the
Custodian may change the Custodial Fees set forth in the
Application Form upon 45 days' written notice to the Participant.
In the event that the Participant amends the Plan, other
than by amending the Application Form, the Participant's Plan
shall no longer be considered as approved by the Internal Revenue
Service as adoption of this prototype IRA Plan.
No amendment or termination shall be effective if it would
cause or permit any part of the Custodial Account to be diverted
to purposes other than for the exclusive benefit of the
Participant (and the Participant's Beneficiaries) and no
retroactive amendment shall be effective if it deprives any
Participant of any benefit to which the Participant was entitled
under the Plan by reason of contributions made before the
amendment, unless such amendment is necessary to conform the Plan
to, or satisfy the requirements of, the Code.
SECTION 9 - MISCELLANEOUS
9.1 Status of Participants. Neither the Participant nor any
other person shall have any legal or equitable right against
the Custodian or Stein Roe & Farnham, except as provided
herein.
9.2 Loss of Exemption of Custodial Account. If the Custodian
receives notice that the Participant's Custodial Account has
lost its tax-exempt status under section 408(e)(2) of the
Code for any reason, including by reason of a transaction
prohibited by section 4975 of the Code, the Custodian shall
distribute to the Participant the entire balance in the
Custodial Account, in cash or in kind, in the sole
discretion of the Custodian no later than 90 days after the
date the Custodian receives such notice.
9.3 Payment of Taxes, Expenses and Custodial Fees. The Custodian
shall pay out of the Custodial Account any income, gift,
estate or inheritance taxes or other tax of any kind
whatsoever that may be levied upon or assessed against or in
respect of the Custodial Account (other than transfer
taxes), and any expenses of investment management or
investment advisory services rendered to the Custodial
Account, and at its option, collect any amounts so charged
from the amount of any
<PAGE> 33
contribution to be credited to or distribution to be made
from the Custodial Account or by sale or liquidation of the
assets credited to such account. If the assets of the
Custodial Account are insufficient to satisfy such charges,
the Participant shall pay any deficit therein to the
Custodian.
Any transfer taxes incurred by the Custodian in
connection with the investment and reinvestment or transfer
of the assets of the Custodial Account and all other
administrative expenses incurred by the Custodian in the
performance of its duties, including fees for legal service
rendered to the Custodian and such compensation to the
Custodian as may be established from time to time by the
Custodian, shall be collected by the Custodian from the
amount of any contribution credited to or distribution to be
made from the Custodial Account or by sale or liquidation of
the assets credited thereto.
Until otherwise changed in accordance with the terms of
Section 8 hereof, the Custodian shall receive fees for its
services with respect to a Participant's Custodial Account
as set forth in the Application Form and shall receive such
additional fees as may be agreed upon by it and the
Participant from time to time for its services in connection
with investments made pursuant to Section 7.3 hereof.
Payment of any taxes, expenses or Custodial fees
described in this Section may also be paid directly by, or
on behalf of, the Participant subject to agreement by the
Custodian.
9.4 Gender and Number. Except where the context indicates to the
contrary, when used herein, masculine terms shall be deemed
to include the feminine, and singular the plural. In Section
3.3(c) and 4.4 hereof, feminine terms shall be deemed to
include the masculine.
9.5 Other Conditions. A Participant, by participating in the
Plan, expressly agrees that he shall look solely to the
assets of the Custodial Account for the payment of any
benefits to which he or she is entitled under the Plan. The
benefits provided under the Plan shall not be subject to
alienation, assignment, garnishment, attachment, execution
or levy of any kind, and any attempt to do so shall not be
recognized, except by the Custodian for the taxes, expenses
and Custodial fees described in Section 9.3 hereof and
except to such extent as may be required by law. The Plan
and any forms provide by the Custodian, including the
Beneficiary Designation filed pursuant to Section 4.5 and
all property rights of the Participant under the Plan, shall
be construed, administered, and enforced according to the
laws of the State of Illinois, other than its laws with
respect to choice of laws, except to the extent preempted by
the Employee Retirement Income Security Act of 1974, as
amended.
<PAGE>
Internal Revenue Servic Department of the Treasury
Plan Name: IRA Custodial Account Washgton, DC 20224
FFN: 50153960000-001 Case: 9670156 EIN: 36-3447638
Letter Serial No: 0100035d
Person to Contact: Ms. Arrington
STEIN ROE & FARNHAM INC.
Telephone Number: (202) 622-8173
ONE SOUTH WACKER STREET
Refer Reply to: CP:E:EP:T2
CHICAGO, IL 60606
Date: 09/19/96
Dear Applicant:
In our opinion, the amendment to the form of the prototype trust,
custodial account or annuity contract identified above does not
adversely affect its acceptability under section 408 of the
Internal Revenue Code, as amended by the Tax Reform Act of 1986.
Each individual who adopts this approved plan will be considered
to have a retirement savings program that satisfies the
requirements of Code section 408, provided they follow the terms
of the program, do not engage in certain transactions specified
in Code section 408(e), and, if the arrangement is a trust or
custodial account, the trustee or custodian is a bank within the
meaning of Code section 408(n) or has been approved by the
Internal Revenue Service pursuant to Code section 408(a)(2).
Please provide a copy of this letter to each person affected.
The Internal Revenue Service has not evaluated the merits of this
savings program and does not guarantee contributions or
investments made under the savings program. Furthermore, this
letter does not express any opinion as to the applicability of
Code section 4975, regarding prohibited transactions.
Code section 408(I) and related regulations require that the
trustee, custodian or issuer of a contract provide a disclosure
statement to each participant in this program as specified in the
regulations. Publication 590, Tax Information on Individual
Retirement Arrangements, gives information about the items to be
disclosed. The trustee, custodian or issuer of a contract is also
required to provide each adopting individual with annual reports
of savings program transactions.
Your program may have to be amended to include or revise
provisions in order to comply with future changes in the law or
regulations.
If you have any questions concerning IRS processing of this case,
call us at the above telephone number. Please refer to the File
Folder Number (FFN) shown in the heading of this letter. Please
provide those adopting this plan with your telephone number, and
advise them to contact your office if they have any questions
about the operation of this plan.
You should keep this letter a permanent record. Please notify us
if you terminate the form of this plan.
Sincerely yours,
Signature
Chief, Employee Plans Technical Branch 2
<PAGE>
The Stein Roe Mutual Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves 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 Growth Opportunities Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe International Fund
Stein Roe Emerging Markets Fund
Stein Roe Mutual Funds
P.O. Box 8900
Boston, Massachusetts 02205-8900
1-800-338-2550
http://www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive, 32nd
Floor
Liberty Securities Corporation, Distributor
Member SIPC
IRAPD 7/97
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
IRA APPLICATION
Prototype Plan No. D100035d dated September 19, 1996
Use this application to establish an Individual Retirement Account
(IRA) in a Stein Roe Mutual Fund. If you have any questions,
please call us at 800-338-2550.
1 PARTICIPANT
Please complete a separate form for each type of IRA you wish to
establish.
______________________________________________________________
First name Middle initial Last name
______________________________________________________________
Street Address
______________________________________________________________
City State Zip code
______________________________________________________________
Daytime telephone Evening telephone
______________________________________________________________
Social security number Date of Birth
_____________________________ as custodian for the above
Name of one custodian only* (if above participant is a minor)
participant under the ________________________________________
Minor state of residence (if applicable)
Uniform Gifts (Transfers) to Minors Act.
*The custodian is the individual responsible for managing the
account until the minor reaches the age of majority (18 or 21,
depending upon the state). The individual acting as custodian
needs to complete the above line and sign the application
(Section 9).
2 CONTRIBUTION TYPE
Please select one contribution type. The initial investment
minimum is $500 per fund account, except for a SEP-IRA. Please
refer to the Plan Booklet for an explanation of each contribution
type. Enclose a check payable to Stein Roe Mutual Funds for at
least $500, unless you are making an IRA asset transfer.
[ ] A. Contribution to Regular IRA
Contribution is for current year unless you specify
different year: 19__
[ ] B. SEP-IRA
[ ] C. Asset Transfer
Complete Section 11.
[ ] D. Conduit/Segregated IRA Rollover Account
[ ] E. Rollover
I have enclosed a check payable to Stein Roe Mutual Funds
in the amount of $_____
This represents a rollover from:
[ ] IRA
[ ] SEP-IRA
[ ] Spousal IRA
[ ] 403(b) Plan
[ ] Transfer Incident to Divorce from IRA/Tax-
qualified Plan
[ ] Spousal Death Benefit
Distribution from Tax-qualified Plan
[ ] Direct Rollover
[ ] Other
Date qualifying distribution was made*: ______
*This may not be more than 60 days prior to date SteinRoe Services
Inc. receives your Rollover Contribution.
3 INVESTMENT OF CONTRIBUTIONS
Please select your investments. If you do not choose a Fund, your
contributions will be invested in Stein Roe Cash Reserves
Fund, a money market fund.
Stein Roe Fund IRA
- ---------------------------------------
Government Reserves Fund $______
Cash Reserves Fund ______
Government Income Fund ______
Intermediate Bond Fund ______
Income Fund ______
High Yield Fund ______
Balanced Fund ______
Growth & Income Fund ______
Growth Stock Fund ______
Young Investor Fund ______
Special Fund ______
Growth Opportunities Fund ______
Special Venture Fund ______
Capital Opportunities Fund ______
International Fund ______
Emerging Markets Fund** ______
Total Contributions $
======
**To discourage short-term trading, there is a 1 percent redemption
fee imposed on the sale of shares held for less than 90 days.
4 AUTOMATIC INVESTMENT PLAN
Please allow 3 weeks to establish this option.
[ ] A. Regular Investment. This privilege allows you to make
current year contributions to your IRA directly from your bank
checking or savings account by electronic transfer. Please be
sure the amount you specify does not exceed your maximum
permissible annual contribution amount.
________________________________________________________________
Fund name Account number Amount
(or "new") ($50 monthly minimum)
________________________________________________________________
Fund name Account number Amount
(or "new") ($50 monthly minimum)
________________________________________________________________
Fund name Account number Amount
(or "new") ($50 monthly minimum)
I authorize Stein Roe Mutual Funds to draw on my bank account to
purchase shares for the account(s) listed above (check one box
only):
[ ] Monthly [ ] Quarterly [ ] Every 6 months [ ] Annually
These purchases should be made on or about the:[ ] 5th or
[ ] 20th day of the month
Please begin: [ ] Immediately or [ ] ______ specify month
[ ] B. Special Investments. You can also purchase shares by
telephone and pay for them by electronic transfer from your bank
account on request. Check the box above for this option, which
saves you the trouble and expense of arranging a wire transfer
or writing a check. Please also complete the bank information
below ($50 minimum; $100,000 maximum)
IRA contributions made through the Automatic Investment Plan will
be credited as a contribution for the year in which the shares are
purchased. You are solely responsible for adhering to applicable
contribution limitations.
Bank Information [ ] Checking [ ] Savings
_________________________________________________________
Name of bank
_________________________________________________________
Street address of bank
_________________________________________________________
City State Zip code
_________________________________________________________
Name(s) on bank account
_________________________________________________________
Bank account number ACH routing number
Attach a voided check to this form and verify the above
information with your bank.
5 AUTOMATIC EXCHANGE PLAN*
With this privilege you can authorize Stein Roe to regularly
exchange shares from one Stein Roe Fund to another with the same
account registration. A $500 minimum applies to each new account.
_________________________________________________________
Redeem shares from (Fund Name) Account number
_________________________________________________________
Amount ($50 monthly minimum)
_________________________________________________________
Purchase shares in (Fund name) Account number
(or "new")
Check one box below and fill in dates between the 1st and 28th
of the month:
[ ] Twice monthly on the ___ and ___ beginning ______________
specify month
[ ] Monthly on the _____ beginning _________________
specify month
[ ] Quarterly on the ________ of ___________________
list four months
[ ] Twice yearly on the ______ of ___________________
list two months
[ ] Annually on the _________ of ___________________
specify month
6 TELEPHONE EXCHANGE*
Unless you check the box below, you are electing to have the
privilege to exchange shares between your IRA accounts by
telephone.
[ ] I do NOT want the telephone exchange privilege.
Anyone who is supplied with the proper account information can
make telephone exchanges on your behalf. You may make up to four
round trip telephone exchanges every 12 months. A round trip is
the exchange from one Fund to another, and back again. Stein Roe
reserves the right to discontinue or modify the exchange
privilege, and certain restrictions apply.
7 CUSTODIAL ACCOUNTS OF $250,000 OR MORE
If you are establishing an IRA by transfer or rollover of an
amount of at least $250,000, you may select investments other than
the Stein Roe Mutual Funds in accordance with the terms of the
Plan by checking the following box and attaching a separate letter
of investment instructions. [ ]
8 DIVIDEND DISTRIBUTION OPTION*
Dividends and capital gains will automatically be reinvested into
your IRA fund account. If you would like to have your dividends
and capital gains distributions invested in a different Stein Roe
Mutual Fund within your IRA, please complete this section.
Note: The Fund into which you direct your dividends or capital
gains must be registered exactly the same as your current account
registration.
A. Reinvest my [ ] dividends into
[ ] capital gains into
Fund name: ____________________________
Account number: ________________________ (or "new")
B. Pay in cash to address of record.*
[ ] dividends [ ] capital gains
*If you are 59 1/2, you can elect to have your dividends/capital
gains paid in cash to the address of record.
9 SIGNATURE
Sign exactly as your name is printed in Section 1.
I hereby adopt the Stein Roe Funds Individual Retirement Account
Plan and appoint First Bank, N.A. to serve as Custodian as
provided therein. I have read the Plan documents, including the
General Provisions on the reverse side of this form, and agree to
be bound by their terms. I have received the current
prospectus(es) of the Fund(s) in which my initial contribution is
to be invested and agree to be bound by their terms.
Unless I have declined the Telephone Exchange Privilege in Section
6, I have authorized any Fund the shares of which are purchased
for my IRA, and SteinRoe Services Inc., transfer agent for the
Fund(s) and agent for my IRA Custodian (the "Stein Roe Parties")
to act upon instructions received by telephone to exchange shares
held for shares of any other Stein Roe Fund. I agree that no Stein
Roe Parties will be liable for any loss, injury, damage or expense
as a result of action upon, and will not be responsible for the
authenticity of any telephone instructions, and will hold the
Stein Roe Parties harmless from any loss, claims or liability
arising from its or their compliance with these instructions.
Accordingly, I understand that I will bear any risk of loss
resulting from unauthorized instructions. I understand that the
Stein Roe Parties employ reasonable procedures to confirm that
telephone instructions are genuine.
Signature: ____________________________
Date: _________________________________
10 CUSTODIAN ACCEPTANCE
The undersigned, First Bank, N.A., by separate agreement and the
below signature, offers to serve as Custodian in accordance with
the Stein Roe Funds Individual Retirement Account Plan once this
Application form has been properly completed and delivered (or
mailed) to the Custodian. If relating to an asset transfer, the
undersigned accepts the appointment as successor Custodian of the
above referenced account(s) and directs the resigning custodian to
liquidate the assets and remit as described above.
OFFER TO SERVE AS CUSTODIAN:
First Bank National Association
By: TERRY S. RICHTER
11 IRA Asset Transfer Information
Please complete this section only if you are making an IRA asset
transfer. Please consult the resigning custodian to determine if
there are any special requirements (e.g. signature guarantee) you
must meet before making an asset transfer.
Resigning Custodian Information
_________________________________________________________
Resigning custodian
_________________________________________________________
Street address or P.O. box
_________________________________________________________
City State Zip code
_________________________________________________________
Account representative
_________________________________________________________
Daytime telephone
_________________________________________________________
Account name and number to be transferred
Type of IRA Transferred to Stein Roe
[ ] Regular [ ] Rollover [ ] SEP-IRA
If you are making an IRA asset transfer, please complete the form
on the reverse side.
*Redemption Fee
Although Stein Roe Emerging Markets Fund is 100 percent no-load,
with no 12b-1 fees and no sales charges, there is a 1 percent
redemption fee imposed on the sale of shares held for less than 90
days to discourage short-term trading.
Transfer Instructions (continued from previous page)
Please liquidate all assets (or $ ___________) in the above-
referenced account on ____________ (if no date, liquidate
immediately) and remit proceeds payable to Stein Roe Mutual Funds
for the IRA of the individual listed in Section 1 to the following
address:
Stein Roe Mutual Funds
P.O. Box 8900
Boston, MA 02205-8900
If your IRA is invested in a certificate of deposit (C.D.) and the
IRA C.D. investment matures in less than 15 days, please notify your
custodian that we will be sending asset transfer instructions. If
your IRA C.D. investment matures in more than 30 days, please
check with your custodian to determine if a penalty
will apply for early liquidation.
Signature For Asset Transfer
_____________________________
Sign here and in Section 9
Signature Guarantee (May be required by resigning custodian. Please
contact resigning custodian for instructions.)
Signature Guaranteed by:
_________________________________________________________
Name of institution
_________________________________________________________
Name of authorized officer
_________________________________________________________
Signature of authorized officer
Guarantor's Stamp:
Stein Roe account representatives are available weekdays from 7
a.m. to 8 p.m. and weekends from 8 a.m. to 2 p.m.(Central Time)
If you have any questions, please call us toll free at 800-338-
2550
Please return this completed form to:
Stein Roe Mutual Funds
P.O. Box 8900
Boston, MA 02205-8900
General Provisions
1. Plan Establishment.
Your IRA will be established when SteinRoe Services Inc.
receives your properly completed form. If you fail to complete
this form properly, the establishment of your IRA may be
delayed.
2. Charges and Fees.
Custodial Fees. Your IRA is subject to custodial fees as
provided in the IRA Plan. These custodial fees will be paid
by converting Fund shares in IRA accounts to cash, as
determined by Stein Roe Mutual Funds. In general, these
fees are for the maintenance of your IRA account(s) - Stein
Roe Mutual Funds are no-load funds and no fees are charged
based on your contributions. SteinRoe Services Inc. performs
most of the ministerial functions in maintaining Fund accounts.
As a result, it receives a substantial portion of your IRA
custodial fees. Following are descriptions of custodial fees
for Stein Roe IRA accounts. These fees may be changed upon 45
days' written notice to you. The Custodian also reserves the
right to waive or reduce any of its charges or fees.
1. Fund Account Annual Maintenance Fee: $10 (maximum $30)
For IRA accounts for which the aggregate balance of all Fund
accounts is less than $10,000 on the valuation date, a Fund
account Annual Maintenance Fee will apply. A fee of $10 will
be charged for each Fund account maintained by you during any
part of the subject calendar year - limit three Fund accounts.
Stein Roe Mutual Funds will determine which Fund accounts are
charged.
2. Distribution fee: $10
For IRA accounts, a distribution fee will be charged for each
distribution from a Fund account - in the case of installment
payments, however, this fee is charges only at the time the
installment plan is established.
3. Termination fee: $10
For all IRA accounts, a termination fee will be charged for
each Fund account liquidated in connection with the termination
or transfer of your IRA. This fee is not applicable to accounts
which are distributed pursuant to an installment plan.
4. Other Services
For all IRA account for which the Custodian is required to
perform services not ordinarily provided under the Plan,
including making participant-directed investments of large
Custodial accounts of $250,000 or more pursuant to Section 7.3
of the Plan, the Custodian may charge such additional fees
as are appropriate.
3. Telephone Inquiry Responses.
The Funds in which contributions by you or on your behalf are
invested and SteinRoe Services Inc., as transfer agent for the
Funds and as agent for the Custodian of the Plan, are
authorized to respond to any written inquiries from you and any
telephonic inquiries (WHETHER FROM YOU OR ANY PERSON) relating
to the status of your IRA and none of the Funds, SteinRoe
Services Inc., or the Custodian shall be held liable for any
action taken or information communicated pursuant to any such
communication.
4. Terms of Privileges.
The following terms and conditions and those stated in the
prospectus as in effect from time to time apply to the Fund
Privileges you elect:
a. None of the Funds, the Funds' transfer agent, your IRA
Custodian nor their respective officers, trustees nor
directors, agents nor employees shall be liable for any
loss, liability, cost or expense for acting upon
instructions furnished under a Privilege.
b. You agree that any Privilege you elect shall continue until
five business days after any Fund, (shares of which are held
in your IRA) or its transfer agent, receive notice from you
of any change thereof. You also agree that any Fund offering
a Privilege, its transfer agent or your IRA Custodian may
suspend, limit or terminate any Privilege or its use at any
time without prior notice to you. You agree that none of the
Funds, their transfer agent, or your IRA Custodian shall be
held liable for any action taken or information communicated
pursuant to this authorization.
c. You authorize the Fund(s) and its transfer agent to initiate
any and all credit or debit entries (and reversals thereof)
to effect electronic transfers under any Privilege and
redeem shares of any Funds(s) you own equal to the amount of
any loss incurred by any of them in effecting any electronic
transfer and retain the proceeds.
d. You understand that the Funds or their transfer agent will
generally record (by electronic means or otherwise) any
telephonic instruction given pursuant to a Privilege and you
expressly authorize such recording. You also understand and
agree that the Funds and your transfer agent reserve the
right to refuse any telephonic instruction.
5. Transfers/Rollovers by Persons over age 70 1/2.
If you are making an asset transfer/rollover contribution after
the April 1 of the year following the year you reach age 70 1/2
or a subsequent year, your assets transferred/rolled over must
be distributed over a period no longer than the period over
which they were scheduled to be distributed from your
transferor/distributing plan. If you already have a Stein Roe
IRA and are scheduled to receive distributions from that IRA
over a period longer than the period over which you were
scheduled to receive distributions from the transferor/
distributing plan, you must establish a new Stein Roe IRA for
your transfer/rollover. In addition, you must complete and
return with this form a Distribution Request Form requesting
that your transferred/rolled over assets be distributed at
least as rapidly as under the distribution method in effect
under your transferor/distributing plan. If the distribution
period for your transferor/distributing plan is based on the
joint and last survivor life expectancies of you and a
designated beneficiary, you cannot extend the payment period
under the Stein Roe IRA into which your assets are transferred/
rolled over by naming a younger Beneficiary. You may designate
a different Beneficiary than under your transferor/distributing
plan, but if that Beneficiary has a shorter life expectancy
than the beneficiary designated under your transferor plan,
your maximum IRA payment period must be correspondingly
reduced. If that Beneficiary has a life expectancy longer than
the beneficiary designated under your transferor/ distributing
plan, your maximum IRA payment period still must be the same as
under the transferor/distributing plan. In either event, you
must designate a Beneficiary for the Stein Roe IRA into which
your assets are transferred/rolled over by completing and
returning an IRA Beneficiary Form with your Distribution
Request Form. For other rollover provisions, see Plan Booklet.
IRAAP 0897
<PAGE>
[Stein Roe Mutual Funds Logo]
IRA BENEFICIARY FORM
For all Stein Roe Mutual Fund Shareholders.
INSTRUCTIONS
If you do not designate a Beneficiary by properly completing and
returning this form, your IRA death benefits will be paid in a
lump sum to your surviving spouse or, if you have none, to your
estate. For further information on death benefit distributions,
please see Section 4 of the IRA Plan. Because your Beneficiary
Designation may have important tax and legal ramifications, we
suggest that you consult with your counsel about completion of
this form.
1 PARTICIPANT
________________________________________________________________
First Name Middle Initial Last Name
________________________________________________________________
Street Address
________________________________________________________________
City State Zip Code
________________________________________________________________
Daytime Telephone Evening Telephone
________________________________________________________________
Social Security Number Date of Birth
I hereby revoke all prior Beneficiary Designations and designate
the following as the Beneficiary(ies) of my IRA(s) identified
below. I retain the right to change this designation under the
terms of my IRA and subject to the General Provision on the
reverse side of this form. I understand and agree that my
Beneficiary(ies) shall elect the method of death benefit
distribution.
2 TYPE OF IRA
This Beneficiary Designation shall apply to all of your IRAs
unless you specify a particular IRA by checking the appropriate
box below. See General Provision 3 on the reverse side for
instructions on when a specific designation may be required for
IRA rollovers or transfers.
[ ] Regular [ ] Transfer
[ ] Rollover [ ] SEP
3 BENEFICIARIES
Include date of trust or trust number if Beneficiary is a trust.
A. Primary Beneficiary(ies)
1. ________________________________________________________
Name & Relationship
________________________________________________________
Mailing Address
________________________________________________________
% of Distribution SSN/TIN Date of Birth
2. ________________________________________________________
Name & Relationship
________________________________________________________
Mailing Address
________________________________________________________
% of Distribution SSN/TIN Date of Birth
B. Contingent Beneficiary(ies)
1. ________________________________________________________
Name & Relationship
________________________________________________________
Mailing Address
________________________________________________________
% of Distribution SSN/TIN Date of Birth
2. ________________________________________________________
Name & Relationship
________________________________________________________
Mailing Address
________________________________________________________
% of Distribution SSN/TIN Date of Birth
C. Minor Beneficiary(ies):
If you designate a minor beneficiary, please designate a
custodian under the Illinois Uniform Transfers Act, or similar
statute.
____________________________________________________________
Name of Minor
____________________________________________________________
Name of Custodian
4 SIGNATURE
By signing below you agree to all the General Provisions on the
reverse side of this form.
________________________________________________________
Signature Date
By signing below I hereby transfer my marital interest in my
spouse's IRA to the Beneficiary(ies) designated above.
_______________________________________________________________
Participant's Spouse's Signature (Community Property States Only)
<PAGE>
GENERAL PROVISIONS
1. Effectiveness. This Beneficiary Designation shall not be
valid until it has been properly completed and received by the
Custodian not later than 30 days after the date of your death.
2. Beneficiary Eligibility. In order for a Beneficiary to
receive your death benefits:
(a) if such Beneficiary is your surviving spouse and he/she
dies before one or more payments become due, each such
payment shall be payable as if he/she were the
Participant;
(b) if such Beneficiary is an individual who is not your
surviving spouse, such individual Beneficiary must survive
you and be living at the time each payment to which he is
entitled becomes due; and
(c) if such Beneficiary is a trust, the trustee of that trust
must be qualified to act at the time each payment to the
trust becomes due (subject to the terms of Provision 4
below).
3. Transfers and Rollovers. If you transfer or roll over assets
from another IRA or tax-qualified plan ("transferor plan")
after April 1 of the year following the year you reach age 70
1/2, those assets must be distributed over a period no longer
than the period over which they were scheduled to be
distributed from the transferor plan. If you are receiving
distributions from another IRA established by adoption of the
Stein Roe IRA Plan over a period longer than the period over
which you were receiving distributions from the transferor
plan, the assets transferred or rolled over must continue to
be distributed over the transferor plan period. In order to
do so, you must establish a separate IRA for the assets
transferred or rolled over. If the transferor plan period is
based on the joint and last survivor life expectancies of you
and a beneficiary designated under the transferor plan, you
cannot extend the payment period for the IRA into which the
assets are transferred or rolled over by designating a younger
Beneficiary. You may designate a different Beneficiary for
the IRA, but if that Beneficiary has a shorter life expectancy
than the beneficiary designated under the transferor plan,
your maximum IRA payment period must be correspondingly
reduced. If the IRA Beneficiary has a life expectancy longer
than the beneficiary designated under the transferor plan,
your maximum payment period still must be the same as under
the transferor plan.
4. Trust Beneficiaries.
(a) If you name a trust as a Beneficiary on the face of this
form but no qualified trustee claims the portion of your
death benefits payable to the trust within 18 months after
your death, or if, within that period, it is established
to the satisfaction of the Custodian that no trustee can
or will qualify to receive such amounts, such amounts
shall be paid to such other of your Beneficiaries, if any,
who are eligible to receive your death benefits under
Provision 2 above.
(b) If you name a trust as a Beneficiary (other than a trust
described in the next sentence) your death benefits must
be paid to the trust in a lump sum no later than December
31 of the year that contains the fifth anniversary of your
death. A trust Beneficiary that meets the following
requirements on the later of the date on which the trust
is named as Beneficiary or April 1 of the year following
the year in which you reach 70 1/2, and as of all
subsequent times, may elect to receive your death benefits
over a maximum period equal to the life expectancy of the
oldest trust Beneficiary:
(i) there are no trust beneficiaries (other than
beneficiaries whose receipt of benefits is contingent
on the death of a prior beneficiary) who are not
individuals.;
(ii) the trust is a valid trust under state law, or would
be but for the fact that there is no corpus;
(iii) the trust is irrevocable;
(iv) the trust beneficiaries who are Beneficiaries of your
IRA are identifiable from the trust instrument; and
(v) a copy of the trust instrument is provided to the
Custodian.
5. Fiduciary Responsibility. The Custodian and the Plan are not
responsible for any failure of a trustee, executor or
administrator to perform the duties of trustee, executor or
administrator, nor for the application or disposition of any
money paid to a trustee, executor or administrator or trust
beneficiary, and any money so paid shall fully discharge the
Custodian and the Plan for the amount so paid.
6. Evidence. The Plan and Custodian shall be fully discharged
from all liability to any and all persons claiming under the
Plan in relying on evidence provided by affidavit or otherwise
as shall be satisfactory to the Custodian in determining the
existence of any trust, the identity and qualification of any
trustee(s) or any other questions of fact relative to payments
due under the Plan, and in making payment either to the
trustee(s), any beneficiary of a trust or the executors or
administrators of your estate, as the case may be.
7. Minor Beneficiaries. If any person to whom all or a portion
of your interest is payable is a minor and if either (i) you
have not designated a person to receive the minor's interest
on behalf of such minor as Custodian under the Illinois
Uniform Transfers Act, or similar statute, or (ii) the person
you designated refuses or is unable to act, the Custodian may
in its sole discretion:
(a) distribute the interest to the legal guardian of such
minor, or
(b) designate an adult member of the minor's family, a
guardian or a trust company (including the Custodian), as
those terms defined in the Illinois Uniform Transfer Act,
or similar statute, and distribute such minor's interest
to the person so designated.
8. Controlling terms. The terms, provisions and limitations of
the Plan and any amendments thereof which may be made from
time to time are controlling over these General Provisions and
shall always govern all rights of you and your
Beneficiary(ies) and all persons claiming under, by or through
them or any of them.
If you have any questions, please call us toll-free weekdays from
7 a.m. to 8 p.m. and weekends from 8 a.m. to 5 p.m. (Central Time)
at 800 338-2550.
Please send this completed from to:
Stein Roe Mutual Funds
P.O. Box 8900
Boston, MA 02205-8900
Stein Roe Counselor [service mark] clients call your account
executive toll-free weekdays from 8 a.m. to 6 p.m. (Central Time)
at 800-322-8222.
Stein Roe Counselor [service mark] clients please send this
completed form to:
Stein Roe Counselor [service mark]
P.O. Box 803938
Chicago, IL 6068l0-3938
IRABN 0696
EXHIBIT 14(b)
STEIN ROE & FARNHAM
PROTOTYPE
PAIRED DEFINED CONTRIBUTION
MONEY PURCHASE PENSION AND
PROFIT SHARING PLANS
<PAGE>
STEIN ROE & FARNHAM
PAIRED DEFINED CONTRIBUTION
TABLE OF CONTENTS
Page
ARTICLE 1 General ----
1.1 Purpose .............................................1
1.2 Trust ...............................................1
ARTICLE 2 Definitions
2.1 Account .............................................1
2.2 Adoption Agreement ..................................1
2.3 Affiliated Employers.................................1
2.4 Beneficiary .........................................1
2.5 Break in Service ....................................2
2.6 Code ................................................2
2.7 Compensation ........................................2
2.8 Custodian ...........................................2
2.9 Determination Date ..................................3
2.10 Earned Income .......................................3
2.11 Effective Date ......................................3
2.12 Eligibility Computation Period ......................3
2.13 Employee ............................................3
2.14 Employer ............................................3
2.15 Employer Contributions ..............................3
2.16 Entry Dates .........................................3
2.17 ERISA ...............................................3
2.18 Hour of Service .....................................4
2.19 Integration Level ...................................6
2.20 Key Employee ........................................6
2.21 Leased Employee .....................................6
2.22 Maximum Disparity Rate ..............................7
2.23 Maximum Profit Sharing Disparity Rate ...............8
2.24 Net Profits .........................................8
2.25 Non-Key Employee ....................................8
2.26 Normal Retirement Age ...............................8
2.27 Owner-Employee ......................................8
2.28 Participant .........................................8
2.29 Plan ................................................8
2.30 Plan Administrator ..................................9
2.31 Plan Year ...........................................9
2.32 Self-Employed Individual ............................9
2.33 Shares ..............................................9
2.34 Sponsor .............................................9
2.35 Taxable Wage Base ...................................9
2.36 Total and Permanent Disability ......................9
2.37 Trust ...............................................9
2.38 Trust Agreement .....................................9
2.39 Trustee .............................................9
2.40 Valuation Date ......................................9
2.41 Vesting Computation Period .........................10
2.42 Year of Service ....................................10
ARTICLE 3 Eligibility and Years of Service
3.1 Eligibility Requirements ...........................10
3.2 Participation and Service Upon Reemployment.........10
3.3 Predecessor Employers ..............................11
ARTICLE 4 Contributions
4.1 Employer Contributions .............................11
4.2 Payment ............................................12
4.3 Nondeductible Voluntary Contributions by
Participants .....................................12
4.4 Rollovers ..........................................12
4.5 Direct Transfers ...................................13
ARTICLE 5 Allocations
5.1 Individual Accounts ................................13
5.2 Minimum Allocation .................................14
5.3 Allocation of Employer Contributions and Foreitures.15
5.4 Coordination of Social Security Integration.........17
5.5 Withdrawals and Distributions.......................17
5.6 Determination of Value of Trust Fund and of
Net Earnings or Losses ...........................17
5.7 Allocation of Net Earnings or Losses ...............17
5.8 Responsibilities of the Plan Administrator .........18
ARTICLE 6 Limitations on Allocations
6.1 Employers Who Do Not Maintain Other Qualified Plans 18
6.2 Employers Who Maintain Other Qualified Master
or Prototype Defined Contribution Plans...........20
6.3 Employers Who, In Addition to This Plan, Maintain
Other Qualified Plans Which Are Defined Contri-
bution Plans Other Than Master or Prototype Plans.21
6.4 Employers Who, In Addition to This Plan,
Maintain a Qualified Defined Benefit Plan.... ....21
6.5 Definitions ........................................21
ARTICLE 7 Trust Fund
7.1 Receipt of Contributions by Trustee ................25
7.2 Investment Responsibility ..........................25
7.3 Investment Limitations .............................26
ARTICLE 8 Vesting
8.1 Nondeductible Voluntary Contributions and Earnings .26
8.2 Rollovers, Transfers and Earnings ..................26
8.3 Employer Contributions and Earnings ................26
8.4 Amendments to Vesting Schedule .....................27
8.5 Determination of Years of Service ..................28
8.6 Forfeiture of Non-Vested Amounts ...................28
8.7 Reinstatement of Benefit ...........................29
ARTICLE 9 Joint and Survivor Annuity Requirements
9.1 General ............................................29
9.2 Qualified Joint and Survivor Annuity ...............29
9.3 Qualified Preretirement Survivor Annuity ...........29
9.4 Definitions ........................................29
9.5 Notice Requirements ................................31
9.6 Safe Harbor Rules ..................................33
9.7 Transitional Rules .................................34
ARTICLE 10 Distribution Provisions
10.1 Vesting on Distribution Before Break in Service ....36
10.2 Restrictions on Immediate Distributions ............37
10.3 Commencement of Benefits ...........................38
10.4 Early Retirement With Age and Service Requirement ..38
10.5 Nontransferability of Annuities ....................38
10.6 Conflicts With Annuity Contracts ...................38
ARTICLE 11 Timing and Modes of Distribution
11.1 General Rules ......................................38
11.2 Required Beginning Date ............................39
11.3 Limits on Distribution Periods .....................39
11.4 Determination of Amount to be Distributed Each Year.39
11.5 Death Distribution Provisions ......................40
11.6 Designation of Beneficiary .........................41
11.7 Definitions ........................................41
11.8 Transitional Rule ..................................44
11.9 Optional Forms of Benefit ..........................45
ARTICLE 12 Withdrawals
12.1 Withdrawal of Nondeductible Voluntary Contributions 46
12.2 Manner of Making Withdrawals .......................46
12.3 Limitations on Withdrawals .........................47
ARTICLE 13 Administration
13.1 Duties and Responsibilities of Fiduciaries;
Allocation of Fiduciary Responsibility ...........47
13.2 Powers and Responsibilities of the Plan
Administrator ....................................47
13.3 Allocation of Duties and Responsibilities ..........48
13.4 Appointment of the Plan Administrator ..............49
13.5 Expenses ...........................................49
13.6 Liabilities ........................................49
13.7 Claims Procedure....................................49
ARTICLE 14 Amendment, Termination and Merger
14.1 Sponsor's Power to Amend ...........................50
14.2 Amendment by Adopting Employer .....................51
14.3 Plan Termination; Discontinuance of Employer
Contributions ....................................51
14.4 Successor Employer .................................52
14.5 Merger, Consolidation or Transfer ..................52
14.6 Special Amendments .................................52
ARTICLE 15 Miscellaneous
15.1 Exclusive Benefit of Participants and Beneficiaries.52
15.2 Nonguarantee of Employment .........................53
15.3 Rights to Trust Assets .............................53
15.4 Nonalienation of Benefits ..........................53
15.5 Aggregation Rules ..................................53
15.6 Failure of Qualification ...........................54
15.7 Applicable Law .....................................54
15.8 Invalidity of Certain Provisions ...................54
AMENDMENTS A AND B AS OF MAY 23, 1994
<PAGE> 1
STEIN ROE & FARNHAM PROTOTYPE PLAN
ARTICLE 1
GENERAL
1.1 PURPOSE. The Employer hereby establishes this Plan to provide
retirement, death and disability benefits for eligible employees
and their beneficiaries. This Plan is a standardized prototype
paired defined contribution plan and is designed to permit adoption
of profit sharing provisions, money purchase pension provisions, or
both. The provisions herein and the selections made by the
Employer by execution of the Money Purchase Pension or Profit
Sharing Adoption Agreement or Agreements, shall constitute the
Plan. It is intended that the Plan and Trust qualify under
sections 401 and 501 of the Internal Revenue Code of 1986, as
amended, and that it comply with the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
1.2 TRUST. The Employer has simultaneously adopted a Trust to
receive, invest, and distribute funds in accordance with the Plan.
ARTICLE 2
DEFINITIONS
2.1 ACCOUNT. The aggregate of the individual bookkeeping
subaccounts established for each Participant, as provided in
Section 5.1.
2.2 ADOPTION AGREEMENT. The written agreement or agreements of the
Employer and the Trustee by which the Employer establishes this
Plan and adopts the Trust Agreement forming a part hereof, as the
same may be amended from time to time. The Adoption Agreement
contains all the options that may be selected by the Employer. The
information set forth in the Adoption Agreement executed by the
Employer shall be deemed to be a part of this Plan as if set forth
in full herein.
2.3 AFFILIATED EMPLOYERS. The Employer and any corporation which
is a member of a controlled group of corporations (as defined in
section 414(b) of the Code) which includes the Employer, any trade
or business (whether or not incorporated) which is under common
control (as defined in section 414(c) of the Code) with the
Employer, or any service organization (whether or not incorporated)
which is a member of an affiliated service group (as defined in
section 414(m) and (o) of the Code) which includes the Employer.
2.4 BENEFICIARY. The person or persons (natural or otherwise)
designated by a Participant in accordance with Section 11.6 to
receive any undistributed amounts credited to the Participant's
Account under the Plan at the time of the Participant's death.
<PAGE> 2
2.5 BREAK IN SERVICE. An Eligibility Computation Period or Vesting
Computation Period in which an Employee fails to complete more than
five hundred (500) Hours of Service with the Affiliated Employers.
2.6 CODE. The Internal Revenue Code of 1986, as amended from time
to time, or any successor statute.
2.7 COMPENSATION.
(a) Compensation means all of each Participant's W-2 earnings.
(b) For any self-employed individual covered under the Plan,
Compensation means Earned Income.
(c) Compensation includes only that Compensation that is actually
paid to the Participant during the Plan Year.
(d) Notwithstanding the above, if elected by the Employer in the
Adoption Agreement, Compensation shall include any amount which is
contributed by the Employer pursuant to a salary reduction
agreement and which is not includable in the gross income of the
Employee under sections 125, 402(a)(8), 402(h) or 403(b) of the
Code. The effective date of this subsection shall be elected by
the Employer in the Adoption Agreement.
(e) The annual Compensation of each Participant taken into account
under the Plan for any year shall not exceed two hundred thousand
dollars ($200,000), as adjusted by the Secretary at the same time
and in the same manner as under section 415(d) of the Code. In
determining the Compensation of a Participant for purposes of this
limitation, the rules of section 414(q)(6) of the Code shall apply,
except in applying such rules, the term "family" shall include only
the Spouse of the Participant and any lineal descendants of the
Participant who have not attained age nineteen (19) before the
close of the year. If, as a result of the application of such
rules, the adjusted two hundred thousand dollar ($200,000)
limitation is exceeded, then (except for purposes of determining
the portion of Compensation up to the Integration Level to the
extent this Plan provides for permitted disparity) the limitation
shall be prorated among the affected individuals in proportion to
each such individual's Compensation as determined under this
section prior to the application of this limitation.
(f) The effective date of this subsection shall be the first Plan
Year beginning on or after January 1, 1989.
2.8 CUSTODIAN. The custodian, if any, designated in the Adoption
Agreement.
<PAGE> 3
2.9 DETERMINATION DATE. With respect to any Plan Year subsequent
to the first Plan Year, the last day of the preceding Plan Year.
For the first Plan Year of the Plan, the last day of that Plan
Year.
2.10 EARNED INCOME. The net earnings from self-employment in the
trade or business with respect to which the Plan is established,
for which personal services of the individual are a material
income-producing factor. Net earnings will be determined without
regard to items not included in gross income and the deductions
allocable to such items. Net earnings are reduced by
contributions to a qualified plan to the extent deductible under
section 404 of the Code. Net earnings shall be determined with
regard to the deduction allowed to the Employer by section 164(f)
of the Code for taxable years beginning after December 31, 1989.
2.11 EFFECTIVE DATE. The first day of the first Plan Year for
which the Plan is effective as specified in the Adoption Agreement.
2.12 ELIGIBILITY COMPUTATION PERIOD. For purposes of determining
Years of Service and Breaks in Service for eligibility to
participate, the initial Eligibility Computation Period shall be
the twelve (12) consecutive month period beginning with the day the
Employee first performs an Hour of Service for the Employer or any
employer required to be aggregated with such Employer under
sections 414(b), (c), (m) or (o) of the Code (employment
commencement date). The succeeding subsequent Eligibility
Computation Periods shall be the twelve (12) consecutive month
periods commencing with the first anniversary of the Employee's
employment commencement date.
2.13 EMPLOYEE. Any person, including a Self-Employed Individual,
who is employed by the Employer maintaining the Plan or any other
employer required to be aggregated with such Employer under
sections 414(b), (c), (m) or (o) of the Code. The term "Employee"
shall also include any Leased Employee deemed to be an Employee of
any Employer described above as provided in sections 414(n) or (o)
of the Code.
2.14 EMPLOYER. The corporation, proprietorship, partnership or
other organization that adopts the Plan by execution of an Adoption
Agreement.
2.15 EMPLOYER CONTRIBUTIONS. The contribution of the Employer to
the Plan and Trust as set forth in Section 4.1 and the Adoption
Agreement.
2.16 ENTRY DATES. The Effective Date shall be the first Entry
Date. Thereafter, the Entry Dates shall be the first day of each
Plan Year and the first day of the seventh month of each Plan Year.
2.17 ERISA. The Employee Retirement Income Security Act of 1974,
as amended.
<PAGE> 4
2.18 HOUR OF SERVICE.
(a) Each hour for which an Employee is paid, or entitled to payment
for the performance of duties for the Employer. These hours shall
be credited to the Employee only for the computation period or
periods in which the duties are performed.
(b) Each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time during
which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty,
military duty, or leave of absence. No more than 501 Hours of
Service shall be credited under this paragraph to an Employee on
account of any single, continuous period during which the Employee
performs no duties (whether or not such period occurs in a single
computation period) and no credits shall be given for hours for
which no duties are performed but for which payment by the Employer
is made or due under a plan maintained solely for the purpose of
complying with applicable workmen's compensation, unemployment
compensation, or disability insurance laws or where payment solely
reimburses an Employee for medical or medically related expenses
incurred by the Employee. Hours under this paragraph will be
calculated and credited pursuant to section 2530.200b-2 of the
Department of Labor Regulations which are incorporated herein by
this reference.
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The same
Hours of Service shall not be credited both under paragraph (a) or
paragraph (b), as the case may be, and under this paragraph (c).
These hours shall be credited to the Employee for the computation
period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement, or
payment is made.
(d) Solely for purposes of determining whether an Employee has a
Break in Service, Hours of Service shall also include an
uncompensated authorized leave of absence not in excess of two (2)
years, or military leave while the Employee's reemployment rights
are protected by law or such additional or other periods as granted
by the Employer as military leave (credited on the basis of forty
(40) Hours of Service per week or eight (8) Hours of Service per
working day), provided the Employee returns to employment at the
end of his leave of absence or within ninety (90) days of the end
of his military leave, whichever is applicable.
(e) Hours of Service will be credited for employment with other
members of an affiliated service group (under section 414(m)), a
controlled group of corporations (under section 414(c)) of which
the adopting Employer is a member, and any other entity required to
be aggregated with the Employer pursuant to section
<PAGE> 5
414(o) and the regulations thereunder. Hours of Service will also
be credited for any individual considered an Employee for purposes
of this Plan under section 414(n) or section 414(o) and the
regulations thereunder.
(f) Solely for purposes of determining whether an Employee has a
Break in Service, Hours of Service shall also include absence from
work for maternity or paternity reasons, if the absence begins on
or after the first day of the first Plan Year beginning after 1984.
During this absence, the Employee shall be credited with the Hours
of Service which would have been credited but for the absence, or,
if such hours cannot be determined, with eight (8) hours per day.
An absence from work for maternity or paternity reasons means an
absence:
(i) by reason of the pregnancy of an Employee,
(ii) by reason of the birth of a child of the Employee,
(iii) by reason of the placement of a child with the Employee in
connection with adoption, or
(iv) for purposes of caring for such a child for a period
immediately following such birth or placement.
These Hours of Service shall be credited in the computation period
following the computation period in which the absence begins,
except as necessary to prevent a Break in Service in the
computation period in which the absence begins. However, no more
than five hundred one (501) Hours of Service will be credited for
purposes of any such maternity or paternity absence from work.
(g) The Employer may elect to compute Hours of Service by the use
of one of the Service Equivalencies in the Adoption Agreement.
Only one method may be selected. If selected, the Service
Equivalency must be applied to all Employees covered under the
Plan.
(h) If the Employer amends the method of crediting service from the
elapsed time method described in section 1.410(a)-7 of the Treasury
Regulations to the Hours of Service computation method by the
adoption of this Plan, or an Employee transfers from a plan under
which service is determined on the basis of elapsed time, the
following rules shall apply for purposes of determining the
Employee's service under this Plan up to the time of amendment or
transfer:
(i) The Employee shall receive credit, as of the date of
amendment or transfer, for a number of Years of Service
equal to the number of one-year periods of service credited
to the Employee as of the date of the amendment or transfer;
and
(ii) The Employee shall receive credit in the applicable
computation period which includes the date of amendment or
transfer, for a number of Hours of Service determined by
applying the weekly Service Equivalency specified in
paragraph (g) to any fractional part of a year credited to
the Employee under
<PAGE> 6
this paragraph (h) as of the date of amendment or transfer.
The use of the weekly Service Equivalency shall apply to all
Employees who formerly were credited with service under the
elapsed time method.
2.19 INTEGRATION LEVEL. The Taxable Wage Base or such lesser
amount elected by the Employer in the Adoption Agreement.
2.20 KEY EMPLOYEE.
(a) Any Employee or former Employee (and the beneficiaries of such
Employee) who at any time during the determination period was an
officer of the Employer if such individual's annual Compensation
exceeds fifty percent (50%) of the dollar limitation under section
415(b)(1)(A) of the Code; an owner (or considered an owner under
section 318 of the Code) of one of the ten (10) largest interests
in the Employer if such individual's Compensation exceeds one
hundred percent (100%) of the dollar limitation under section
415(c)(1)(A) of the Code; a five percent (5%) Owner of the
Employer; or a one percent (1%) owner of the Employer who has
annual Compensation of more than one hundred fifty thousand dollars
($150,000).
(b) For purposes of this section, annual Compensation means
compensation as defined in section 415(c)(3) of the Code, but
including amounts contributed by the Employer pursuant to a salary
reduction agreement which are excludable from the Employee's gross
income under sections 125, 402(a)(8), 402(h) or 403(b) of the Code.
(c) For purposes of this section, determination period is the Plan
Year containing the Determination Date and the four (4) preceding
Plan Years.
2.21 LEASED EMPLOYEE.
(a) Any person (other than an Employee of any of the Affiliated
Employers) who, pursuant to an agreement between any of the
Affiliated Employers and any other person ("leasing organization"),
has performed service for any of the Affiliated Employers (or for
any of the Affiliated Employers and related persons determined in
accordance with section 414(n)(6) of the Code) on a substantially
full-time basis for a period of at least one (1) year and such
services are of a type historically performed by Employees in the
Employer's business field. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable
to services performed for the Affiliated Employer shall be treated
as provided by the Affiliated Employer.
<PAGE> 7
(b) A Leased Employee shall not be considered an Employee of an
Affiliated Employer if:
(i) such employee is covered by a money purchase pension plan
providing:
(1) a nonintegrated employer contribution rate of at least
ten percent (10%) of compensation (as defined in section
415(c)(3) of the Code), but including amounts
contributed pursuant to a salary reduction agreement
which are excludable from the employee's gross income
under section 125, 402(a)(8), 402(h) or 403(b) of the
Code;
(2) immediate participation;
(3) full and immediate vesting; and
(ii) Leased Employees do not constitute more than twenty percent
(20%) of the Affiliated Employer's non-Highly-Compensated
workforce.
(c) The determination of whether a person is a Leased Employee will
be made pursuant to section 414(n) of the Code.
2.22 MAXIMUM DISPARITY RATE. The lesser of:
(a) five and seven-tenths percent (5.7%);
(b) the applicable percentage determined in accordance with the
table below:
If the Integration Level is
The Applicable
More Than But Not More Than Percentage Is:
--------- ----------------- --------------
$0 X * 5.7%
X of TWB 80% of TWB 4.3%
80% of TWB Y ** 5.4%
* X = the greater of $10,000 or 20% of the Taxable Wage Base.
** Y = any amount more than 80% of the Taxable Wage Base but less
than 100% of the Taxable Wage Base.
"TWB" means the Taxable Wage Base.
If the Integration Level used is equal to the Taxable Wage Base,
the applicable percentage is five and seven-tenths percent (5.7%).
<PAGE> 8
2.23 MAXIMUM PROFIT SHARING DISPARITY RATE. The lesser of:
(a) two and seven-tenths percent (2.7%);
(b) the applicable percentage determined in accordance with the
table below:
If the Integration Level is
The Applicable
More Than But Not More Than Percentage Is:
---------- ----------------- ---------------
$0 X * 2.7%
X of TWB 80% of TWB 1.3%
80% of TWB Y ** 2.4%
* X = the greater of $10,000 or 20% of the Taxable Wage Base.
** Y = any amount more than 80% of the Taxable Wage Base but less
than 100% of the Taxable Wage Base.
"TWB" means the Taxable Wage Base.
If the Integration Level used is equal to the Taxable Wage Base,
the applicable percentage is two and seven-tenths percent (2.7%).
2.24 NET PROFITS. Current earnings (and in the case of a corporate
Employer, accumulated earnings) of the Employer, before federal and
state taxes and contributions to this Plan and any other qualified
plan, as computed by the Employer's accountants, in accordance with
generally accepted accounting principles.
2.25 NON-KEY EMPLOYEE. Any Employee or former Employee who is not
a Key Employee. In addition, any Beneficiary of a Non-Key Employee
shall be treated as a Non-Key Employee.
2.26 NORMAL RETIREMENT AGE. The age selected in the Adoption
Agreement, but not less than age fifty-five (55). If the Employer
enforces a mandatory retirement age, the Normal Retirement Age is
the lesser of that mandatory age or the age specified in the
Adoption Agreement.
2.27 OWNER-EMPLOYEE. An individual who is a sole proprietor or who
is a partner owning more than ten percent (10%) of either the
capital or profits interest of a partnership.
2.28 PARTICIPANT. A person who has met the eligibility
requirements of Section 3.1 and whose Account hereunder has been
neither completely forfeited nor completely distributed.
2.29 PLAN. The prototype paired defined contribution profit
sharing and money purchase pension plans provided under this basic
plan document. References to the Plan shall refer to the profit
sharing provisions, the money purchase pension provisions, or both,
as the context may require.
<PAGE> 9
2.30 PLAN ADMINISTRATOR. The person, persons, or entity appointed
by the Employer pursuant to Article 13 to manage and administer the
Plan.
2.31 PLAN YEAR. The twelve (12) consecutive month period
designated by the Employer in the Adoption Agreement.
2.32 SELF-EMPLOYED INDIVIDUAL. An individual who has Earned Income
for the taxable year from the trade or business for which the Plan
is established, or an individual who would have had Earned Income
for the taxable year but for the fact that the trade or business
had no Net Profits for the taxable year.
2.33 SHARES. Shares of stock in any regulated investment company
registered under the Investment Company Act of 1940 that are made
available for investment purposes as an investment option under
this Plan.
2.34 SPONSOR. The sponsor designated in the Adoption Agreement
which has made this Plan available to the Employer.
2.35 TAXABLE WAGE BASE. The maximum amount of earnings which may
be considered wages under section 3121(a)(1) of the Code in effect
as of the beginning of the Plan Year.
2.36 TOTAL AND PERMANENT DISABILITY. The inability of the
Participant to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment, which
condition, in the opinion of a physician chosen by the Plan
Administrator, can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not
less than twelve (12) months.
2.37 TRUST. The fund maintained by the Trustee for the investment
of Plan assets in accordance with the terms and conditions of the
Trust Agreement.
2.38 TRUST AGREEMENT. The agreement between the Employer and the
Trustee under which the assets of the Plan are held, administered,
and managed. The provisions of the Trust Agreement shall be
considered an integral part of this Plan as if set forth fully
herein.
2.39 TRUSTEE. The individual or corporate Trustee or Trustees
under the Trust Agreement as they may be constituted from time to
time.
2.40 VALUATION DATE. The last day of each Plan Year and such other
dates as may be determined by the Plan Administrator.
<PAGE> 10
2.41 VESTING COMPUTATION PERIOD. The Plan Year.
2.42 YEAR OF SERVICE. An Eligibility Computation Period, Vesting
Computation Period, or Plan Year, whichever is applicable, during
which an Employee of the Affiliated Employers has completed at
least one thousand (1,000) Hours of Service (whether or not
continuous) with the Affiliated Employers. The Employer may, in
the Adoption Agreement, specify a lesser number of hours.
ARTICLE 3
ELIGIBILITY AND YEARS OF SERVICE
3.1 ELIGIBILITY REQUIREMENTS.
(a) Each Employee of the Affiliated Employers shall become a
Participant in the Plan as of the first Entry Date after the date
on which the Employee has satisfied the minimum age and service
requirements specified in the Adoption Agreement.
(b) The Employer may elect in the Adoption Agreement to exclude
from participation:
(i) Employees included in a unit of employees covered by a
collective bargaining agreement between the Employer and
Employee representatives, if retirement benefits were the
subject of good faith bargaining (for this purpose, the term
"Employee representatives" does not include any organization
more than half of whose members are Employees who are
owners, officers, or executives of the Employer); and
(ii) Non-resident aliens who receive no earned income from the
Employer which constitutes income from sources within the
United States.
3.2 PARTICIPATION AND SERVICE UPON REEMPLOYMENT. Upon the
reemployment of any Employee, the following rules shall determine
his eligibility to participate in the Plan and his credit for prior
service.
(a) Participation. If the reemployed Employee was a Participant in
the Plan during his prior period of employment, he shall be
eligible upon reemployment to resume participation in the Plan. If
the reemployed Employee was not a Participant in the Plan, he shall
be considered a new Employee and required to meet the requirements
of Section 3.1 in order to be eligible to participate in the Plan,
subject to the reinstatement of credit for prior service under
paragraph (b) below.
<PAGE> 11
(b) Credit for Prior Service. In the case of any Employee who is
reemployed before or after incurring a Break in Service, any Hour
of Service and Year of Service credited to the Employee at the end
of his prior period of employment shall be reinstated as of the
date of his reemployment.
3.3 PREDECESSOR EMPLOYERS. If specified in the Adoption Agreement,
Years of Service with a predecessor employer will be treated as
service for the Employer for eligibility purposes; provided,
however, if the Employer maintains the plan of a predecessor
employer, Years of Service with such employer will be treated as
service with the Employer without regard to any election.
ARTICLE 4
CONTRIBUTIONS
4.1 EMPLOYER CONTRIBUTIONS.
(a) Money Purchase Pension Contribution. For each Plan Year, the
Employer shall contribute to the Trust an amount equal to such
uniform percentage of Compensation of each eligible Participant as
may be determined by the Employer in accordance with the money
purchase pension contribution formula specified in the Adoption
Agreement. Subject to the limitations of Section 5.4, the money
purchase pension contribution formula may be integrated with Social
Security as set forth in the Adoption Agreement.
(b) Profit Sharing Contribution. For each Plan Year, the Employer
shall contribute to the Trust from its Net Profits an amount as may
be determined by the Employer in accordance with the profit sharing
formula set forth in the Adoption Agreement.
(c) Eligible Participants. Subject to the Minimum Allocation rules
of Section 5.2 and the exclusions specified in this section; each
Participant shall be eligible to share in the Employer
Contribution. An Employer may elect in the Adoption Agreement that
Participants who terminate employment during the Plan Year with not
more than five hundred (500) Hours of Service and who are not
Employees as of the last day of the Plan Year (other than
Participants who die, retire or become Totally and Permanently
Disabled during the Plan Year) shall not be eligible to share in
the Employer Contribution. An Employer may further elect in the
Adoption Agreement to allocate a contribution on behalf of a
Participant who completes fewer than five hundred (500) Hours of
Service and is otherwise ineligible to share in the Employer
Contribution. If the Employer fails to specify in the Adoption
Agreement the number of Hours of Service required to share in the
Employer Contribution, the number shall be five hundred (500) Hours
of Service.
<PAGE> 12
(d) Contribution Limitation. In no event shall any Employer
Contribution exceed the maximum amount deductible from the
Employer's income under section 404 of the Code, or the maximum
limitations under section 415 of the Code provided in Article 6.
4.2 PAYMENT. All Employer Contributions to the Trust for any Plan
Year shall be made either in one lump sum or in installments by
check within the time prescribed by law, including extensions
granted by the Internal Revenue Service, for filing the Employer's
federal income tax return for the taxable year with or within which
such Plan Year ends. All Employer Contributions to the Trust for a
money purchase pension plan for any Plan Year shall be made within
the time prescribed by regulations under section 412(c)(10) of the
Code.
4.3 NONDEDUCTIBLE VOLUNTARY CONTRIBUTIONS BY PARTICIPANTS.
(a) This Plan will not accept nondeductible Employee contributions
for the Plan Years beginning after the Plan Year in which this Plan
is adopted by the Employer. Employee contributions made with
respect to Plan Years beginning after December 31, 1986 will be
limited so as to meet the nondiscrimination test of section 401(m).
(b) A separate account shall be maintained by the Trustee for the
nondeductible Employee contributions of each Participant.
(c) Employee contributions and earnings thereon shall be fully
vested and nonforfeitable at all times.
(d) The provisions of this section shall apply to Employee
contributions made prior to the first Plan Year after the Plan Year
in which the Employer adopts this Plan.
4.4 ROLLOVERS.
(a) Subject to the approval of the Plan Administrator, a
participant who has participated in any other qualified plan
described in section 401(a) of the Code or in a qualified annuity
plan described in section 403(a) of the Code shall be permitted to
make a rollover contribution in the form of cash to the Trust of an
amount received by the Participant that is attributable to
participation in such other plan (reduced by any nondeductible
voluntary contributions he made to the plan), provided that the
rollover contribution complies with all requirements of section
402(a)(5) or section 403(a)(4) of the Code, whichever is
applicable.
<PAGE> 13
(b) Before approving such a Participant rollover, the Plan
Administrator may request from the Participant or the Employer any
documents which the Plan Administrator, in its discretion, deems
necessary for such rollover.
(c) Any rollover contribution to the Trust shall be credited to the
Participant's rollover subaccount established under Section 5.1 and
separately accounted for.
4.5 DIRECT TRANSFERS.
(a) The Plan shall accept a transfer of assets directly from
another plan qualified under section 401(a) or 403(a) of the Code
only if the Plan Administrator, in its sole discretion, agrees to
accept such a transfer. In determining whether to accept such a
transfer the Plan Administrator shall consider the administrative
inconvenience engendered by such a transfer and any risks to the
continued qualification of the Plan under section 401(a) of the
Code. Acceptance of any such transfer shall not preclude the Plan
Administrator from refusing any subsequent such transfers.
(b) Any transfer of assets accepted under this section shall be
credited to the Participant's direct transfer subaccount and shall
be separately accounted for at all times and shall remain subject
to the provisions of the transferor plan (as it existed at the time
of such transfer) to the extent required by section 411(d)(6) of
the Code (including, but not limited to, any rights to Qualified
Joint and Survivor Annuities and Qualified Preretirement Survivor
Annuities) as if such provisions were part of the Plan. In all
other respects, however, such transferred assets will be subject to
the provisions of the Plan.
(c) Assets accepted under this section shall be fully vested and
nonforfeitable.
(d) Before approving such a direct transfer, the Plan Administrator
may request from the Participant or the Employer (or the prior
employer) any documents the Plan Administrator, in its discretion,
deems necessary for such direct transfer.
ARTICLE 5
ALLOCATIONS
5.1 INDIVIDUAL ACCOUNTS. The Plan Administrator shall establish
and maintain an Account in the name of each Participant. The
Account shall contain the following subaccounts:
<PAGE> 14
(a) A money purchase pension contribution subaccount to which shall
be credited each such Participant's share of (i) Employer
Contributions under Section 4.1(a), (ii) the net earnings or net
losses on the investment of the assets of the Trust, (iii)
distributions, and (iv) dividends, capital gain distributions and
other earnings received on any Shares credited to the Participant's
subaccount;
(b) A profit sharing contribution subaccount to which shall be
credited each such Participant's share of (i) Employer
contributions under Section 4.1(b), (ii) forfeitures, (iii) the net
earnings or net losses on the investment of the assets of the
Trust, (iv) distributions, and (v) dividends, capital gain
distributions and other earnings received on any Shares credited to
the Participant's subaccount;
(c) A nondeductible voluntary contribution subaccount to which
shall be credited nondeductible voluntary contributions by the
Participant under Section 4.3 and the earnings, losses, and
expenses attributable thereto, including dividends, capital gain
distributions and other earnings received on any Shares credited to
the Participant's subaccount;
(d) A direct transfer subaccount to which shall be credited (i)
contributions to the Trust accepted under Section 4.5(a); (ii) the
net earnings or net losses on the investment of the assets of the
Trust; (iii) distributions; and (iv) dividends, capital gain
distributions and other earnings received on any Shares credited to
the Participant's subaccount;
(e) A rollover subaccount to which shall be credited (i)
contributions to the Trust accepted under Section 4.4(a); (ii) the
net earnings or net losses on the investment of the assets of the
Trust; (iii) distributions; and (iv) dividends, capital gain
distributions and other earnings received on any Shares credited to
the Participant's subaccount.
5.2 MINIMUM ALLOCATION.
(a) Except as otherwise provided in this section, the Employer
Contributions and forfeitures allocated on behalf of any
Participant who is not a Key Employee shall not be less than the
lesser of three percent (3%) of such Participant's Compensation or
in the case where the Employer has no defined benefit plan which
designates this Plan to satisfy section 401 of the Code, the
largest percentage of Employer Contributions and forfeitures, as a
percentage of the first two hundred thousand dollars ($200,000) of
the Key Employee's Compensation, allocated on behalf of any Key
Employee for that year. The minimum allocation is determined
without regard to any Social Security contribution. This minimum
allocation shall be made even though, under other Plan provisions,
the Participant would not otherwise be entitled to receive an
allocation, or would have received a lesser allocation for the year
because of (i) the Participant's failure to complete one
<PAGE> 15
thousand (1,000) Hours of Service (or any equivalent provided in
the Plan); or (ii) the Participant's failure to make mandatory
Employee Contributions to the Plan; or (iii) Compensation less than
a stated amount. For purposes of this subsection, all defined
contribution plans required to be included in an aggregation group
under section 416(g)(2)(A)(i) shall be treated as a single plan.
(b) For purposes of computing the minimum allocation, Compensation
shall mean Compensation as defined in Section 6.5(b) of the Plan.
(c) The provision in subsection (a) above shall not apply to any
Participant who was not employed by the Employer on the last day of
the Plan Year.
(d) The provision in subsection (a) above shall not apply to any
Participant to the extent the Participant is covered under any
other plan or plans of the Employer and the Employer has provided
in the Adoption Agreement that the minimum allocation or benefit
requirement applicable to top-heavy plans will be met in the other
plan or plans.
(e) The minimum allocation required (to the extent required to be
nonforfeitable under section 416(b)) may not be forfeited under
section 411(a)(3)(B) or 411(a)(3)(D).
5.3 ALLOCATION OF EMPLOYER CONTRIBUTIONS AND FORFEITURES.
(a) All money purchase pension contributions for a given Plan Year
shall be allocated to the Account of the Participant for whom such
contribution was made. Any forfeiture from a Participant's money
purchase pension contribution subaccount arising under the Plan for
a given Plan Year shall be applied as specified in the Adoption
Agreement either: (i) to reduce the Employer Contribution in that
year, or if in excess of the Employer Contribution for such Plan
Year, the excess amounts shall be used to reduce the Employer
Contribution in the next succeeding Plan Year or Years or (ii) to
be added to the Employer Contributions and allocated accordingly.
(b) All profit sharing contributions and forfeitures from a
Participant's profit sharing contribution subaccount will be
allocated to the Account of each Participant in the ratio that such
Participant's Compensation bears to the Compensation of all
Participants. However, if the profit sharing contribution formula
selected in the Adoption Agreement is integrated with Social
Security, profit sharing contributions for the Plan Year plus any
forfeitures will be allocated to Participants' Accounts as follows:
<PAGE> 16
(i) Step One. Contributions and forfeitures will be allocated to
each Participant's Account in the ratio that each
Participant's total Compensation bears to all Participants'
total Compensation, but not in excess of three percent (3%)
of each Participant's Compensation. (Step One is not
applicable if the Employer enters into the Money Purchase
Pension Adoption Agreement.)
(ii) Step Two. Any contributions and forfeitures remaining after
the allocation in Step One (if any) will be allocated to
each Participant's Account in the ratio that each
Participant's Compensation for the Plan Year in excess of
the Integration Level bears to the excess Compensation of
all Participants, but not in excess of three percent (3%).
(Step Two is not applicable if the Employer enters into the
Money Purchase Pension Adoption Agreement.)
(iii) Step Three. Any contributions and forfeitures remaining
after the allocation in Step Two (if any) will be allocated
to each Participant's Account in the ratio that the sum of
each Participant's total Compensation and Compensation in
excess of the Integration Level bears to the sum of all
Participants' total Compensation and Compensation in excess
of the Integration Level, but not in excess of whichever of
the following is applicable:
(A) if the Employer has not adopted the Money Purchase
Pension Adoption Agreement, then the Maximum Profit
Sharing Disparity Rate; or
(B) if the Employer has adopted the Money Purchase Pension
Adoption Agreement, then the lesser of:
(1) the percentage of each Participant's Compensation
for the Plan Year up to the Integration Level
determined by dividing the allocation by such
Compensation (the base contribution percentage); or
(2) the Maximum Disparity Rate.
(iv) Step Four. Any remaining contributions or forfeitures will
be allocated to each Participant's Account in the ratio that
each Participant's total Compensation for the Plan Year
bears to all Participants' total Compensation for that year.
(c) Notwithstanding anything in (A) or (B) above to the contrary,
forfeitures arising under a Participant's money purchase pension
contribution subaccount will only be used to reduce the
contributions of the Participant's Employer who adopted this Plan,
and forfeitures arising under a Participant's profit sharing
<PAGE> 17
contribution subaccount will be reallocated only for the benefit of
Employees of the Participant's Employer who adopted this Plan.
5.4 COORDINATION OF SOCIAL SECURITY INTEGRATION. If the Employer
maintains plans involving integration with Social Security other
than this Plan, and if any Participant is eligible to participate
in more than one of such plans, all such plans will be considered
to be integrated if the extent of the integration of all such plans
does not exceed one hundred percent (100%). For purposes of the
preceding sentence, the extent of integration of a plan is the
ratio (expressed as a percentage) which the actual benefits,
benefit rate, offset rate, or Employer Contribution rate under the
plan bears to the integration limitation applicable to such plan.
If the Employer enters into both the Money Purchase Pension
Adoption Agreement and the Profit Sharing Adoption Agreement under
this Plan, integration with Social Security may only be selected in
one Adoption Agreement.
5.5 WITHDRAWALS AND DISTRIBUTIONS. Any distribution to a
Participant or his Beneficiary, any amount transferred from a
Participant's Account directly to the Trustee of any other
qualified plan described in section 401(a) of the Code or from a
qualified annuity plan described in section 403(a) of the Code, or
any withdrawal by a Participant shall be charged to the appropriate
subaccount(s) of the Participant as of the date of the distribution
or the withdrawal.
5.6 DETERMINATION OF VALUE OF TRUST FUND AND OF NET EARNINGS OR
LOSSES. As of each Valuation Date the Trustee shall determine for
the period then ended the sum of the net earnings or losses of the
Trust (excluding with respect to Shares and other assets
specifically allocated to a specific Participant's subaccount, (i)
dividends and capital gain distributions from Shares, or (ii)
income gains and/or losses attributable to any other assets which
shall reflect accrued but unpaid interest, dividends, gains, or
losses realized from the sale, exchange or collection of assets,
other income received, appreciation in the fair market value of
assets, depreciation in the fair market value of assets,
administration expenses, and taxes and other expenses paid. Gains
or losses realized and adjustments for appreciation or depreciation
in fair market value shall be computed with respect to the
difference between such value as of the preceding Valuation Date or
date of purchase, whichever is applicable, and the value as of the
date of disposition or the current Valuation Date, whichever is
applicable.
5.7 ALLOCATION OF NET EARNINGS OR LOSSES.
(a) As of each Valuation Date the net earnings or losses of the
Trust (excluding with respect to Shares and other assets
specifically allocated to a specific Participant's subaccount (i)
dividends and capital gain distributions from Shares or (ii) income
gains and/or losses attributable to any assets, all of which shall
be specifically allocated to such Participant's subaccount) for the
Valuation Period then ending shall be allocated to the Accounts of
all Participants (or Beneficiaries) having credits in the Fund both
on such date and at the
<PAGE> 18
beginning of such Valuation Period. Such allocation shall be made
by the application of a fraction, the numerator of which is the
value of the Account (excluding the value of Shares and other
assets specifically allocated to a Participant's subaccount) of a
specific Participant (or Beneficiary) as of the immediately
preceding Valuation Date, reduced by any distributions or transfers
therefrom and increased by any rollovers or transfers thereto since
such preceding Valuation Date, and the denominator of which is the
total value of all such Accounts (excluding the value of Shares and
other assets specifically allocated to the subaccounts of all
Participants) as of that preceding Valuation Date, reduced by any
distributions therefrom since such preceding Valuation Date.
(b) To the extent that Shares and other assets are specifically
allocated to a specific Participant's subaccount, (i) dividends and
capital gain distributions from Shares, or (ii) income gains and/or
losses attributable to any other assets, all shall be allocated to
such Participant's subaccount.
5.8 RESPONSIBILITIES OF THE PLAN ADMINISTRATOR. The Plan
Administrator shall maintain accurate records with respect to the
contributions made by or on behalf of Participants under the Plan,
and shall furnish the Trustee with written instructions directing
the Trustee to allocate all Plan contributions to the Trust among
the separate Accounts of Participants in accordance with Section
5.1 above. In making any such allocation, the Trustee shall be
fully entitled to rely on the instructions furnished by the Plan
Administrator, and shall be under no duty to make any inquiry or
investigation with respect thereto.
ARTICLE 6
LIMITATIONS ON ALLOCATIONS
6.1 EMPLOYERS WHO DO NOT MAINTAIN OTHER QUALIFIED PLANS.
(a) If the Participant does not participate in, and has never
participated in another qualified plan or a welfare benefit fund,
as defined in section 419(e) of the Code, maintained by the
Employer, or an individual medical account as defined in section
415(1)(2) of the Code, maintained by the Employer, which provides
an Annual Addition as defined in Section 6.5(a), the amount of
Annual Additions that may be credited to the Participant's Account
for any Limitation Year will not exceed the lesser of the Maximum
Permissible Amount or any other limitation contained in this Plan.
If the Employer Contribution that would otherwise be contributed or
allocated to the Participant's Account would cause the Annual
Additions for the Limitation Year to exceed the Maximum Permissible
Amount, the amount contributed or allocated will be reduced so that
the Annual Additions for the Limitation Year will equal the Maximum
Permissible Amount.
<PAGE> 19
(b) Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant on the basis of a reasonable
estimation of the Participant's Compensation for the Limitation
Year, uniformly determined for all Participants similarly situated.
(c) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the Limitation
Year will be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
(d) If, pursuant to subsection (c) or as a result of the allocation
of forfeitures, there is an Excess Amount, the excess will be
disposed of as follows:
(i) Any nondeductible voluntary Employee Contributions, to the
extent they would reduce the Excess Amount, will be returned
to the Participant;
(ii) If after the application of paragraph (i) an Excess Amount
still exists, and the Participant is covered by the Plan at
the end of the Limitation Year, the Excess Amount in the
Participant's Account will be used to reduce Employer
Contributions (including any allocation of forfeitures) for
such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary;
(iii) If after the application of paragraph (i) an Excess Amount
still exists, and the Participant is not covered by the Plan
at the end of the Limitation Year, the Excess Amount will be
held unallocated in a suspense account. The suspense
account will be applied to reduce future Employer
Contributions (including allocation of any forfeitures) for
all remaining Participants in the next Limitation Year, and
each succeeding Limitation Year if necessary;
(iv) If a suspense account is in existence at any time during the
Limitation Year pursuant to this Section, it will not
participate in the allocation of the Trust's investment
gains and losses. If a suspense account is in existence at
any time during a particular Limitation Year, all amounts in
the suspense account must be allocated and reallocated to
Participants' Accounts before any Employer or Employee
Contributions may be made to the Plan for that Limitation
Year. Excess Amounts may not be distributed to Participants
or former Participants.
<PAGE> 20
6.2 EMPLOYERS WHO MAINTAIN OTHER QUALIFIED MASTER OR PROTOTYPE
DEFINED CONTRIBUTION PLANS.
(a) This Section applies if, in addition to this Plan, the
Participant is covered under another qualified master or prototype
defined contribution plan maintained by the Employer, a welfare
benefit fund as defined in section 419(e) of the Code maintained by
the Employer, or an individual medical account, as defined in
section 415(1)(2) of the Code maintained by the Employer which
provides an Annual Addition as defined in Section 6.5(a), during
any Limitation Year. The Annual Additions which may be credited to
a Participant's Account under this Plan for any such Limitation
Year will not exceed the Maximum Permissible Amount reduced by the
Annual Additions credited to a Participant's Account under the
other plans and welfare benefit funds for the same Limitation Year.
If the Annual Additions with respect to the Participant under other
defined contribution plans and welfare benefit funds maintained by
the Employer are less than the Maximum Permissible Amount and the
Employer Contribution that would otherwise be contributed or
allocated to the Participant's Account under this Plan would cause
the Annual Additions for the Limitation Year to exceed this
limitation, the amount contributed or allocated will be reduced so
that the Annual Additions under all such plans and funds for the
Limitation Year will equal the Maximum Permissible Amount. If the
Annual Additions with respect to the Participant under such other
defined contribution plans and welfare benefit funds in the
aggregate are equal to or greater than the Maximum Permissible
Amount, no amount will be contributed or allocated to the
Participant's Account under this Plan for the Limitation Year.
(b) Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant in the manner described in
Section 6.1(b).
(c) As soon as administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the Limitation
Year will be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
(d) If, pursuant to Section 6.2(c), or as a result of the
allocation of forfeitures, a Participant's Annual Additions under
this Plan and such other plans would result in an Excess Amount for
a Limitation Year, the Excess Amount will be deemed to consist of
the Annual Additions last allocated, except that Annual Additions
attributable to a welfare benefit fund or individual medical
account will be deemed to have been allocated first regardless of
the actual allocation date.
(e) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation
date of another plan, the Excess Amount attributed to this Plan
will be the product of:
(i) the total Excess Amount allocated as of such date, times
<PAGE> 21
(ii) the ratio of (1) the Annual Additions allocated to the
Participant for the Limitation Year as of such date under
this Plan to (2) the total Annual Additions allocated to the
Participant for the Limitation Year as of such date under
this and all the other qualified master or prototype defined
contribution plans.
(f) Any Excess Amount attributed to this Plan will be disposed of
in the manner described in Section 6.1(d).
6.3 EMPLOYERS WHO, IN ADDITION TO THIS PLAN, MAINTAIN OTHER
QUALIFIED PLANS WHICH ARE DEFINED CONTRIBUTION PLANS OTHER THAN
MASTER OR PROTOTYPE PLANS. If the Participant is covered under
another qualified defined contribution plan maintained by the
Employer which is not a master or prototype plan, Annual Additions
which may be credited to the Participant's Account under this Plan
for any Limitation Year will be limited in accordance with Section
6.2 as though the other plan were a master or prototype plan unless
the Employer provides other limitations in the Adoption Agreement.
6.4 EMPLOYERS WHO, IN ADDITION TO THIS PLAN, MAINTAIN A QUALIFIED
DEFINED BENEFIT PLAN. If the Employer maintains, or at any time
maintained, a qualified defined benefit plan covering any
Participant in this Plan, the sum of the Participant's defined
benefit plan fraction and defined contribution plan fraction will
not exceed 1.0 in any Limitation Year. The Annual Additions which
may be credited to the Participant's Account under this Plan for
any Limitation Year will be limited in accordance with the Adoption
Agreement.
6.5 DEFINITIONS. Unless otherwise expressly provided herein, for
purposes of this article only, the following definitions and rules
of interpretation shall apply:
(a) Annual Additions. The sum of the following amounts credited to
a Participant's Account for the Limitation Year:
(i) Employer Contributions;
(ii) Employee Contributions;
(iii) Forfeitures; and
(iv) For this purpose, any excess amount applied under Section
6.1(d) or 6.2(f) in the Limitation Year to reduce Employer
Contributions will be considered Annual Additions for such
limitation year.
Amounts allocated after March 31, 1984, to an individual medical
account, as defined in section 415(1)(2) of the Code, which is a
part of a pension or annuity plan maintained by the Employer, are
treated as Annual Additions to a defined contribution plan. Also,
amounts derived from contributions paid or accrued after December
31, 1985, in taxable years ending after such date, which are
attributable to post-retirement medical benefits allocated to the
separate account of a Key Employee, as defined in section
419A(d)(3) of the Code,
<PAGE> 22
under a welfare benefit fund, as defined in section 419(e) of the
Code, maintained by the Employer, are treated as Annual Additions
to a defined contribution plan.
(b) Compensation. A Participant's earned income, wages, salaries,
and fees for professional services and other amounts received for
personal services actually rendered in the course of employment
with the Employer maintaining the Plan (including, but not limited
to, commissions paid salesmen, compensations for services on the
basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses), and excluding the following:
(i) Employer Contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for
the taxable year in which contributed, or Employer
Contributions under a simplified employee pension plan to
the extent such contributions are excluded from the
Employee's gross income, or any distributions from a plan of
deferred compensation;
(ii) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(iii) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
(iv) Other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an
annuity described in section 403(b) of the Code (whether or
not the amounts are actually excludable from the gross
income of the Employee).
For purposes of applying the limitations of this Article,
Compensation for a Limitation Year is the Compensation actually
paid or includible in gross income during such year.
Notwithstanding the preceding sentence, Compensation for a
Participant in a defined contribution plan who is Totally and
Permanently Disabled (as defined in section 22(e)(3) of the Code)
is the Compensation such Participant would have received for the
Limitation Year if the Participant had been paid at the rate of
Compensation paid immediately before becoming Totally and
Permanently Disabled; such imputed Compensation for the disabled
Participant may be taken into account only if the Participant is
not a Highly Compensated Employee (as defined in section 414(q) of
the Code), and contributions made on behalf of such Participant are
nonforfeitable when made.
<PAGE> 23
(c) Defined Benefit Fraction. A fraction, the numerator of which
is the sum of the Participant's projected annual benefits under all
the defined benefit plans (whether or not terminated) maintained by
the Employer, and the denominator of which is the lesser of one
hundred percent (100%) of the dollar limitation in effect for the
Limitation Year under sections 415(b) and (d) of the Code or one
hundred forty percent (140%) of highest average compensation,
including any adjustments under section 415(b) of the Code.
Notwithstanding the above, if the Participant was a Participant as
of the first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined benefit plans maintained
by the Employer which were in existence on May 6, 1986, the
denominator of this fraction will not be less than one hundred
twenty-five percent (125%) of the sum of the annual benefits under
such plans which the Participant had accrued as of the close of the
last Limitation Year beginning before January 1, 1987, disregarding
any changes in the terms and conditions of the Plan after May 5,
1986. The preceding sentence applies only if the defined benefit
plans individually and in the aggregate satisfied the requirements
of section 415 of the Code for all Limitation Years beginning
before January 1, 1987.
(d) Defined Contribution Dollar Limitation. Thirty thousand
dollars ($30,000) or, if greater, one-fourth (1/4) of the defined
benefit dollar limitation set forth in section 415(b)(1) of the
Code as in effect for the Limitation Year.
(e) Defined Contribution Fraction. A fraction, the numerator of
which is the sum of the Annual Additions to the Participant's
Account under all the defined contribution plans (whether or not
terminated) maintained by the Employer for the current and all
prior Limitation Years (including the Annual Additions attributable
to the Participant's nondeductible voluntary contributions to all
defined benefit plans, whether or not terminated, maintained by the
Employer, and the Annual Additions attributable to all welfare
benefit funds, as defined in section 419(e) of the Code and
individual medical accounts, as defined in section 415(1)(2) of the
Code, maintained by the Employer), and the denominator of which is
the sum of the maximum aggregate amounts for the current and all
prior Limitation Years of service with the Employer (regardless of
whether a defined contribution plan was maintained by the
Employer). The maximum aggregate amount in any Limitation Year is
the lesser of one hundred percent (100%) of the dollar limitation
in effect under section 415(c)(1)(A) of the Code or thirty-five
percent (35%) of the Participant's Compensation for such year.
If the Participant was a Participant as of the end of the first day
of the first Limitation Year beginning after December 31, 1986, in
one or more defined contribution plans maintained by the Employer
which were in existence on May 6, 1986, the numerator of this
fraction will be adjusted if the sum of this fraction and the
defined benefit fraction would otherwise exceed 1.0 under the terms
of this Plan. Under the adjustment, an amount equal to the product
of (1) the excess of the sum of the fractions over 1.0 times (2)
the denominator of
<PAGE> 24
this fraction, will be permanently subtracted from the numerator of
this fraction. The adjustment is calculated using the fractions as
they would be computed as of the end of the last Limitation Year
beginning before January 1, 1987, and disregarding any changes in
the terms and conditions of the Plan made after May 5, 1986 but
using the section 415 limitation applicable to the first Limitation
Year beginning on or after January 1, 1987. The Annual Addition
for any Limitation Year beginning before January 1, 1987, shall not
be recomputed to treat all Employee Contributions as Annual
Additions.
(f) Employer. For purposes of this Article, Employer shall mean
the Employer that adopts this Plan, and all members of a controlled
group of corporations (as defined in section 414(b) of the Code as
modified by section 415(h) of the Code), all commonly controlled
trades or businesses (as defined in section 414(c) of the Code as
modified by section 415(h) of the Code) or affiliated service
groups (as defined in section 414(m) of the Code) of which the
adopting Employer is a part and any other entity required to be
aggregated with the Employer pursuant to regulations under section
414(o) of the Code.
(g) Excess Amount. The excess of the Participant's Annual Addition
for the Limitation Year over the Maximum Permissible Amount.
(h) Highest Average Compensation. The average compensation for the
three consecutive Plan Years that produce the highest average.
(i) Limitation Year. A Plan Year, or the twelve (12) consecutive
month period elected by the Employer in the Adoption Agreement.
All qualified plans maintained by the Employer must use the same
Limitation Year. If the Limitation Year is amended to a different
twelve (12) consecutive month period, the new Limitation Year must
begin on a date within the Limitation Year in which the amendment
is made.
(j) Master or Prototype Plan. A plan the form of which is the
subject of a favorable opinion letter from the Internal Revenue
Service.
(k) Maximum Permissible Amount. The maximum Annual Addition that
may be contributed or allocated to a Participant's Account under
the Plan for any Limitation Year shall not exceed the lesser of:
(i) the Defined Contribution Dollar Limitation; or
(ii) twenty-five percent (25%) of the Participant's Compensation
for the Limitation Year.
<PAGE> 25
The Compensation limitation referred to in subsection (ii) shall
not apply to any contribution for medical benefits (within the
meaning of section 401(h) or section 419A(f)(2) of the Code) which
is otherwise treated as an Annual Addition under section 415(1)(1)
or section 419A(d)(2) of the Code.
If a short Limitation Year is created because of an amendment
changing the Limitation Year to a different twelve (12) consecutive
month period, the Maximum Permissible Amount will not exceed the
Defined Contribution Dollar Limitation multiplied by the following
fraction:
Number of Months in the Short Limitation Year
---------------------------------------------
12
(l) Projected Annual Benefit. The annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity if
such benefit is expressed in a form other than a straight life
annuity or Qualified Joint and Survivor Annuity) to which the
Participant would be entitled under the terms of the Plan assuming:
(i) the Participant will continue employment until Normal
Retirement Age under the Plan (or current age, if later);
and
(ii) the Participant's Compensation for the current Limitation
Year and all other relevant factors used to determine
benefits under the Plan will remain constant for all future
Limitation Years.
ARTICLE 7
TRUST FUND
7.1 RECEIPT OF CONTRIBUTIONS BY TRUSTEE. All contributions to the
Trust that are received by the Trustee, together with any earnings
thereon, shall be held, managed and administered by the Trustee
named in the Adoption Agreement in accordance with the terms and
conditions of the Trust Agreement and the Plan. The Trustee may
use a Custodian designated by the Sponsor to perform recordkeeping
and custodial functions. The Trustee shall be subject to the
proper directions of the Employer or the Plan Administrator made in
accordance with the terms of the Plan and ERISA.
7.2 INVESTMENT RESPONSIBILITY.
(a) If the Employer elects in the Adoption Agreement to exercise
investment authority and responsibility, the selection of the
investments in which assets of the Trust are invested shall be the
responsibility of the Plan Administrator and each Participant will
have a ratable interest in all assets of the Trust.
<PAGE> 26
(b) If the Adoption Agreement so provides and the Employer elects
to permit each Participant or Beneficiary to select the investments
in his Account, no person, including the Trustee and the Plan
Administrator, shall be liable for any loss or for any breach of
fiduciary duty which results from such Participant's or
Beneficiary's exercise of control.
(c) If the Adoption Agreement so provides and the Employer elects
to permit each Participant or Beneficiary to select the investments
in his Account, the Employer or the Plan Administrator must
complete a schedule of Participant designations.
(d) If Participants and Beneficiaries are permitted to select the
investment in their Accounts, all investment-related expenses,
including administrative fees charged by brokerage houses, will be
charged against the Accounts of the Participants.
(e) The Plan Administrator may at any time change the selection of
investments in which the assets of the Trust are invested, or
subject to such reasonable restrictions as may be imposed by the
Sponsor for administrative convenience, may submit an amended
schedule of Participant designations. Such amended documents may
provide for a variance in the percentages of contributions to any
particular investment or a request that Shares in the Trust be
reinvested in whole or in part in other Shares.
7.3 INVESTMENT LIMITATIONS. The Sponsor may impose reasonable
investment limitations on the Employer and the Plan Administrator
relating to the type of permissible investments in the Trust or the
minimum percentage of Trust assets to be invested in Shares.
ARTICLE 8
VESTING
8.1 NONDEDUCTIBLE VOLUNTARY CONTRIBUTIONS AND EARNINGS. The
Participant's nondeductible voluntary contribution subaccount shall
be fully vested and nonforfeitable at all times and no forfeitures
will occur as a result of an Employee's withdrawal of nondeductible
voluntary contributions.
8.2 ROLLOVERS, TRANSFERS AND EARNINGS. The Participant's rollover
subaccount and direct transfer subaccount shall be fully vested and
nonforfeitable at all times.
8.3 EMPLOYER CONTRIBUTIONS AND EARNINGS. Notwithstanding the
vesting schedule elected by the Employer in the Adoption Agreement,
the Participant's money purchase pension contribution subaccount
and profit sharing contribution subaccount shall be fully vested
and nonforfeitable upon the Participant's death, disability, or
<PAGE> 27
attainment of Normal Retirement Age. In the absence of any of the
preceding events, the Participant's money purchase contribution
subaccount and his profit sharing contribution subaccount shall
vest in accordance with a minimum vesting schedule specified in the
Adoption Agreement. The schedule must be at least as favorable to
Participants as either schedule (a) or (b) below.
(a) Graduated vesting according to the following schedule:
Years of Service Percent Vested
---------------- --------------
Less than 2 0%
2 but less than 3 20
3 but less than 4 40
4 but less than 5 60
5 but less than 6 80
6 or more 100
(b) Full one hundred percent (100%) vesting after three (3) Years
of Service.
8.4 AMENDMENTS TO VESTING SCHEDULE.
(a) If the Plan's vesting schedule is amended, or the Plan is
amended in any way that directly or indirectly affects the
computation of the Participant's nonforfeitable percentage or if
the Plan is deemed amended by an automatic change to or from a top-
heavy vesting schedule, each Participant with at least three (3)
Years of Service with the Employer may elect, within a reasonable
period after the adoption of the amendment or change, to have the
nonforfeitable percentage computed under the Plan without regard to
such amendment or change. For any Participants who do not have at
least one (1) Hour of Service in any Plan Year beginning after
December 31, 1988, the preceding sentence shall be applied by
substituting "five (5) Years of Service" for "three (3) Years of
Service" where such language appears.
(b) The period during which the election may be made shall commence
with the date the amendment is adopted or deemed to be made and
shall end on the latest of:
(i) sixty (60) days after the amendment is adopted;
(ii) sixty (60) days after the amendment becomes effective; or
(iii) sixty (60) days after the Participant is issued written
notice of the amendment by the Employer or Plan
Administrator.
(c) No amendment to the Plan shall be effective to the extent that
it has the effect of decreasing a Participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's Account
balance may be reduced to the extent permitted under section
412(c)(8) of the Code. For purposes of this paragraph, a Plan
<PAGE> 28
amendment which has the effect of decreasing a Participant's
Account balance or eliminating an optional form of benefit, with
respect to benefits attributable to service before the amendment
shall be treated as reducing an accrued benefit. Furthermore, if
the vesting schedule of a Plan is amended, in the case of an
Employee who is a Participant as of the later of the date such
amendment is adopted or the date it becomes effective, the
nonforfeitable percentage (determined as of such date) of such
Employee's right to his Employer-derived accrued benefit will not
be less than his percentage computed under the Plan without regard
to such amendment.
8.5 DETERMINATION OF YEARS OF SERVICE. For purposes of determining
the vested and nonforfeitable percentage of the Participant's
Employer Contribution subaccount, all of the Participant's Years of
Service with the Employer or an Affiliated Employer shall be taken
into account. If specified in the Adoption Agreement, Years of
Service with a predecessor employer will be treated as service for
the Employer; provided, however, if the Employer maintains the plan
of a predecessor employer, Years of Service with such employer will
be treated as service with the Employer without regard to any
election.
8.6 FORFEITURE OF NON-VESTED AMOUNTS.
(a) For Plan Years beginning before 1985, any portion of a
Participant's Account that is not vested shall be forfeited by him
as of the last day of the Plan Year in which a Break in Service
occurs. For Plan Years beginning after 1984, any portion of a
Participant's Account that is not vested shall be forfeited as of
the last day of the Plan Year in which the Participant's fifth
consecutive Break in Service occurs. Any amounts thus forfeited
shall be reallocated as provided in Article 5 and shall not be
considered part of a Participant's Account in computing his vested
interest. The remaining portion of the Participant's Account will
be nonforfeitable.
(b) If a distribution is made at a time when a Participant has a
vested right to less than one hundred percent (100%) of the value
of the Participant's Account attributable to Employer Contributions
and forfeitures, as determined in accordance with the provisions of
Section 8.3, and the nonvested portion of the Participant's Account
has not yet been forfeited in accordance with paragraph (a) above:
(i) a separate remainder subaccount shall be established for the
Participant's interest in the Plan as of the time of the
distribution; and
(ii) at any relevant time the Participant's vested portion of the
separate remainder subaccount shall be equal to an amount
("X") determined by the formula:
X = P(AB+(R x D)) - (R x D)
<PAGE> 29
For purposes of applying the formula: P is the vested percentage at
the relevant time; AB is the Account Balance at the relevant time;
D is the amount of the distribution; and R is the ratio of the
Account Balance at the relevant time to the Account Balance after
distribution.
8.7 REINSTATEMENT OF BENEFIT. If a benefit is forfeited because a
Participant or Beneficiary cannot be found, such benefit will be
reinstated if a claim is made by the Participant or Beneficiary.
ARTICLE 9
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
9.1 GENERAL. The provisions of this Article shall apply to any
Participant who is credited with at least one (1) Hour of Service
with the Employer on or after August 23, 1984, and such other
Participants as provided in Section 9.7.
9.2 QUALIFIED JOINT AND SURVIVOR ANNUITY. Unless an optional form
of benefit is selected pursuant to a Qualified Election within the
ninety (90) day period ending on the Annuity Starting Date, a
married Participant's Vested Account Balance will be paid in the
form of a Qualified Joint and Survivor Annuity and an unmarried
Participant's Vested Account Balance will be paid in the form of a
life annuity. The Participant may elect to have such annuity
distributed upon attainment of the Earliest Retirement Age under
the Plan.
9.3 QUALIFIED PRERETIREMENT SURVIVOR ANNUITY. Unless an optional
form of benefit has been selected within the Election Period
pursuant to a Qualified Election, if a Participant dies before the
Annuity Starting Date, then 50% of the Participant's Vested Account
Balance shall be applied toward the purchase of an annuity for the
life of the Surviving Spouse. However, the amount of the
Participant's employee-derived Account Balance allocated to the
Surviving Spouse will be in the same proportion as the employee-
derived Account Balance is to the total Account Balance of the
Participant. The Surviving Spouse may elect to have such annuity
distributed within a reasonable period after the Participant's
death.
9.4 DEFINITIONS.
(a) Election Period.
(i) The period which begins on the first day of the Plan Year in
which the Participant attains age thirty-five (35) and ends
on the date of the Participant's death. If a Participant
separates from service prior to the first day of the Plan
Year in which age thirty-five (35) is attained, with respect
to the Account Balance as of the date of separation, the
Election Period shall begin on the date of separation.
<PAGE> 30
(ii) A Participant who has not yet attained age thirty-five (35)
as of the end of any current Plan Year may make a special
Qualified Election to waive the Qualified Preretirement
Survivor Annuity for the period beginning on the date of
such election and ending on the first day of the Plan Year
in which the Participant will attain age thirty-five (35).
Such election shall not be valid unless the Participant
receives a written explanation of the Qualified
Preretirement Survivor Annuity in such terms as are
comparable to the explanation required under Section 9.5.
Qualified Preretirement Survivor Annuity coverage will be
automatically reinstated as of the first day of the Plan
Year in which the Participant attains age thirty-five (35).
Any new waiver on or after such date shall be subject to
the full requirements of this Article.
(b) Earliest Retirement Age. The earliest date on which, under the
Plan, the Participant could elect to receive retirement benefits.
(c) Qualified Election.
(i) A waiver of a Qualified Joint and Survivor Annuity or a
Qualified Preretirement Survivor Annuity. Any waiver of a
Qualified Joint and Survivor Annuity or a Qualified
Preretirement Survivor Annuity shall not be effective
unless:
(1) the Participant's Spouse consents in writing to the
election;
(2) the election designates a specific Beneficiary,
including any class of Beneficiaries or any contingent
Beneficiaries, which may not be changed without spousal
consent (or the Spouse expressly permits designations by
the Participant without any further spousal consent);
(3) the Spouse's consent acknowledges the effect of the
election; and
(4) the Spouse's consent is witnessed by a Plan
representative or notary public. Additionally, a
Participant's waiver of the Qualified Joint and Survivor
Annuity shall not be effective unless the election
designates a form of benefit payment which may not be
changed without spousal consent (or the Spouse expressly
permits designations by the Participant without any
further spousal consent). If it is established to the
satisfaction of a Plan representative that there is no
Spouse or that the Spouse cannot be located, a waiver
will be deemed a Qualified Election.
(ii) Any consent by a Spouse obtained under this provision (or
establishment that the consent of Spouse may not be
obtained) shall be effective only with respect to such
Spouse. A consent that permits designations by the
Participant without any requirement of further consent by
such Spouse must
<PAGE> 31
acknowledge that the Spouse has the right to limit consent
to a specific Beneficiary, and a specific form of benefit
where applicable, and that the Spouse voluntarily elects to
relinquish either or both of such rights. A revocation of a
prior waiver may be made by a Participant without the
consent of the Spouse at any time before the commencement of
benefits. The number of revocations shall not be limited.
No consent obtained under this provision shall be valid
unless the Participant has received notice as provided in
Section 9.5.
(d) Qualified Joint and Survivor Annuity. An immediate annuity for
the life of the Participant with a survivor annuity for the life of
the Spouse which equals fifty percent (50%) of the amount of the
annuity which is payable during the joint lives of the Participant
and the Spouse and which is the amount of benefit which can be
purchased with the Participant's Vested Account Balance.
(e) Spouse (Surviving Spouse). The Spouse or Surviving Spouse of
the Participant, provided that a former spouse will be treated as
the Spouse or Surviving Spouse and a current Spouse will not be
treated as the Spouse or Surviving Spouse to the extent provided
under a qualified domestic relations order as described in section
414(p) of the Code.
(f) Annuity Starting Date. The first day of the first period for
which an amount is paid as an annuity or any other form.
(g) Vested Account Balance. The aggregate value of the
Participant's Vested Account Balances derived from Employer and
Employee contributions (including rollovers and direct transfers),
whether vested before or upon death. The provisions of this
Article shall apply to a Participant who is vested in amounts
attributable to Employer Contributions or Employee contributions
(or both) at the time of death or distribution.
9.5 NOTICE REQUIREMENTS.
(a) In the case of a Qualified Joint and Survivor Annuity, the Plan
Administrator shall no less than thirty (30) days and no more than
ninety (90) days prior to the Annuity Starting Date, provide each
Participant a written explanation of:
(i) the terms and conditions of a Qualified Joint and Survivor
Annuity;
(ii) the Participant's right to make and the effect of an
election to waive the Qualified Joint and Survivor Annuity
form of benefit;
<PAGE> 32
(iii) the rights of a Participant's Spouse; and
(iv) the right to make, and the effect of, a revocation of a
previous election to waive the Qualified Joint and Survivor
Annuity.
(b) In the case of a Qualified Preretirement Survivor Annuity as
described in Section 9.3, the Plan Administrator shall provide each
Participant within the applicable period for such Participant a
written explanation of the Qualified Preretirement Survivor Annuity
in such terms and in such manner as would be comparable to the
explanation provided for meeting the requirements of subsection (a)
applicable to a Qualified Joint and Survivor Annuity.
(c) The applicable period for a Participant is whichever of the
following periods ends last:
(i) the period beginning with the first day of the Plan Year in
which the Participant attains age thirty-two (32) and ending
with the close of the Plan Year preceding the Plan Year in
which the Participant attains age thirty-five (35);
(ii) a reasonable period ending after the individual becomes a
participant;
(iii) a reasonable period ending after subsection (e) ceases to
apply to the Participant;
(iv) a reasonable period ending after this Article first applies
to the Participant.
Notwithstanding the foregoing, notice must be provided within a
reasonable period ending after separation from service in the case
of a Participant who separates from service before attaining age
thirty-five (35).
(d) For purposes of applying subsection (c), a reasonable period
ending after the enumerated events described above in subsection
(ii), (iii) and (iv) is the end of the two-year period beginning
one (1) year prior to the date the applicable event occurs, and
ending one (1) year after that date. In the case of a Participant
who separates from service before the Plan Year in which age
thirty-five (35) is attained, notice shall be provided within the
two (2) year period beginning one (1) year prior to separation and
one (1) year after separation. If such a Participant thereafter
returns to employment with the Employer, the applicable period for
such Participant shall be redetermined.
(e) Notwithstanding the other requirements of this section, the
respective notices prescribed by this Section need not be given to
a Participant if:
<PAGE> 33
(i) the Plan "fully subsidizes" the cost of a Qualified Joint
and Survivor Annuity or Qualified Preretirement Survivor
Annuity;and
(ii) the Plan does not allow the Participant to waive the
Qualified Joint and Survivor Annuity or Qualified
Preretirement Survivor Annuity and does not allow a married
Participant to designate a nonspouse Beneficiary.
For purposes of this subsection, a plan fully subsidizes the costs
of a benefit if no increase in cost, or decrease in benefits to the
Participant, may result from the Participant's failure to elect
another benefit.
9.6 SAFE HARBOR RULES.
(a) This section shall apply to a Participant in a profit sharing
plan, and to any distribution made on or after the first day of the
first Plan Year beginning after December 31, 1988, from or under a
separate account attributable solely to accumulated deductible
Employee contributions, as defined in section 72(o)(5)(B) of the
Code, and maintained on behalf of a Participant in a money purchase
pension plan (including a target benefit plan) if the following
conditions are satisfied:
(i) the Participant does not or cannot elect payments in the
form of a life annuity; and
(ii) on the death of a Participant, the Participant's Vested
Account Balance will be paid to the Participant's Surviving
Spouse, but if there is no Surviving Spouse, or if the
Surviving Spouse has consented in a manner conforming to a
Qualified Election, then to the Participant's Designated
Beneficiary.
(b) Distribution of the Vested Account Balance in accordance with
Article 11 shall commence within the ninety (90) day period
following the date of the Participant's death or at such later time
as the Surviving Spouse may elect. The Account Balance shall be
adjusted for gains or losses occurring after the Participant's
death in accordance with the provisions of the Plan governing the
adjustment of Account Balances for other types of distributions.
(c) This section shall not be operative with respect to the portion
of a Participant's Vested Account Balance in a profit sharing plan
representing a direct or indirect transfer of assets from a defined
benefit plan, a money purchase pension plan, a target benefit plan,
a stock bonus plan, or a profit sharing plan which is subject to
the survivor annuity requirements of sections 401(a)(11) and 417 of
the Code. In the case of assets for which this section is
operative, the provisions of this Article, other than Section 9.7,
shall be inoperative.
<PAGE> 34
(d) The Participants may waive the spousal death benefit described
in this section at any time provided that no such waiver shall be
effective unless it satisfies the conditions of Section 9.4(c)
(other than the notification requirement referred to therein) that
would apply to the Participant's waiver of the Qualified
Preretirement Survivor Annuity.
(e) For purposes of this section, Vested Account Balance shall
mean, in the case of a money purchase pension plan or a target
benefit plan, the Participant's separate Account Balance
attributable solely to accumulated deductible Employee
contributions within the meaning of section 72(o)(5)(B) of the
Code. In the case of a profit sharing plan, Vesting Account
Balance shall have the same meaning as provided in Section 9.4(g).
9.7 TRANSITIONAL RULES.
(a) Any living Participant not receiving benefits on August 23,
1984, who would otherwise not receive the benefits prescribed by
the previous sections of this Article must be given the opportunity
to elect to have the prior sections of this Article apply if such
Participant is credited with at least one (1) Hour of Service under
this Plan or a predecessor plan in a Plan Year beginning on or
after January 1, 1976, and such Participant had at least ten (10)
years of vesting service when he or she separated from service.
(b) Any living Participant not receiving benefits on August 23,
1984, who was credited with at least one (1) Hour of Service under
this Plan or a predecessor plan on or after September 2, 1974, and
who is not otherwise credited with any service in a Plan Year
beginning on or after January 1, 1976, must be given the
opportunity to have his or her benefits paid in accordance with
subsection (d).
(c) The respective opportunities to elect (as described in
subsections (a) and (b) above) must be afforded to the appropriate
Participants during the period commencing on August 23, 1984, and
ending on the date benefits would otherwise commence to said
Participants.
(d) Any Participant who has elected pursuant to subsection (b) and
any Participant who does not elect under subsection (a) or who
meets the requirements of subsection (a) except that such
Participant does not have at least ten (10) years of vesting
service when he or she separates from service, shall have his or
her benefits distributed in accordance with all of the following
requirements if benefits would have been payable in the form of a
life annuity:
(i) Automatic Joint and Survivor Annuity. If benefits in the
form of a life annuity become payable to a married
Participant who:
<PAGE> 35
(1) begins to receive payments under the Plan on or after
Normal Retirement Age; or
(2) dies on or after Normal Retirement Age while still
working for the Employer; or
(3) begins to receive payments on or after the qualified
early retirement age; or
(4) separates from service on or after attaining Normal
Retirement Age (or the Qualified Early Retirement Age)
and after satisfying the eligibility requirements for
the payment of benefits under the Plan and thereafter
dies before beginning to receive such benefits; then
such benefits will be received under this Plan in the
form of a Qualified Joint and Survivor Annuity, unless
the Participant has elected otherwise during the
Election Period. The Election Period must begin at
least six (6) months before the Participant attains
qualified early retirement age and end not more than
ninety (90) days before the commencement of benefits.
Any election hereunder will be in writing and may be
changed by the Participant at any time.
(ii) Election of Early Survivor Annuity. A Participant who is
employed after attaining the Qualified Early Retirement Age
will be given the opportunity to elect, during the Election
Period, to have a survivor annuity payable on death. If the
Participant elects the survivor annuity, payments under such
annuity must not be less than the payments which would have
been made to the Spouse under the Qualified Joint and
Survivor Annuity if the Participant had retired on the day
before his or her death. Any election under this provision
will be in writing and may be changed by the Participant at
any time. The Election Period begins on the later of (1)
the 90th day before the Participant attains the Qualified
Early Retirement Age; or (2) the date on which participation
begins, and ends on the date the Participant terminates
employment.
(e) the following terms shall have the meanings specified herein:
(i) Qualified Early Retirement Age. The latest of:
(1) the earliest date, under the Plan, on which the
Participant may elect to receive retirement benefits;
(2) the first day of the 120th month beginning before the
Participant reaches Normal Retirement Age; or
(3) the date the Participant begins participation.
<PAGE> 36
(ii) Qualified Joint and Survivor Annuity. An annuity for the
life of the Participant with a survivor annuity for the life
of the Spouse as described in Section 9.4(d).
ARTICLE 10
DISTRIBUTION PROVISIONS
10.1 VESTING ON DISTRIBUTION BEFORE BREAK IN SERVICE.
(a) If an Employee terminates service, and the value of the
Employee's Vested Account Balance derived from Employer and
Employee contributions is not greater than three thousand five
hundred dollars ($3,500), the Employee will receive a distribution
of the value of the entire vested portion of such Account Balance
in a lump sum in kind distribution of Shares and the nonvested
portion will be deemed an immediate forfeiture. For purposes of
this section, if the value of the vested portion of an Employee's
Account Balance is zero, the Employee shall be deemed to have
received a distribution thereof. The vested portion of a
Participant's Account Balance shall not include accumulated
deductible Employee contributions within the meaning of section
72(o)(5)(B) of the Code for Plan Years beginning prior to January
1, 1989.
(b) If an Employee terminates service and elects, in accordance
with this Article, to receive the value of the vested portion of
his Account Balance, the nonvested portion will be deemed an
immediate forfeiture. If the Employee elects to have distributed
less than the entire vested portion of the Account Balance derived
from Employer Contributions, the part of the nonvested portion that
will be deemed an immediate forfeiture is the total nonvested
portion multiplied by a fraction, the numerator of which is the
amount of the distribution attributable to Employer Contributions
and the denominator of which is the total value of the vested
portion of the Account Balance derived from Employer Contributions.
(c) If an Employee receives a distribution pursuant to this section
and the Employee resumes employment covered under this Plan, the
portion of the Employee's Account Balance derived from Employer
Contributions will be restored to the amount on the date of
distribution if the Employee repays to the Plan the full amount of
the distribution attributable to Employer Contributions before the
earlier of five (5) years after the first date on which the
Participant is subsequently reemployed by the Employer, or the date
the Participant incurs five (5) consecutive one (1) year Breaks in
Service following the date of the distribution. If an Employee is
deemed to receive a distribution pursuant to this section, and the
Employee resumes employment covered under this Plan before the date
the Participant incurs five (5) consecutive one (1) year Breaks in
Service, upon the reemployment of such Employee, the Employer-
derived Account Balance of the Employee will be restored to the
amount on the date of such deemed distribution.
<PAGE> 37
10.2 RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS.
(a) If the value of the vested portion of a Participant's Account
Balance derived from Employer and Employee contributions exceeds
(or at the time of any prior distribution exceeded) three thousand
five hundred dollars ($3,500) and the Account Balance is
immediately distributable, the Participant and the Participant's
Spouse (or where either the Participant or the Spouse has died, the
survivor) must consent to any distribution of such Account Balance.
The consent of the Participant and the Participant's Spouse shall
be obtained in writing within the ninety (90) day period ending on
the Annuity Starting Date. The Annuity Starting Date is the first
day of the first period for which an amount is paid as an annuity
or any other form. The Plan Administrator shall notify the
Participant and the Participant's Spouse of the right to defer any
distribution until the Participant's Account Balance is no longer
immediately distributable. Such notification shall include a
general description of the material features, and an explanation of
the relative values of, the optional forms of benefit available
under the Plan in a manner that would satisfy the notice
requirements of section 417(a)(3), and shall be provided no less
than thirty (30) days and no more than ninety (90) days prior to
the Annuity Starting Date.
(b) Notwithstanding the provisions of subsection (a), only the
Participant need consent to the commencement of a distribution in
the form of a Qualified Joint and Survivor Annuity while the
Account Balance is immediately distributable. (Furthermore, if
payment in the form of a Qualified Joint and Survivor Annuity is
not required with respect to the Participant pursuant to Section
9.6 of the Plan, only the Participant need consent to the
distribution of an Account Balance that is immediately
distributable.) Neither the consent of the Participant nor the
Participant's Spouse shall be required to the extent that a
distribution is required to satisfy section 401(a)(9) or section
415 of the Code. In addition, upon termination of this Plan, if
the Plan does not offer an annuity option (purchased from a
commercial provider), the Participant's Account Balance may,
without the Participant's consent, be distributed to the
Participant or transferred to another defined contribution plan
(other than an employee stock ownership plan as defined in section
4975(e)(7) of the Code) within the same controlled group.
(c) An Account Balance is immediately distributable if any part of
the Account Balance could be distributed to the Participant (or
Surviving Spouse) before the Participant attains (or would have
attained if not deceased) the later of Normal Retirement Age or age
sixty-two (62).
(d) For purposes of determining the applicability of the foregoing
consent requirements to distributions made before the first day of
the first Plan Year beginning after December 31, 1988, the vested
portion of the Participant's Account Balance shall not include
amounts attributable to accumulated deductible Employee
contributions within the meaning of section 72(o)(5)(B) of the
Code.
<PAGE> 38
10.3 COMMENCEMENT OF BENEFITS.
(a) Unless the Participant elects otherwise, distribution of
benefits will begin no later than the 60th day after the latest of
the close of the Plan Year in which:
(i) the Participant attains age sixty-five (65) (or Normal
Retirement Age, if earlier);
(ii) the 10th anniversary of the year in which the Participant
commenced participation in the Plan occurs; or
(iii) the Participant terminated service with the Employer.
(b) Notwithstanding the foregoing, the failure of a Participant and
Spouse to consent to a distribution while a benefit is immediately
distributable, within the meaning of Section 10.2 of the Plan,
shall be deemed to be an election to defer commencement of payment
of any benefit sufficient to satisfy this section.
10.4 EARLY RETIREMENT WITH AGE AND SERVICE REQUIREMENT. If a
Participant separates from service before satisfying the age
requirement for early retirement, but has satisfied the service
requirement, the Participant will be entitled to elect an early
retirement benefit upon satisfaction of such age requirement.
10.5 NONTRANSFERABILITY OF ANNUITIES. Any annuity contract
distributed herefrom must be nontransferable.
10.6 CONFLICTS WITH ANNUITY CONTRACTS. The terms of any annuity
contract purchased and distributed by the Plan to a Participant or
Spouse shall comply with the requirements of this Plan.
ARTICLE 11
TIMING AND MODES OF DISTRIBUTION
11.1 GENERAL RULES.
(a) Subject to Article 9, the requirements of this Article shall
apply to any distribution of a Participant's interest and will take
precedence over any inconsistent provisions of this Plan. Unless
otherwise specified, the provisions of this Article apply to
calendar years beginning after December 31, 1984.
(b) All distributions required under this Article shall be
determined and made in accordance with the income tax regulations
under section 401(a)(9) of the Code, including the minimum
distribution incidental benefit requirement of section 1.401(a)(9)-
2 of the proposed regulations.
<PAGE> 39
11.2 REQUIRED BEGINNING DATE. The entire interest of a Participant
must be distributed or begin to be distributed no later than the
Participant's Required Beginning Date.
11.3 LIMITS ON DISTRIBUTION PERIODS. As of the first Distribution
Calendar Year, distributions, if not made in a lump sum, may only
be made over one of the following periods (or a combination
thereof):
(a) the life of the Participant;
(b) the life of the Participant and a Designated Beneficiary;
(c) a period certain not extending beyond the Life Expectancy of
the Participant; or
(d) a period certain not extending beyond the joint and last
survivor life expectancy of the Participant and a Designated
Beneficiary.
11.4 DETERMINATION OF AMOUNT TO BE DISTRIBUTED EACH YEAR.
(a) Individual Account.
(i) If a Participant's Benefit is to be distributed over (1) a
period not extending beyond the Life Expectancy of the
Participant or the joint and last survivor life expectancy
of the Participant and the Participant's Designated
Beneficiary or (2) a period not extending beyond the Life
Expectancy of the Designated Beneficiary, the amount
required to be distributed for each calendar year, beginning
with distributions for the first Distribution Calendar Year,
must at least equal the quotient obtained by dividing the
Participant's Benefit by the Applicable Life Expectancy.
(ii) For calendar years beginning before January 1, 1989, if the
Participant's Spouse is not the Designated Beneficiary, the
method of distribution selected must assure that at least
fifty percent (50%) of the present value of the amount
available for distribution is paid within the Life
Expectancy of the Participant.
(iii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with
distributions for the first Distribution Calendar Year shall
not be less than the quotient obtained by dividing the
Participant's Benefit by the lesser of (1) the Applicable
Life Expectancy or (2) if the Participant's Spouse is not
the Designated Beneficiary, the applicable divisor
determined from the table set forth in Q&A-4 of section
1.401(a)(9)-2 of the proposed regulations. Distributions
after the death of the Participant shall be distributed
using the Applicable Life Expectancy in subsection (a)(i)
above as the relevant divisor without regard to section
1.401(a)(9)-2 of the proposed regulations.
<PAGE> 40
(iv) The minimum distribution required for the Participant's
first Distribution Calendar Year must be made on or before
the Participant's Required Beginning Date. The minimum
distribution for other calendar years, including the minimum
distribution for the Distribution Calendar Year in which the
Employee's Required Beginning Date occurs, must be made on
or before December 31 of that Distribution Calendar Year.
(b) Other Forms. If the Participant's Benefit is distributed in
the form of an annuity purchased from an insurance company,
distributions thereunder shall be made in accordance with the
requirements of section 401(a)(9) of the Code and the proposed
regulations thereunder.
11.5 DEATH DISTRIBUTION PROVISIONS.
(a) Distribution Beginning Before Death. If the Participant dies
after distribution of his or her interest has begun and on or after
his or her Required Beginning Date the remaining portion of such
interest will continue to be distributed at least as rapidly as
under the method of distribution being used prior to the
Participant's death.
(b) Distribution Beginning After Death. If the Participant dies
before his or her Required Beginning Date, distribution of the
Participant's entire interest shall be completed by December 31 of
the calendar year containing the fifth anniversary of the
Participant's death except to the extent that an election is made
to receive distributions in accordance with (i) or (ii) below:
(i) if any portion of the Participant's interest is payable to a
Designated Beneficiary, distributions may be made over the
life or over a period certain not greater than the Life
Expectancy of the Designated Beneficiary commencing on or
before December 31 of the calendar year immediately
following the calendar year in which the Participant dies;
(ii) if the Designated Beneficiary is the Participant's Surviving
Spouse, the date distributions are required to being in
accordance with (i) above shall not be earlier than the
later of (1) December 31 of the calendar year immediately
following the calendar year in which the Participant died
and (2) December 31 of the calendar year in which the
Participant would have attained age seventy and one-half (70
1/2).
(c) If the Participant has not made an election pursuant to this
section by the time of his or her death, the Participant's
Designated Beneficiary must elect the method of distribution no
later than the earlier of (1) December 31 of the calendar year in
which distributions would be required to begin under this section;
or (2) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the Participant. If the
Participant has no Designated Beneficiary, or if the Designated
Beneficiary does not elect a method of
<PAGE> 41
distribution, distribution of the Participant's entire interest
must be completed by December 31 of the calendar year containing
the fifth anniversary of the Participant's death.
(d) For purposes of subsection (b) above, if the Surviving Spouse
dies after the Participant, but before payments to such Spouse
begin, the provisions of subsection (b), with the exception of
paragraph (ii) therein, shall be applied as if the Surviving Spouse
were the Participant.
(e) For purposes of this Section, any amount paid to a child of the
Participant will be treated as if it had been paid to the Surviving
Spouse if the amount becomes payable to the Surviving Spouse when
the child reaches the age of majority.
(f) For the purposes of this Section, distribution of a
Participant's interest is considered to begin on the Participant's
Required Beginning Date (or, if subsection (d) above is applicable,
the date distribution is required to begin to the Surviving Spouse
pursuant to subsection (b) above). If distribution in the form of
an annuity described in Section 11.4(b) above irrevocably commences
to the Participant before the Required Beginning Date, the date
distribution is considered to begin is the date distribution
actually commences.
11.6 DESIGNATION OF BENEFICIARY. Subject to the rules of Article
9, a Participant (or former Participant) may designate from time to
time (i) any person or persons (who may be designated contingently
or successively and may be an entity other than a natural person)
as his Beneficiary who will be entitled to receive any
undistributed amounts credited to the Participant's separate
Account under the Plan at the time of the Participant's death and
(ii) the manner in which such undistributed amounts shall be paid
subject to the limitations set forth in Section 11.5. Any such
designation by a Participant shall be made in writing in the manner
prescribed by the Plan Administrator, and shall be effective only
when filed with the Plan Administrator during the Participant's
lifetime. A Participant may change or revoke his designation at
any time in the manner prescribed by the Plan Administrator. If
the Designated Beneficiary (or each of the Designated
Beneficiaries) predeceases the Participant, the Participant's
Beneficiary designation shall be ineffective. If no Beneficiary
designation is in effect at the time of the Participant's death,
his Beneficiary shall be his Surviving Spouse or, if there is no
Surviving Spouse, his estate.
11.7 DEFINITIONS.
(a) Applicable Life Expectancy. The Life Expectancy (or joint and
last survivor life expectancy) calculated using the attained age of
the Participant (or Designated Beneficiary) as of the Participant's
(or Designated Beneficiary's) birthday in the applicable calendar
year reduced by one (1) for each calendar year which has elapsed
since the date Life Expectancy was first calculated. If Life
Expectancy is being recalculated, the
<PAGE> 42
Applicable Life Expectancy shall be the Life Expectancy as so
recalculated. The applicable calendar year shall be the first
Distribution Calendar Year, and if Life Expectancy is being
recalculated such succeeding calendar year. If annuity payments
commence in accordance with Section 11.4(b) before the Required
Beginning Date, the applicable calendar year is the year such
payments commence. If distribution is in the form of an immediate
annuity purchased after the Participant's death with the
Participant's remaining interest, the applicable calendar year is
the year of purchase.
(b) Designated Beneficiary. The individual who is designated as
the Beneficiary under the Plan in accordance with section 401(a)(9)
and the proposed regulations thereunder.
(c) Distribution Calendar Year. A calendar year for which a
minimum distribution is required. For distributions beginning
before the Participant's death, the first Distribution Calendar
Year is the calendar year immediately preceding the calendar year
which contains the Participant's Required Beginning Date. For
distributions beginning after the Participant's death, the first
Distribution Calendar Year is the calendar year in which
distributions are required to begin pursuant to Section 11.5 above.
(d) Life Expectancy.
(i) Life Expectancy and joint and last survivor life expectancy
are computed by use of the expected return multiples in
Tables V and VI of section 1.72-9 of the income tax
regulations.
(ii) If elected by the Participant (or Spouse, in the case of
distributions described in Section 11.5(b)(ii) above) by the
time distributions are required to begin, Life Expectancies
shall be recalculated annually. Such election shall be
irrevocable as to the Participant (or Spouse) on the
Required Beginning Date (or the date distributions are
required to commence pursuant to Section 11.5(b)(ii) in the
case of the Spouse). If no election is made by the date
such election would be irrevocable, Life Expectancy will not
be recalculated. If an election is made, the Participant
(or Spouse) shall be solely responsible for advising the
Trustee of the recalculated Life Expectancy each year, no
later than thirty (30) days prior to the beginning of such
year. The Life Expectancy of a non-Spouse Beneficiary may
not be recalculated.
(e) Participant's Benefit.
(i) The Account Balance as of the last valuation date in the
calendar year immediately preceding the Distribution
Calendar Year (valuation calendar year) increased by the
amount of any contributions or forfeitures allocated to the
Account Balance as of dates in the valuation calendar year
after the valuation date and decreased by distributions made
in the valuation calendar year after the valuation date.
<PAGE> 43
(ii) For purposes of subsection (i) above, if any portion of the
minimum distribution for the first Distribution Calendar
Year is made in the second Distribution Calendar Year on or
before the Required Beginning Date, the amount of the
minimum distribution made in the second Distribution
Calendar Year shall be treated as if it had been made in the
immediately preceding Distribution Calendar Year.
(f) Required Beginning Date.
(i) General Rule. The Required Beginning Date of a Participant
is the first day of April of the calendar year following the
calendar year in which the Participant attains age seventy
and one-half (70 1/2).
(ii) Transitional Rules. The Required Beginning Date of a
Participant who attains age seventy and one-half (70 1/2)
before January 1, 1988, shall be determined in accordance
with (1) or (2) below:
(1) Non-Five Percent Owners. The Required Beginning Date of
a Participant who is not a Five Percent (5%) Owner is
the first day of April of the calendar year following
the calendar year in which the later of retirement or
attainment of age seventy and one-half (70 1/2) occurs.
(2) Five Percent Owners. The Required Beginning Date of a
Participant who is a Five Percent (5%) Owner during any
year beginning after December 31, 1979, is the first day
of April following the later of:
(A) the calendar year in which the Participant attains
age seventy and one-half (70 1/2); or
(B) the earlier of the calendar year with or within
which ends the Plan Year in which the Participant
becomes a Five Percent (5%) Owner, or the calendar
year in which the Participant retires. The Required
Beginning Date of a Participant who is not a Five
Percent (5%) Owner who attains age seventy and one-
half (70 1/2) during 1988 and who has not retired as
of January 1, 1989, is April 1, 1990.
(iii) Five Percent Owner. A Participant is treated as a Five
Percent (5%) Owner for purposes of this section if such
Participant is a Five Percent (5%) Owner as defined in
section 416(i) of the Code (determined in accordance with
section 416 but without regard to whether the Plan is top-
heavy) at any time during the Plan Year ending with or
within the calendar year in which such owner attains age
sixty-six and one-half (66 1/2) or any subsequent year.
<PAGE> 44
(iv) Once distributions have begun to a Five Percent (5%) Owner
under this section, they must continue to be distributed,
even if the Participant ceases to be a Five Percent (5%)
Owner in a subsequent year.
11.8 TRANSITIONAL RULE.
(a) Notwithstanding the other requirements of this Article and
subject to the requirements of Article 9, distribution on behalf of
any Employee, including a Five Percent (5%) Owner, may be made
provided all of the following requirements are met in accordance
with section 242(b)(2) of the Code (regardless of when such
distribution commences):
(i) The distribution by the Trust is one which would not have
disqualified such trust under section 401(a)(9) of the
Internal Revenue Code as in effect prior to amendment by the
Deficit Reduction Act of 1984.
(ii) The distribution is in accordance with a method of
distribution designated by the Employee whose interest in
the Trust is being distributed or, if the Employee is
deceased, by a Beneficiary of such Employee.
(iii) Such designation was in writing, was signed by the Employee
or the Beneficiary, and was made before January 1, 1984.
(iv) The Employee had accrued a benefit under the Plan as of
December 31, 1983.
(v) The method of distribution designated by the Employee or the
Beneficiary specifies the time at which distributions will
be made, and in the case of any distribution upon the
Employee's death, the Beneficiaries of the Employee listed
in order of priority.
(b) A distribution upon death will not be covered by this
transitional rule unless the information in the designation
contains the required information described above with respect to
the distributions to be made upon the death of the Employee.
(c) For any distribution which commences before January 1, 1984,
but continues after December 31, 1983, the Employee, or the
Beneficiary, to whom such distribution is being made, will be
presumed to have designated the method of distribution under which
the distribution is being made if the method of distribution was
specified in writing and the distribution satisfies the
requirements in subsections (a)(i) and (a)(v).
<PAGE> 45
(d) If a designation is revoked, any subsequent distribution must
satisfy the requirements of section 401(a)(9) of the Code and the
proposed regulations thereunder. If a designation is revoked
subsequent to the date distributions are required to begin, the
Trust must distribute by the end of the calendar year following the
calendar year in which the revocation occurs the total amount not
yet distributed which would have been required to have been
distributed to satisfy section 401(a)(9) of the Code and the
regulations thereunder but for the section 242(b)(2) election. For
calendar years beginning after December 31, 1988, such
distributions must meet the minimum distribution incidental benefit
requirements in section 1.401(a)(9)-2 of the proposed regulations.
Any changes in the designation will be considered to be a
revocation of the designation. However, the mere substitution or
addition of another beneficiary (one not named in the designation)
under the designation will not be considered to be a revocation of
the designation, so long as such substitution or addition does not
alter the period over which distributions are to be made under the
designation, directly or indirectly (for example, by altering the
relevant measuring life). In the case in which an amount is
transferred or rolled over from one plan to another plan, the rules
in Q&A J-2 and Q&A J-3 of the aforesaid regulations shall apply.
11.9 OPTIONAL FORMS OF BENEFIT.
(a) Except to the extent benefits are required to be paid in the
form of an Automatic Joint and Survivor Annuity under Article 9,
any amount which a Participant shall be entitled to receive under
the Plan shall be distributed in one or a combination of the
following ways:
(i) in a lump sum payment of cash, the amount of which shall be
determined by redeeming all Shares credited to the
Participant's Account under the Plan as of the date of
distribution;
(ii) in a lump sum payment including a distribution in kind of
all Shares credited to the Participant's Account under the
Plan as of the date of distribution;
(iii) in substantially equal monthly, quarterly, or annual
installment payments of cash, or the distribution of Shares
in kind, over a period certain not to exceed the Life
Expectancy of the Participant or the joint and last survivor
life expectancy of the Participant and his Beneficiary,
determined in each case as of the earlier of: (1) the end of
the Plan year in which occurs the event entitling the
Participant to a distribution of benefits, or (2) the date
such installments commence;
(iv) if permitted by the Sponsor, in monthly, quarterly, or
annual installment payments of cash, or the distribution of
Shares in kind, so that the amount distributed in each Plan
Year equals the quotient obtained by dividing the
Participant's Account at the beginning of that Plan Year by
the joint and
<PAGE> 46
last survivor life expectancy of the Participant and the
Beneficiary for that Plan Year. The Life Expectancy will be
computed using the recomputation method described in Section
11.7(d). Unless the Spouse of the retired Participant is
the Beneficiary, the actuarial present value of all expected
payments to the retired Participant must be more than fifty
percent (50%) of the actuarial present value of payments to
the retired Participant and the Beneficiary; or
(v) by application of the Participant's vested Account to the
purchase of a nontransferable immediate or deferred annuity
contract, on an individual or group basis. Unless the
Spouse of the retired Participant is the Beneficiary, the
actuarial present value of all expected payments to the
retired Participant must be more than fifty percent (50%) of
the actuarial present value of payments to the retired
Participant and the Beneficiary.
(b) If the Participant fails to select a method of distribution on
or before thirty (30) days prior the Required Beginning Date except
as may be required by Article 9, all amounts which he is entitled
to receive under the Plan shall be promptly distributed to him in a
lump sum payment which, in the discretion of the Plan
Administrator, may be all in cash or may include an in kind
distribution of Shares.
ARTICLE 12
WITHDRAWALS
12.1 WITHDRAWAL OF NONDEDUCTIBLE VOLUNTARY CONTRIBUTIONS. Subject
to the Qualified Election requirements of Article 9 and Section
12.3, any Participant who has made nondeductible voluntary
contributions may, upon thirty (30) days' notice in writing filed
with the Plan Administrator, have paid to him all or any portion of
the fair market value of his nondeductible voluntary contribution
subaccount.
12.2 MANNER OF MAKING WITHDRAWALS. Any withdrawal by a Participant
under the Plan shall be made only after the Participant files a
written request with the Plan Administrator specifying the nature
of the withdrawal and the amount of funds requested to be
withdrawn. Upon approving any withdrawal, the Plan Administrator
shall furnish the Trustee with written instructions directing the
Trustee to make the withdrawal in a lump sum payment of cash or an
in kind distribution of Shares to the Participant. In making any
withdrawal payment, the Trustee shall be fully entitled to rely on
the instructions furnished by the Plan Administrator, and shall be
under no duty to make any inquiry or investigation with respect
thereto. Unless Section 9.6 is applicable, if the Participant is
married, his Spouse must consent to the withdrawal pursuant to a
qualified election (as defined in Section 9.4(c)) within the ninety
(90) day period ending on the date of the withdrawal.
<PAGE> 47
12.3 LIMITATIONS ON WITHDRAWALS. The Plan Administrator may
prescribe uniform and nondiscriminatory rules and procedures
limiting the number of times a Participant may make a withdrawal
under the Plan during any Plan Year, and the minimum amount a
Participant may withdraw on any single occasion.
ARTICLE 13
ADMINISTRATION
13.1 DUTIES AND RESPONSIBILITIES OF FIDUCIARIES; ALLOCATION OF
FIDUCIARY RESPONSIBILITY. A fiduciary to the Plan shall have only
those specific powers, duties, responsibilities, and obligations as
are explicitly given him under the Plan and Trust Agreement. In
general, the Employer shall have the sole responsibility for making
contributions to the Plan required under Article 4; appointing the
Trustee and the Plan Administrator; and determining the funds
available for investment under the Plan. The Plan Administrator
shall have the sole responsibility for the administration of the
Plan, as more fully described in Section 13.2. It is intended that
each fiduciary shall be responsible only for the proper exercise of
his own powers, duties, responsibilities, and obligations under the
Plan and Trust Agreement, and shall not be responsible for any act
or failure to act of another fiduciary. A fiduciary may serve in
more than one fiduciary capacity with respect to the Plan.
13.2 POWERS AND RESPONSIBILITIES OF THE PLAN ADMINISTRATOR.
(a) Administration of the Plan. The Plan Administrator shall have
all powers necessary to administer the Plan, including the power to
construe and interpret the Plan documents; to decide all questions
relating to an individual's eligibility to participate in the Plan;
to determine the amount, manner, and timing of any distribution of
benefits or withdrawal under the Plan; to resolve any claim for
benefits in accordance with Section 13.7; to appoint or employ
advisors, including legal counsel; and to render advice with
respect to any of the Plan Administrator's responsibilities under
the Plan. Any construction, interpretation, or application of the
Plan by the Plan Administrator shall be final, conclusive, and
binding. All actions by the Plan Administrator shall be taken
pursuant to uniform standards applied to all persons similarly
situated. The Plan Administrator shall have no power to add to,
subtract from, or modify any of the terms of the Plan, or to change
or add to any benefits provided by the Plan, or to waive or fail to
apply any requirements of eligibility for a benefit under the Plan.
(b) Records and Reports. The Plan Administrator shall be
responsible for maintaining sufficient records to reflect the age
and marital status of each Participant, the Eligibility Computation
Periods in which an Employee is credited with one or more Years of
Service for purposes of determining his eligibility to participate
in the Plan, and the Compensation of each Participant for purposes
of determining the amount of contributions that may be made by or
on behalf of the Participant under the Plan. The Plan
Administrator
<PAGE> 48
shall be responsible for submitting all required reports and
notifications relating to the Plan to Participants or their
Beneficiaries, the Internal Revenue Service and the Department of
Labor. All such records shall be conclusive of the matters
contained therein for all purposes except that a Participant may
request a correction in the record of his age at any time prior to
retirement, and such correction shall be made if, within ninety
(90) days after such request he furnishes in support thereof a
birth certificate, baptismal certificate, or other documentary
proof of age satisfactory to the Plan Administrator.
(c) Furnishing Trustee with Instructions. The Plan Administrator
shall be responsible for furnishing the Trustee with written
instructions regarding all contributions to the Trust, all
distributions to Participants in accordance with Article 10 and all
withdrawals by Participants in accordance with Article 12. In
addition, the Plan Administrator shall be responsible for
furnishing the Trustee with any further information respecting the
Plan which the Trustee may request for the performance of its
duties or for the purpose of making any returns to the Internal
Revenue Service or Department of Labor as may be required of the
Trustee.
(d) Rules and Decisions. The Plan Administrator may adopt such
rules as it deems necessary, desirable, or appropriate in the
administration of the Plan. All rules and decisions of the Plan
Administrator shall be applied uniformly and consistently to all
Participants in similar circumstances. When making a determination
or calculation, the Plan Administrator shall be entitled to rely
upon information furnished by a Participant or Beneficiary, the
Employer, the legal counsel of the Employer, or the Trustee.
(e) Application and Forms for Benefits. The Plan Administrator may
require a Participant or Beneficiary to complete and file with it
an application for a benefit, and to furnish all pertinent
information requested by it. The Plan Administrator may rely upon
all such information so furnished to it, including the
Participant's or Beneficiary's current mailing address.
(f) Facility of Payment. Whenever, in the Plan Administrator's
opinion, a person entitled to receive a payment of a benefit or
installment thereof is under a legal disability or is incapacitated
in any way so as to be unable to manage his financial affairs, it
may direct the Trustee to make payments to such person or to the
legal representative or to a relative or friend of such person for
that person's benefit, or it may direct the Trustee to apply the
payment for the benefit of such person in such manner as it
considers advisable.
13.3 ALLOCATION OF DUTIES AND RESPONSIBILITIES. The Plan
Administrator may, by written instrument, allocate among its
members or employees any of its duties and responsibilities not
already allocated under the Plan or may designate persons other
than members or employees to carry out any of the Plan
Administrator's duties and responsibilities under the Plan. Any
such duties or responsibilities thus allocated must be described in
the written
<PAGE> 49
instrument. If a person other than an Employee of the Employer is
so designated, such person must acknowledge in writing his
acceptance of the duties and responsibilities allocated to him.
13.4 APPOINTMENT OF THE PLAN ADMINISTRATOR. The Employer shall
designate in the Adoption Agreement the Plan Administrator who
shall administer the Employer's Plan. Such Plan Administrator may
consist of an individual, a committee of two or more individuals,
whether or not, in either such case, the individual or any of such
individuals are Employees of the Employer, a consulting firm or
other independent agent, the Trustee (with its consent), or the
Employer itself. The Plan Administrator shall be charged with the
full power and the responsibility for administering the Plan in all
its details. If no Plan Administrator has been appointed by the
Employer, or if the person designated as Plan Administrator by the
Employer is not serving as such for any reason, the Employer shall
be deemed to be the Plan Administrator of the Plan. The Plan
Administrator may be removed by the Employer, or may resign by
giving notice in writing to the Employer, and in the event of the
removal, resignation, or death, or other termination of service by
the Plan Administrator, the Employer shall, as soon as practicable,
appoint a successor Plan Administrator, such successor thereafter
to have all of the rights, privileges, duties, and obligations of
the predecessor Plan Administrator.
13.5 EXPENSES. The Trust shall pay all expenses authorized and
incurred by the Plan Administrator in the administration of the
Plan except to the extent such expenses are paid by an Employer.
13.6 LIABILITIES. The Plan Administrator and each person to whom
duties and responsibilities have been allocated pursuant to Section
13.3 shall be indemnified and held harmless by the Employer with
respect to any alleged breach of responsibilities performed or to
be performed hereunder. The Employer and each Affiliated Employer
shall indemnify and hold harmless the Sponsor against all claims,
liabilities, fines, and penalties, and all expenses reasonably
incurred by or imposed upon him (including, but not limited to,
reasonable attorneys' fees) which arise as a result of actions or
failure to act in connection with the operation and administration
of the Plan.
13.7 CLAIMS PROCEDURE.
(a) Filing a Claim. Any Participant or Beneficiary under the Plan
may file a written claim for a Plan benefit with the Plan
Administrator or with a person named by the Plan Administrator to
receive claims under the Plan.
(b) Notice of Denial of Claim. In the event of a denial or
limitation of any benefit or payment due to or requested by any
Participant or Beneficiary under the Plan ("claimant"), claimant
shall be given a written notification containing specific reasons
for the denial or limitation of his benefit. The written
notification shall contain specific reference to the pertinent Plan
provisions on which the denial or limitation of his benefit
<PAGE> 50
is based. In addition, it shall contain a description of any other
material or information necessary for the claimant to perfect a
claim, and an explanation of why such material or information is
necessary. The notification shall further provide appropriate
information as to the steps to be taken if the claimant wishes to
submit his claim for review. This written notification shall be
given to a claimant within ninety (90) days after receipt of his
claim by the Plan Administrator unless special circumstances
require an extension of time for processing the claim. If such an
extension of time for processing is required, written notice of the
extension shall be furnished to the claimant prior to the
termination of said ninety (90) day period, and such notice shall
indicate the special circumstances which made the postponement
appropriate.
(c) Right of Review. In the event of a denial or limitation of his
benefit, the claimant or his duly authorized representative shall
be permitted to review pertinent documents and to submit to the
Plan Administrator issues and comments in writing. In addition,
the claimant or his duly authorized representative may make a
written request for a full and fair review of his claim and its
denial by the Plan Administrator; provided, however, that such
written request must be received by the Plan Administrator (or its
delegate to receive such requests) within sixty (60) days after
receipt by the claimant of written notification of the denial or
limitation of the claim. The sixty (60) day requirement may be
waived by the Plan Administrator in appropriate cases.
(d) Decision on Review. A decision shall be rendered by the Plan
Administrator within sixty (60) days after the receipt of the
request for review, provided that where special circumstances
require an extension of time for processing the decision, it may be
postponed on written notice to the claimant (prior to the
expiration of the initial sixty (60) day period) for an additional
sixty (60) days, but in no event shall the decision be rendered
more than one hundred twenty (120) days after the receipt of such
request for review. Any decision by the Plan Administrator shall
be furnished to the claimant in writing and shall set forth the
specific reasons for the decision and the specific Plan provisions
on which the decision is based.
(e) Court Action. No Participant or Beneficiary shall have the
right to seek judicial review of a denial of benefits, or to bring
any action in any court to enforce a claim for benefits prior to
filing a claim for benefits or exhausting his rights to review
under this section.
ARTICLE 14
AMENDMENT, TERMINATION, AND MERGER
14.1 SPONSOR'S POWER TO AMEND. The Sponsor may amend any part of
the Plan, Trust Agreement, or Adoption Agreements at any time and
from time to time. For purposes of Sponsor's amendments, the mass
submitter shall be recognized as the agent of the Sponsor. If the
Sponsor does not adopt the amendments made by the mass submitter,
it will no longer be identical to, or a minor modifier of, the mass
submitter plan.
<PAGE> 51
14.2 AMENDMENT BY ADOPTING EMPLOYER.
(a) Subject to giving written notice to the Trustee by delivery of
a copy of the change signed by the Employer, the Employer may:
(i) change its choice of options in the Adoption Agreement;
(ii) amend the Adoption Agreement to the extent that it may be
necessary to satisfy section 415 or section 416 of the Code
because of the required aggregation of multiple plans;
(iii) add certain model amendments published by the Internal
Revenue Service which specifically provide that their
adoption will not cause the Plan to be treated as
individually designed; and
(iv) discontinue the Plan or the Trust Agreement or give notice
of termination thereof.
(b) An Employer that amends the Plan for any other reason,
including a waiver of the minimum funding requirement under section
412(d) of the Code, will no longer participate in this prototype
plan and will be considered to have an individually designed plan.
14.3 PLAN TERMINATION; DISCONTINUANCE OF EMPLOYER CONTRIBUTIONS.
(a) The Employer may terminate the Plan at any time in whole or in
part. In the event of the dissolution, merger, consolidation, or
reorganization of the Employer, the Plan shall automatically
terminate and the Trust shall be liquidated as provided in
paragraph (b) below unless the Plan is continued by a successor
employer in accordance with Section 14.4.
(b) Upon the complete or partial termination of the Plan or the
complete discontinuance of Employer Contributions under the Plan,
the separate Account of each Participant affected thereby shall
become fully vested and nonforfeitable, and the Plan Administrator
shall direct the Trustee to distribute assets remaining in the
Trust, after payment of any expenses properly chargeable thereto,
to Participants or their Beneficiaries, unless directed by the
Employer to continue the Trust and distribute Participants'
Accounts at such other time and in such other nondiscriminatory
manner as the Employer shall designate, provided that such
distribution shall be in accordance with the provisions of Articles
10 and 11. Upon the completion of such distribution, the Trustee
shall be relieved of all further liability with respect to the
assets so distributed.
<PAGE> 52
14.4 SUCCESSOR EMPLOYER. In the event of the dissolution, merger,
consolidation, or reorganization of the Employer, provision may be
made by which the Plan and Trust shall be continued by the
successor employer, in which case such successor employer shall be
substituted for the Employer under the Plan. The substitution of
the successor employer shall constitute an assumption of Plan
liabilities by the successor employer, and the successor employer
shall have all powers, duties, and responsibilities of the Employer
under the Plan.
14.5 MERGER, CONSOLIDATION, OR TRANSFER. There shall be no merger
or consolidation of the Plan with, or transfer of assets or
liabilities of the Plan to, any other plan of deferred compensation
maintained or to be established for the benefit of all or some of
the Participants of the Plan, unless each Participant would (if
either this Plan or such other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer
which is equal to or greater than the benefit the Participant would
have been entitled to receive immediately before the merger,
consolidation, or transfer (if this Plan had then terminated).
14.6 SPECIAL AMENDMENTS. The Employer may from time to time make
any amendment to the Plan that may be necessary to satisfy section
415 or 416 of the Code. Any such amendment will be adopted by the
Employer by completing overriding Plan language in the Adoption
Agreement. In the event of such an amendment, the Employer must
obtain a separate determination letter from the Internal Revenue
Service to continue reliance on the Plan's qualified status.
ARTICLE 15
MISCELLANEOUS
15.1 EXCLUSIVE BENEFIT OF PARTICIPANTS AND BENEFICIARIES.
(a) All assets of the Trust shall be retained for the exclusive
benefit of Participants and their Beneficiaries, and shall be used
only to pay benefits to such persons or to pay the fees and
expenses of the Trust. The assets of the Trust shall not revert to
the benefit of the Employer, except as otherwise specifically
provided in Section 15.1(b).
(b) To the extent permitted or required by ERISA and the Code,
contributions to the Trust under this Plan are subject to the
following conditions:
(i) If a contribution or any part thereof is made to the Trust
by the Employer under a mistake of fact, such contribution
or part thereof shall be returned to the Employer within one
year after the date the contribution is made;
<PAGE> 53
(ii) In the event the Plan is determined not to meet the initial
qualification requirements of section 401 of the Code,
contributions made in respect of any period for which such
requirements are not met shall be returned to the Employer
within one (1) year after the Plan is determined not to meet
such requirements, but only if the application for the
qualification is made by the time prescribed by law for
filing the Employer's return for the taxable year in which
the Plan is adopted, or such later date as the Secretary of
the Treasury may prescribe.
(iii) Contributions to the Trust are specifically conditioned on
their deductibility under the Code and, to the extent a
deduction is disallowed for any such contribution, such
amount shall be returned to the Employer within one (1) year
after the date of the disallowance of the deduction.
15.2 NONGUARANTEE OF EMPLOYMENT. Nothing contained in this Plan
shall be construed as a contract of employment between the Employer
and any Employee, or as a right of any Employee to be continued in
the employment of the Employer, or as a limitation of the right of
the Employer to discharge any of its Employees, with or without
cause.
15.3 RIGHTS TO TRUST ASSETS. No Employee, Participant, or
Beneficiary shall have any right to, or interest in, any assets of
the Trust upon termination of employment or otherwise, except as
provided under the Plan. All payments of benefits under the Plan
shall be made solely out of the assets of the Trust.
15.4 NONALIENATION OF BENEFITS. No benefit or interest available
hereunder will be subject to assignment or alienation, either
voluntarily or involuntarily. The preceding sentence shall also
apply to the creation, assignment, or recognition of a right to any
benefit payable with respect to a Participant pursuant to a
domestic relations order, unless such order is determined to be a
qualified domestic relations order as defined in section 414(p) of
the Code, or any domestic relations order entered before January 1,
1985.
15.5 AGGREGATION RULES.
(a) Except as provided in Article 6, all Employees of the Employer
or any affiliated employer will be treated as employed by a single
employer.
(b) If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan
is established and one or more other trades or businesses, this
Plan and the plan established for other trades or businesses must,
when looked at as a single plan, satisfy sections 401(a) and (d)
for the Employees of this and all other trades or businesses.
<PAGE> 54
(c) If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses,
the employees of the other trades or businesses must be included in
a plan which satisfies section 401(a) and (d) and which provides
contributions and benefits not less favorable than provided for
Owner-Employees under this Plan.
(d) If an individual is covered as an Owner-Employee under the
plans of two or more trades or businesses which are not controlled
and the individual controls a trade or business, then the
contributions or benefits which are controlled must be as favorable
as those provided for him under the most favorable plan of the
trade or business which is not controlled.
(e) For purposes of paragraphs (b), (c), and (d), an Owner-
Employee, or two or more Owner-Employees, will be considered to
control a trade or business if the Owner-Employee, or two or more
Owner-Employees together:
(i) own the entire interest in an unincorporated trade or
business; or
(ii) in the case of a partnership, own more than fifty percent
(50%) of either the capital interest or the profits interest
in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two
or more Owner-Employees shall be treated as owning an interest in a
partnership which is owned, directly or indirectly, by a
partnership which such Owner-Employee, or such two or more Owner-
Employees, are considered to control within the meaning of the
preceding sentence.
15.6 FAILURE OF QUALIFICATION. If this Plan or any part of it
fails to attain or retain qualification, such plan will no longer
participate in this master/prototype plan and will be considered an
individually designed plan.
15.7 APPLICABLE LAW. Except to the extent otherwise required by
ERISA, as amended, this Plan shall be construed and enforced in
accordance with the laws of the state in which the Employer's
principal place of business is located, as specified in the
Adoption Agreement.
15.8 INVALIDITY OF CERTAIN PROVISIONS. If any provisions of this
Plan shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof and
the Plan shall be construed and enforced as if such provisions, to
the extent invalid or unenforceable, had not been included.
<PAGE>
Internal Revenue Service
Plan Description: Prototype Standardized Profit Sharing Plan
FM 50253965002-01 Case: 9005260 EIN: 36-3447638
PD 02 Plan: 00! Letter Serial No. D248808a
Department of the Treasury
Washington, DC 20224
Personal Contac: Ms. Grandison
Telephone Number: (202) 566-4708
Ref. Reply: E EP Q 3
Date: 07/16/90
STEIN ROE & FARNHAM INC.
300 WEST ADAMS STREET
SUITE 1200
CHICAGO IL 60690
Dear Applicant:
In our opinion, the form of the plan identified above is acceptable
under section 401 of the Internal Revenue Code for use by employers
for the benefit of their employees. This opinion relates only to
the acceptability of the form of the plan under the Internal
Revenue Code. It is not an opinion of the effect of other Federal
or local statutes.
You must furnish a copy of this letter to each employer who adopts
this plan. You are also required to send a copy of the approved
form of the plan, any approved amendments and related documents to
each Key District Director of Internal Revenue Service in whose
jurisdiction there are adopting employers.
Our opinion on the acceptability of the form of the plan is not a
ruling or determination as to whether an employer's plan qualifies
under Code section 401(a) An employer who adopts this plan will be
considered to have a plan qualified under Code section 401(a)
provided all the terms of the plan are followed, and the
eligibility requirements and contribution or benefit provisions are
not more favorable for officers, owners, or highly compensated
employees than for other employees. Except as stated below, the
Key District Director will not issue a determination letter with
regard to this plan.
Our opinion does not apply to the form of the plan for purposes of
Code section 401(a)(16) if: (1) an employer ever maintained another
qualified plan for one or more employees who are covered by this
plan, other than a specified paired plan within the meaning of
section 7 of Rev. Proc. 89-9, 1989-6 I.R.B. 14; or (2) after
December 31, 1985, the employer maintains a welfare benefit fund
defined in Code section 419(e), which provides postretirement
medical benefits allocated to separate accounts for key employees
as defined in Code section 419A(d)(3). In such situations, the
employer should request a determination as to whether the plan,
considered with all related qualified plans and, if appropriate,
welfare benefit funds, satisfies the requirements of Code section
401(a)(16) as to limitations on benefits and contributions in Code
section 415.
If you, the plan sponsor, have any questions concerning the IRS
processing of this case, please call the above telephone number.
This number is only for use of the plan sponsor. Individual
participants and/or adopting employers with questions concerning
the plan should contact the plan sponsor. The plan's adoption
agreement must include the sponsor's address and telephone number
for inquiries by adopting employers.
If you write to the IRS regarding this plan, please provide your
telephone number and the most convenient time for us to call in
case we need more information. Whether you call or write, please
refer to the Letter Serial Number and File Folder Number shown in
the heading of this letter.
You should keep this letter as a permanent record. Please notify
us if you modify or discontinue sponsorship of this plan.
Sincerely yours,
[SIGNATURE OF OFFICER]
Chief, Employee Plans Qualifications
Branch
09637
<PAGE>
Internal Revenue Service
Plan Description: Prototype Standardized Money Purchase Pension
Plan
FM 50253965002-02 Case: 9005261 EIN: 36-3447638
PD 02 Plan: 002 Letter Serial No. D248809a
Department of the Treasury
Washington, DC 20224
Personal Contac: Ms. Grandison
Telephone Number: (202) 566-4708
Ref. Reply: E EP Q 3
Date: 07/16/90
STEIN ROE & FARNHAM INC.
300 WEST ADAMS STREET
SUITE 1200
CHICAGO IL 60690
Dear Applicant:
In our opinion, the form of the plan identified above is acceptable
under section 401 of the Internal Revenue Code for use by employers
for the benefit of their employees. This opinion relates only to
the acceptability of the form of the plan under the Internal
Revenue Code. It is not an opinion of the effect of other Federal
or local statutes.
You must furnish a copy of this letter to each employer who adopts
this plan. You are also required to send a copy of the approved
form of the plan, any approved amendments and related documents to
each Key District Director of Internal Revenue Service in whose
jurisdiction there are adopting employers.
Our opinion on the acceptability of the form of the plan is not a
ruling or determination as to whether an employer's plan qualifies
under Code section 401(a) An employer who adopts this plan will be
considered to have a plan qualified under Code section 401(a)
provided all the terms of the plan are followed, and the
eligibility requirements and contribution or benefit provisions are
not more favorable for officers, owners, or highly compensated
employees than for other employees. Except as stated below, the
Key District Director will not issue a determination letter with
regard to this plan.
Our opinion does not apply to the form of the plan for purposes of
Code section 401(a)(16) if: (1) an employer ever maintained another
qualified plan for one or more employees who are covered by this
plan, other than a specified paired plan within the meaning of
section 7 of Rev. Proc. 89-9, 1989-6 I.R.B. 14; or (2) after
December 31, 1985, the employer maintains a welfare benefit fund
defined in Code section 419(e), which provides postretirement
medical benefits allocated to separate accounts for key employees
as defined in Code section 419A(d)(3). In such situations, the
employer should request a determination as to whether the plan,
considered with all related qualified plans and, if appropriate,
welfare benefit funds, satisfies the requirements of Code section
401(a)(16) as to limitations on benefits and contributions in Code
section 415.
If you, the plan sponsor, have any questions concerning the IRS
processing of this case, please call the above telephone number.
This number is only for use of the plan sponsor. Individual
participants and/or adopting employers with questions concerning
the plan should contact the plan sponsor. The plan's adoption
agreement must include the sponsor's address and telephone number
for inquiries by adopting employers.
If you write to the IRS regarding this plan, please provide your
telephone number and the most convenient time for us to call in
case we need more information. Whether you call or write, please
refer to the Letter Serial Number and File Folder Number shown in
the heading of this letter.
You should keep this letter as a permanent record. Please notify
us if you modify or discontinue sponsorship of this plan.
Sincerely yours,
[SIGNATURE OF OFFICER]
Chief, Employee Plans Qualifications
Branch
09638
<PAGE>
CORRECTED
AMENDMENT B TO THE
STEIN ROE & FARNHAM PROTOTYPE PAIRED
DEFINED CONTRIBUTION MONEY PURCHASE PENSION &
PROFIT-SHARING PLAN
(MAY 23, 1994)
Stein Roe & Farnham Incorporated, sponsor of the Stein Roe &
Farnham Prototype Paired Defined Contribution Money Purchase
Pension and Profit-Sharing Plans, including the related Trust and
Adoption Agreements (the "Prototype Plan"), hereby amends the
Prototype Plan effective as provided below.
FIRST
Article 11 of the plan is hereby amended by adding the
following at the end thereof as a new section 11.10 which is the
word-for-word adoption of the model language contained in Revenue
Procedure 93-12, for distributions made on or after January 1,
1993, as follows:
"11.10 DIRECT ROLLOVERS. Notwithstanding any provision of
the Plan to the contrary that would otherwise limit a
Distributee's election under this provision, a Distributee
may elect, at the time and in the manner prescribed by the
Plan Administrator, to have any portion of an Eligible
Rollover Distribution paid directly to an Eligible Retirement
Plan specified by the Distributee in a Direct Rollover.
Definitions
(a) Eligible Rollover Distribution. An Eligible Rollover
Distribution is any distribution of all or any portion of
the balance to the credit of the Distributee, except than
an Eligible Rollover Distribution does not include: any
distribution that is one of a series of substantially
equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the
Distributee or the joint lives (or joint life
expectancies) of the Distributee and the Distributee's
designated Beneficiary, or for a specified period of ten
(10) years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the
Code; and the portion of any distribution that is not
includable in gross income (determined without regard to
the exclusion for net unrealized appreciation with
respect to employer securities).
(b) Eligible Retirement Plan. An Eligible Retirement Plan
is an individual retirement account described in section
408(a) of the Code, an individual retirement annuity
described in section 408(b) of the Code, an annuity plan
described in section 403(a) of the Code, or a qualified
trust described in section 401(a) of the Code, that
accepts the Distributee's Eligible Rollover Distribution.
However, in the case of an Eligible Rollover Distribution
to the surviving spouse, an Eligible Retirement Plan is
an individual retirement account or individual retirement
annuity.
(c) Distributee. A distributee includes an Employee or
former Employee. In addition, the Employee's or former
Employee's surviving spouse and the Employee's or former
Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as
defined in section 414(p) of the Code, are Distributees
with regard to the interest of the spouse or former
spouse.
(d) Direct Rollover. A Direct Rollover is a payment by the
Plan to the Eligible Retirement Plan specified by the
Distributee."
SECOND
Section 2.7 of Article 2 of this Plan is hereby amended by
adding the following at the end thereof which is the word-for-word
adoption of the model language contained in Revenue Procedure 94-13
as follows:
"In addition to the other applicable limitations set forth in
the Plan, and notwithstanding any other provision of the Plan
to the contrary, for Plan Years beginning on or after January
1, 1994, the annual Compensation of each Employee taken into
account under the Plan shall not exceed the OBRA '93 Annual
Compensation Limit. The OBRA '93 Annual Compensation Limit is
$150,000, as adjusted by the Commissioner for increases in the
cost-of-living in accordance with section 401(a)(17)(B) of the
Internal Revenue Code. The cost-of-living adjustment in
effect for a calendar year applies to any period, not
exceeding 12 months, over which Compensation is determined
("Determination Period") beginning in such calendar year. If
a Determination Period consists of fewer than 12 months, the
OBRA '93 Annual Compensation Limit will be multiplied by a
fraction, the numerator of which is the number of months in
the Determination Period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under section
401(a)(17) of the Code shall mean the OBRA '93 Annual
Compensation Limit set forth in this provision.
If Compensation for any prior Determination Period is taken
into account in determining an Employee's benefits accruing in
the current Plan Year, the Compensation for that prior
Determination Period is subject to the OBRA '93 Annual
Compensation Limit in effect for that prior Determination
Period. For this purpose, for Determination Periods beginning
before the first day of the first Plan Year beginning on or
after January 1, 1994, the OBRA '93 Annual Compensation Limit
is $150,000."
Except as expressly amended herein, the Prototype Plan remain in
full force and effect.
Executed this 23rd day of May, 1994.
STEIN ROE & FARNHAM INCORPORATED
By: TIMOTHY K. ARMOUR
Timothy K. Armour
President - Mutual Funds Division
Attest: JILAINE HUMMEL BAUER
Jilaine Hummel Bauer
Assistant Secretary
<PAGE> 1
STEIN ROE & FARNHAM PROTOTYPE TRUST AGREEMENT
The Employer has established a Plan for the benefit of Participants
therein pursuant to section 401 of the Internal Revenue Code of
1986, as amended. As part of the Plan, the Employer has requested
such person or persons (individual, corporate, or other entity), as
may be designated in the Adoption Agreement, to serve as Trustee
pursuant to the Trust established for the investment of
contributions under the Plan upon the terms and conditions set
forth in this Trust Agreement.
Unless the context of this Trust Agreement clearly indicates
otherwise, the terms defined in Article 2 of the Plan entered into
by the Employer, of which this Trust Agreement forms a part, shall,
when used herein, have the same meaning as in the Plan.
ARTICLE 1
ACCOUNTS
1.1 ESTABLISHING ACCOUNTS. The Trustee shall open and maintain a
Trust account for the Plan and, as part thereof, Participants'
Accounts for such individuals as the Plan Administrator shall, from
time to time, give written notice to the Trustee as being
Participants in the Plan. The Trustee shall also open and maintain
such other subaccounts as may be appropriate or desirable to aid in
the administration of the Plan. Separate subaccounts shall be
maintained for each Participant and shall be credited with the
contributions made by the Employer and with forfeitures allocated
to each such Participant pursuant to the Plan (and all earnings
thereon). If nondeductible voluntary contributions by Participants
are permitted by the Plan, the Trustee shall open and maintain as
part of the Trust a separate subaccount to be credited with the
Participant's nondeductible voluntary contributions (and all
earnings attributable to such contributions). If trustee transfers
or rollover contributions from another qualified plan are received,
the Trustee shall open and maintain a separate rollover subaccount
for each Participant, each such subaccount to be credited with the
Participant's trustee transfers or rollover contributions (and all
earnings attributable to such contributions).
1.2 CHARGES AGAINST ACCOUNTS. Upon receipt of written instructions
from the Plan Administrator, the Trustee shall charge the
appropriate subaccount of the Participant for any withdrawals,
expenses, or distributions made under the Plan and any forfeiture,
which may be required under the Plan, of unvested interests
attributable to Employer Contributions. The Plan Administrator
will give written instructions to the Trustee specifying the manner
in which Employer Contributions and any forfeiture of the nonvested
portion of the Accounts, as allocated by the Plan Administrator in
accordance with the provisions of the Plan, are to be credited to
the various Accounts maintained for Participants.
1.3 PROSPECTUS TO BE PROVIDED. The Plan Administrator shall ensure
that a Participant who makes a nondeductible voluntary contribution
has previously received a copy of the then current prospectus
relating to the Shares. Delivery of such a nondeductible voluntary
contribution, pursuant to the provisions of the Plan by the Plan
Administrator to the Trustee shall entitle the Trustee to assume
that the Participant has received such a prospectus.
ARTICLE 2
RECEIPT OF CONTRIBUTIONS
The Trustee shall accept and hold in the Trust contributions made
by the Employer and Participants under the Plan. The Plan
Administrator shall give written instructions to the Trustee
specifying the Participants' Account to which contributions are to
be credited, the amount of each such credit which is attributable
to Employer Contributions, and the amount, if any, which is
attributable to the Participant's nondeductible voluntary
contributions. If written instructions are not received by the
Trustee, or if such instructions are received but are deemed by the
Trustee to be unclear, upon notice to the Employer, the Trustee may
elect to hold all or part of any such contributions in cash,
without liability for rising security prices or distributions made,
pending receipt by it from the Plan Administrator of written
instructions or other clarifications, or the Trustee may return the
contribution to the Employer. If any contributions or earnings are
less than any minimum which the then current prospectus for the
Shares requires, the Trustee may hold the specified portion of
contributions or earnings in cash, without interest, until such
time as the proper amount has been contributed or earned so that
the investment in the Shares required under the Plan may be made.
ARTICLE 3
INVESTMENT POWERS OF THE TRUSTEE
3.1 INVESTMENT OF ACCOUNT ASSETS. The Trustee shall invest the
amount of each contribution made hereunder and all earnings of the
Trust in full and fractional Shares in accordance with the current
prospectus for such Shares, in such amounts and proportions as
shall from time to time be designated by the Plan Administrator on
forms provided by the Sponsor, and shall credit such Shares to the
Accounts of each Participant on whose behalf or by whom the
contributions are made and any forfeitures are allocated. All
dividends and capital gain distributions received on the Shares
held by the Trustee in each Account, shall, if received in cash, be
reinvested in such Shares in accordance with the current prospectus
for such Shares and shall in any event be credited to such account.
If any distribution on Shares may be received at the election of
the shareholder in additional Shares, the Trustee shall so elect.
The Trustee shall deliver, or cause to be executed and delivered,
to the Plan Administrator all notices, prospectuses, financial
statements, proxies, and proxy soliciting materials relating to
Shares held hereunder. The Trustee shall not vote any of the
Shares held hereunder, except in accordance with the written
instructions of the Plan Administrator which shall be in accordance
with the directions of the Participants who are the beneficial
owners of such Shares. If no such written instructions are
received, such Shares shall be voted in accordance with the best
interests of the Participant (or Beneficiary) for which they are so
held. The obligations of the Trustee hereunder may be delegated by
it as provided in Sections 9.1 and 9.2.
The Trustee shall sell Shares and purchase Shares to accomplish any
change in investments desired by the Employer as indicated on any
amended Adoption Agreement or other instruction in accordance with
the terms of the Plan.
Notwithstanding the above, if periodic payments are being made to a
Participant pursuant to Article 4 hereof, any dividends received on
Shares held in such Participant's Account, which dividends are
invested at an offering price which includes a sales charge, need
not be invested in additional Shares but may be held for
distribution to the Participant in periodic payments. In such
instances, the Trustee may make election necessary to receive any
such dividends in cash.
3.2 DIRECTED INVESTMENTS. When so instructed by the Plan
Administrator, the Trustee shall invest all or any portion of the
individual Account of any Participant in accordance with the
direction of the Employer or such Participant in lieu of
participation in the general assets of the Trust. Such directed
investments shall be accounted for separately for each Participant.
Except as otherwise provided herein, the Trustee shall not have any
discretion, and is specifically prohibited from exercising any
control or direction, with respect to such directed investments.
Each Participant who directs the investment of his Account shall be
solely and absolutely responsible for the investment or
reinvestment of all direct investment assets held on his behalf in
Trust shall not question any such direction, review any securities
or other such assets, or make suggestions with respect to the
investment, retention or disposition of any such assets; provided
that:
(a) If any contributions are transmitted to or otherwise
received or held as a directed investment asset without
investment directions from the Participant, the Trustee may
retain such amounts in a noninterest-bearing savings account
in a federally insured institution for the benefit of the
Participant;
(b) The Trustee may establish such reasonable rules and
regulations, applied on a uniform basis for all Participants
with respect to the requirements for, and the form and
manner of, effectuating any transactions with respect to
directed investment assets including, without limitation,
minimum amounts, rules applicable to conversion of directed
investments into general assets of the Trust, and
appropriate adjustments (based on fair market values) to
Accounts in order to reflect any such conversion, as the
Trustee shall determine to be consistent with the purposes
of the Plan. Any such rules and regulations shall be
binding upon all persons interested in the Trust;
(c) The Trustee may establish a procedure for the periodic
review of directed investment assets to determine, in light
of the facts and circumstances reasonably known to the
Trustee, whether any actual or proposed investment of such
assets constitute a prohibited transaction as that term is
defined in Sections 406-408 of ERISA and the corresponding
provisions of the Code. If the Trustee determines that any
investment constitutes or would constitute a prohibited
transaction, the Trustee shall promptly communicate this
determination to the Plan Administrator, and shall recommend
that the investment be prevented or disposed of, as the case
may be, and may recommend any other action authorized or
required by law, to prevent or remedy the transaction;
(d) In accordance with and pursuant to uniform and
nondiscriminatory rules established under and in accordance
with the Plan, the Trustee may deny the Plan Administrator's
application to allow a directed investment proposed by a
Participant; and
(e) Notwithstanding anything herein to the contrary, in no event
shall the Trustee engage in any transaction that would be
prohibited under ERISA.
3.3 GENERAL INVESTMENT POWERS. Subject to any investment
limitations or minimum requirements for investment in Shares
imposed by the Sponsor, and subject to investment instructions
given by the Employer, the Trustee shall be authorized and
empowered to invest and reinvest all or any part of the Trust in
any property, real or personal or mixed, including, but not being
limited to, capital or common stock (whether voting or nonvoting
and whether or not currently paying a dividend), preferred or
preference stock (whether voting or nonvoting or whether or not
currently paying a dividend), Shares of regulated investment
companies, convertible securities, corporate and governmental
obligations, leaseholds, ground rents, mortgages, and other
interests in realty, trust and participation certificates, oil,
mineral, or gas properties, royalty interests or rights, including
equipment pertaining thereto, notes, and other evidence of
indebtedness or ownership, secured or unsecured, contracts, choses
in action, and warrants and other instruments entitling the owner
thereof to subscribe to or purchase any of the aforesaid. Subject
to any investment limitations or requirements imposed by the
Sponsor relating to the type of permissible investments in the
Trust or the minimum percentage of Trust assets to be invested in
Shares, and subject to the provisions of Article 8 hereof, in
making and retaining such investments and reinvestments pursuant
hereto, the Trustee shall not be bound as to the character of any
investments by any statute, rule of court, or custom governing the
investment of Trust funds.
3.4 INVESTMENT IN COMBINED FUNDS. If the Trust is a banking
institution, subject to any investment limitations or minimum
requirements for investment in Shares imposed by the Sponsor, and
subject to investment instructions given by the Employer, it may,
subject to the election of the Sponsor or the Employer, cause funds
of this Trust to be invested in commingled funds for qualified
employee benefit plan trusts and such commingled funds are hereby
adopted and made a part of the Plan of which this Trust is a part,
and any funds of this Trust invested in any such commingled funds
shall be subject to all the provisions thereof, as the same may be
amended from time to time.
3.5 OTHER POWERS OF THE TRUSTEE. The Trustee is authorized and
empowered with respect to the Trust:
(a) Subject to any investment limitations or minimum
requirements for investment in Shares imposed by the
Sponsor, and subject to investment instructions given by the
Employer, to sell, exchange, convey, transfer, or otherwise
dispose of, either at public or private sale, any property,
real or personal or mixed, at any time held by it, for such
consideration and on such terms and conditions as to credit
or otherwise as the Trustee may deem best;
(b) Subject to the provisions of Section 3.1, to vote in person
or by proxy any stocks, bonds, or other securities held by
it; to exercise any options appurtenant to any stocks,
bonds, or other securities, or to exercise any rights to
subscribe for additional stocks, bonds, or other securities,
and to make any and all necessary payments therefore; to
join in, or to dissent from, and to oppose the
reorganization, consolidation, liquidation, sale, or merger
of corporations, or properties in which it may be interested
as Trustee, upon such terms and conditions it may deem wise;
(c) To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other
instruments that may be necessary or appropriate to carry
out the powers herein granted;
(d) To register any investment held in the Trust in the name of
the Trust or in the name of a nominee, and to hold any
investment in bearer form, but the books and records of the
Trustee shall at all times show that all such investments
are part of the Trust;
(e) To employ suitable agents and counsel (who may also be
agents and/or counsel for the Employer or the Sponsor) and
to pay their reasonable expenses and compensation;
(f) To borrow or raise monies for the purpose of the Trust from
any source and, for any sum so borrowed to issue its
promissory note as Trustee and to secure the repayment
thereof by pledging all or any part of the Trust Fund, but
nothing herein contained shall obligate the Trustee to
render itself liable individually for the amount of any such
borrowing; and no person loaning money to the Trustee shall
be bound to see to the application of money loaned or to
inquire into the validity or propriety of any such
borrowing.
Each and all of the foregoing powers may be exercised without a
court order of approval. No one dealing with the Trustee need
inquire concerning the validity or propriety of anything that is
done or need see to the application of any money paid or property
transferred to or upon the order of the Trustee.
3.6 GENERAL POWERS. The Trustee shall have all of the powers
necessary or desirable to do all acts, take all such proceedings,
and exercise all such rights and privileges, whether or not
expressly authorized herein, which it may deem necessary or proper
for the administration and protection of the property of the Trust
and to accomplish any action provided for in the Plan.
ARTICLE 4
DISTRIBUTIONS FROM A PARTICIPANT'S ACCOUNT
Distributions from the Trust shall be made by the Trustee in
accordance with proper written directions of the Plan Administrator
in accordance with the provisions of Section 11.2 of the Plan, and
the Plan Administrator shall have the sole responsibility for
determining that the directions given conform to the provisions of
the Plan and applicable law, including (without limitation)
responsibility for calculating the vested interests of the
Participants, for calculating the amounts payable to a Participant
pursuant to Article 9 of the Plan, and for determining the proper
person to whom benefits are payable under the Plan.
ARTICLE 5
REPORTS OF THE TRUSTEE AND THE PLAN ADMINISTRATOR
The Trustee shall keep accurate and detailed records of all
receipts, investments, disbursements, and other transactions
required to be performed hereunder with respect to the Trust. The
Trustee shall file with the Plan Administrator a written report or
reports reflecting the receipts, disbursements, and other
transactions effected by it with respect to the Trust during such
Plan Year and the assets and liabilities of the Trust at the close
of the Plan Year. Such report or reports shall be open to
inspection by any Participant for a period of one hundred eighty
(180) days immediately following the date on which it is filed with
the Plan Administrator. Except as otherwise prescribed by ERISA,
upon the expiration of such one hundred eighty (180) day period,
the Trustee shall be forever released and discharged from all
liability and accountability to anyone with respect to its acts,
transactions, duties, obligations, or responsibilities as shown in
or reflected by such report, except with respect to any such acts
or transactions as to which the Plan Administrator shall have filed
written objections with the Trustee within such one hundred eighty
(180) day period, and except for willful misconduct or lack of good
faith on the part of the Trustee.
ARTICLE 6
TRUSTEE'S FEE AND EXPENSES OF THE TRUST
The Trustee's fees for performing its duties hereunder shall be
such reasonable amounts as shall be respectively established by the
Trustee from time to time; provided that no Trustee who is an
Employee of an Employer may receive a Trustee fee. The Trustee
shall furnish the Employer with its current schedule of fees and
shall give written notice to the Employer whenever its fees are
changed or revised. Such fees, any taxes of any kind whatsoever
which may be levied or assessed upon or in respect of the Trust, to
the extent incurred by the Trustee, and any and all expenses
incurred by the Trustee in the performance of its duties, including
fees for legal services rendered to the Trustee shall, unless paid
by the Employer, be paid from the Trust in the manner provided in
the Plan.
Unless paid by the Employer, all fees of the Trustee and taxes and
other expenses charged to a Participant's Account may be collected
by the Trustee from the amount of any contribution to be credited
or distribution to be charged to such Account or may be paid by
redeeming or selling assets credited to such Account.
ARTICLE 7
DUTIES OF THE EMPLOYER AND THE PLAN ADMINISTRATOR
7.1 INFORMATION AND DATA TO BE FURNISHED TO TRUSTEE. In addition
to making the contributions called for in Article 2 hereof, the
Employer, through the Plan Administrator, agrees to furnish the
Trustee with such information and data relative to the Plan as is
necessary for the proper administration of the Trust established
hereunder.
7.2 LIMITATIONS OF DUTIES. Neither the Employer nor any of its
officers, directors, or partners, nor the Plan Administrator shall
have any duties or obligations with respect to this Trust
Agreement, except those expressly set forth herein and in the Plan.
ARTICLE 8
LIABILITY OF THE TRUST
8.1 TRUSTEE'S LIABILITY.
(a) The Employer shall indemnify and save the Trustee (including
its affiliates, representatives and agents) harmless from
and against any liability, cost or other expense, including,
but not limited to, the payment of attorneys' fees that the
Trustee may incur in connection with this Agreement or the
Plan unless such liability, cost or other expense (whether
direct or indirect) arises from the Trustee's own willful
misconduct or gross negligence. The Employer recognizes
that a burden of litigation may be imposed upon the Trustee
as a result of some act or transaction for which it has no
responsibility or over which it has no control under this
Agreement. Therefore, the Employer agrees to indemnify and
hold harmless and, if requested, defend the Trustee
(including its affiliates, representatives and agents) from
any expenses (including counsel fees, liabilities, claims,
damages, actions, suits or other charges) incurred by the
Trustee in prosecuting or defending against any such
litigation.
(b) The Trustee shall not be liable for, and the Employer will
indemnify and hold harmless the Trustee (including its
affiliates, representatives and agents) from and against all
liability or expense (including counsel fees) because of (i)
any investment action taken or omitted by the Trustee in
accordance with any direction of the Employer or a
Participant, or investment inaction in the absence of
directions from the Employer or a Participant or (ii) any
investment action taken by the Trustee pursuant to an order
to purchase or sell securities placed by the Employer or a
Participant directly with a broker, dealer or issuer. It is
understood that although, when the Trustee is subject to the
direction of the Employer or a Participant the Trustee will
perform is subject to the portion of the Fund subject to
such direction (the Directed Fund"), such duties do not
involve the exercise of any discretionary authority or other
authority to manage and control assets of the Directed Fund
and will be performed in the normal course of business by
officers and employees of the Trustee or its affiliates,
representatives or agents who may be unfamiliar with
investment management. It is agreed that the Trustee is not
undertaking any duty or obligation, express or implied, to
review, and will not be deemed to have any knowledge of or
responsibility with respect to, any transaction involving
the investment of the Directed Fund as a result of the
performance of its ministerial duties. Therefore, in the
event that "knowledge" of the Trustee shall be a
prerequisite to imposing a duty upon or determining
liability of the Trustee under the Plan or this Trust or any
law or regulation regulating the conduct of the Trustee,
with respect to the Directed Fund, as a result of any act or
omission of the Employer or any Participant, or as a result
of any transaction engaged in by any of them, then the
receipt and processing of investment orders and other
documents relating to Plan assets by an officer or other
employee of the Trustee or its affiliates, representatives
or agents engaged in the performance of purely ministerial
functions shall not constitute "knowledge" of the Trustee.
(c) Notwithstanding the foregoing provisions of this Trust
Agreement, the Trustee shall discharge its duties hereunder
with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in
the conduct of an enterprise of a like character and with
like aims. Any investments selected by the Trustee without
specific direction from the Employer shall be selected to
diversify the investments of the Trust Fund so as to
minimize the risk of large losses, unless in the
circumstances it is clearly prudent not to do so. The
Trustee shall perform its duties in accordance with this
Trust Agreement insofar as this Trust Agreement is
consistent with the provisions of ERISA. To the extent not
prohibited by ERISA, the Trustee shall not be responsible in
any way for any action or omission of the Employer or the
Plan Administrator with respect to the performance of their
duties and obligations set forth in the Plan. To the extent
not prohibited by ERISA, the Trustee shall not be
responsible for any action or omission of any of its agents,
or with respect to reliance upon advice of its counsel
(whether or not such counsel is also counsel to the Employer
or to the Plan Administrator), provided that such agents or
counsel were prudently chosen by the Trustee and that the
Trustee relied in good faith upon the action of such agent
or the advice of such counsel. The Trustee shall be
indemnified and held harmless by the Employer against
liability or losses occurring by reason of any act or
omission of the Trustee under this Trust Agreement, unless
such act or omission is due to its own willful nonfeasance,
malfeasance, or misfeasance or other breach of duty under
ERISA, to the extent that such indemnification does not
violate ERISA or any other federal or state laws.
ARTICLE 9
DELEGATION OF POWERS
9.1 DELEGATION BY THE TRUSTEE. With respect to Shares held by the
Plan, the Trustee hereby delegates to the Custodian designated by
the Sponsor the functions designated in (a) through (d) hereunder,
other than the investment, management, or control of the Trust
assets. The Trustee may delegate in writing pursuant to a
procedure permitted and established by the Sponsor, to a person
(individual, corporate, or other entity) designated by the Sponsor
as an agent or custodian, any of the powers or functions of the
Trustee hereunder other than the investment, management or control
of the Trust assets, including (without limitation):
(a) Custodianship of all or any part of the assets of the Trust;
(b) Maintaining and accounting for the Trust and for
Participants and other Accounts as a part thereof;
(c) Distribution of benefits as directed by the Plan
Administrator; and
(d) Preparation of the annual report on the status of the Trust.
The agent or custodian so appointed may act as agent for the
Trustee, without investment responsibility, for fees to be mutually
agreed upon the Employer and the agent or custodian and paid in the
same manner as a Trustee's fees. The Trustee shall not be
responsible for any act or omission of the agent or custodian
arising from any such delegation, except to the extent provided in
Section 8.1.
9.2 Delegating with Employer Approval. The Trustee (whether or not
a bank or trust company) and the Employer may, by mutual agreement,
arrange for the delegation by the Trustee to the Plan Administrator
or any agent of the Employer of any powers or functions of the
Trustee hereunder other than the investment and custody of the
Trust assets. The Trustee shall not be responsible for any act or
omission of such person or persons arising from any such
delegation, except to the extent provided in Article 8.
ARTICLE 10
AMENDMENT
As provided in Section 14.1 of the Plan, and subject to the
limitations set forth therein, the prototype Adoption Agreement,
Plan, and Trust Agreement may be amended at any time, in whole or
in part, by the Sponsor. The Trustee hereby delegates authority to
the Sponsor, and to any successor Sponsor, to so amend the
prototype Adoption Agreement, Plan, and Trust Agreement and the
Trustee hereby agrees that it shall be deemed to have consented to
any amendment so made which does not increase the duties of the
Trustee without its consent.
ARTICLE 11
RESIGNATION OR REMOVAL OF TRUSTEE
The Trustee may resign at any time upon thirty (30) days' notice in
writing to the Employer, and may be removed by the Sponsor or
Employer at any time upon thirty (30) days' notice in writing to
the Trustee. Upon resignation or removal, the Sponsor or Employer
shall appoint a successor Trustee or Trustees. Upon receipt by the
Trustee of written acceptance of such appointment by the successor
Trustee, the Trustee shall transfer and pay over to such successor
the assets of the Trust and all records pertaining thereto,
provided that any successor Trustee shall agree not to dispose of
any such records without the Trustee's consent. The successor
Trustee shall be entitled to rely on all accounts, records, and
other documents received by it from the Trustee, and shall not
incur any liability whatsoever for such reliance. The Trustee is
authorized, however, to reserve such sum of money or property as it
may deem advisable for payment of all its fees, compensation,
costs, and expenses, or for payment of any other liabilities
constituting a charge on or against the assets of the Trust or on
or against the Trustee, with any balance of such reserve remaining
after the payment of all such items to be paid over to the
successor Trustee. Upon the assignment, transfer, and payment over
of the assets of the Trust, and obtaining a receipt thereof from
the successor Trustee, the Trustee shall be released and discharged
for any and all claims, demands, duties, and obligations arising
out of the Trust and its management thereof, excepting only claims
based upon the Trustee's willful misconduct or lack of good faith.
The successor Trustee shall hold the assets paid over to it under
terms similar to those of this Agreement that it qualify under
section 401 of the Code. If within thirty (30) days after the
Trustee's resignation or removal, the Employer has not appointed a
successor Trustee which has accepted such appointment, the Trustee
shall, unless it elects to terminate the Trust pursuant to Article
7, appoint such successor itself.
ARTICLE 12
TERMINATION OF THE TRUST
12.1 TERM OF THE TRUST. This Trust shall continue as to the
Employer so long as the Plan is in full force and effect. If the
Plan ceases to be in full force and effect, this Trust shall
thereupon terminate unless expressly extended by the Employer.
12.2 TERMINATION BY THE TRUSTEE. The Trustee may elect to
terminate the Trust if within thirty (30) days after its
resignation or removal pursuant to Article 11 the Employer has not
appointed a successor Trustee which has accepted such appointment.
Termination of the Trust shall be effected by distributing all
assets thereof to the Participants or other persons entitled
thereto pursuant to the direction of the Plan Administrator (or in
the absence of such direction, as determined by the Trustee) as
provided in Section 14.2 of the Plan, subject to the Trustee's
right to reserve its funds as provided in Article 11 hereof. Upon
the completion of such distribution, the Trustee shall be relieved
from all further liability with respect to all amounts so paid,
othr than any liability arising out of the Trustee's willful
misconduct or lack of good faith.
ARTICLE 13
MISCELLANEOUS
13.1 NO DIVERSION OF ASSETS. At no time shall it be possible for
any part of the assets of the Trust to be used for or diverted to
purposes other than for the exclusive benefit of Participants and
their beneficiaries or revert to the Employer, except as
specifically provided in the Plan or this Agreement.
13.2 NOTICES. Any notice from the Trustee to the Employer or from
the Employer to the Trustee provided for in the Plan and Trust
shall be effective if sent by first class mail at their respective
last address of record.
13.3 MULTIPLE TRUSTEES. In the event that there shall be two (2)
or more Trustees serving hereunder, any action taken or decision
made by any such Trustee may be taken or made by a majority of them
with the same effect as if all had jointed therein, if there be
more than two (2), or unanimously if there be two (2).
13.4 CONFLICT WITH PLAN. In the event of any conflict between the
provisions of the Plan and those of this Agreement, the former
shall prevail.
13.5 APPLICABLE LAW. Except to the extent otherwise required by
ERISA, as amended, this Agreement shall be construed in accordance
with the laws of the state where the Trustee has its principal
place of business, as specified in the Adoption Agreement.
<PAGE>
STEIN ROE & FARNHAM DEFINED CONTRIBUTION PLANS
FEES
==================================================================
New Plan Set-up $50 per plan /1/
- - Adoption of prototype plan
- - IRS determination letter
- - Fund prospectuses
- - Set-up of participant fund accounts.
Annual Account Maintenance $10 per fund account /2/
Return of Excess Contributions $5 per transaction /3/
Transfers to investments outside $5 per transaction /3/
the Stein Roe Family of Funds
Distributions $5 per transaction /4/
- - Federal Withholding
- - IRS reporting
- ---------
/1/ Please submit a check payable to SteinRoe Services Inc. along with
your adoption agreement.
/2/ Automatically assessed by a redemption of fund shares unless pre-
paid annually.
/3/ Automatically assessed by a redemption of fund shares.
/4/ Automatically assessed by a redemption of fund shares at time of
distribution. This fee is assessed for lump sum and partial
distributions, and for setting up and changing frequency, amount or
number of installment payouts.
<PAGE>
STEIN ROE & FARNHAM DEFINED CONTRIBUTION PLAN
CHECKLIST FOR ESTABLISHING YOUR PLAN
==============================================================
For each plan you adopt, please follow the steps listed below. If you
have any questions or need additional information, please call a
shareholder representative toll free at 1-800-338-2550.
1. Review the Plan documents with your tax and legal advisers.
2. Complete the ADOPTION AGREEMENT. Please refer to the
INSTRUCTIONS FOR COMPLETING YOUR ADOPTION AGREEMENT for
detailed instructions. (MODEL RESOLUTIONS adopting the Plan
are enclosed for use by corporate employers.) If you are
amending an existing plan, also complete the enclosed ASSET
TRANSFER FORM.
3. If contributions are being made for employees or partners,
furnish each of them a PARTICIPANT INVESTMENT ELECTION FORM and
copies of the prospectuses of the SteinRoe Mutual Funds
available for investment so that they may make their investment
elections.
4. Complete the INVESTMENT ALLOCATION FORM.
5. Mail the following to the SteinRoe Mutual Funds, P.O. Box 1131,
Chicago, Illinois 60690, Attention: SteinRoe Services:
- ADOPTION AGREEMENT (Also furnish your trustee and plan
administrator with copies and retain a copy for your files.)
- INVESTMENT ALLOCATION FORM
- ADOPTING RESOLUTIONS (corporate employers only)
- ASSET TRANSFER FORM (amended plans only)
- A check for the amount of your initial contribution ($500
investment minimum) and the Plan installation fee ($50 per
Plan) made payable to SteinRoe Services Inc. (If you do not
include the installation fee, your contribution will be
reduced by that amount.) If you elect Participant Account
Recordkeeping on the INVESTMENT ALLOCATION FORM, you may
also include an additional amount for the annual maintenance
fee ($10 per Fund account) provided you also write the words
"Annual fee" and the amount of the fee total on your check.
7. After we receive your forms and check in good order, we will
send you confirmation of your investment which also will serve
as acknowledgement that your plan has been accepted.
10611 0292
<PAGE>
STEIN ROE & FARNHAM DEFINED CONTRIBUTION PLAN
INSTRUCTIONS FOR COMPLETING YOUR ADOPTION AGREEMENT
================================================================
To establish your SteinRoe Plan, complete the appropriate Adoption
Agreement(s) by following these instructions. If you have any
questions about the SteinRoe Plan or the Adoption Agreement(s),
please call a SteinRoe shareholder representative toll free at 1-800-
338-2550.
Are the Plans Appropriate For You?
You may adopt one or both of the SteinRoe Plans - a Profit Sharing
Plan (with discretionary contributions made out of profits) and a
Money Purchase Pension Plan (with contributions based on a formula,
made regardless of profits). These plans are called "paired plans"
because, so long as they are adopted individually or in combination
with one another, each is designed to meet certain coverage and
benefit requirements of the Internal Revenue Code.
If you are a "qualifying" employer, you may adopt either SteinRoe
Plan and rely on the IRS opinion letter received by Stein Roe &
Farnham Incorporated concerning its tax qualification. A
"qualifying" employer is an employer who does not presently maintain
(and has never maintained) another tax-qualified plan covering some
of the same participants other than a paired standardized plan
offered by Stein Roe & Farnham Incorporated. The SteinRoe Plan IRS
opinion letter serial numbers are D248808a for the Profit-Sharing
Plan (Plan #001) and D248809a for the Money Purchase Pension Plan
(Plan #002).]
If you maintain another tax-qualified plan in addition to your
SteinRoe Plan, you are a non-qualifying employer and must apply for
your own determination letter from the IRS Key District Director
assigned to the District in which you have your principal place of
business. Application must be made on IRS Forms 5302 and 5307 and
advance notice of the application must be given to all employees and
certain other persons in accordance with special IRS rules and
procedures. If you are a non-qualifying employer, we suggest you
discuss this application procedure with your legal adviser.
Because they are paired standardized plans, the SteinRoe Plans do not
permit a number of alternatives and include certain limitations which
make them inappropriate or unavailable for some employers. For
example, all employees of an employer adopting a SteinRoe Plan and
the employees of any affiliated employers who meet the eligibility
requirements (except for those who are members of a collective
bargaining unit under certain conditions and certain non-resident
aliens) must be covered by the SteinRoe Plan. This can be a drawback
for some employers because contributions on behalf of employees of
affiliated employers are not deductible unless the affiliated
employers also adopt the SteinRoe Plan. In addition, employers who
adopt a SteinRoe Plan are subject to the rules applicable to top-
heavy plans regardless of whether their individual plans are, in
fact, top-heavy. Therefore, you should discuss with your legal
adviser whether adoption of the SteinRoe Plans is appropriate for
your circumstances.
Which Plan Should You Adopt?
Under the Money Purchase Pension Plan, an employer contributes a
specified percentage of each participant's compensation each year
regardless of profits. The maximum deductible contribution amount is
25% of compensation up to $30,000 for each participant. Under the
Profit-Sharing Plan, an employer makes discretionary contributions
out of profits each year of up to the lesser of 15% of compensation
or $30,000. If you adopt both Plans, your combined contributions may
not exceed 25% of compensation up to $30,000. For purposes of these
calculations, compensation in excess of $209,200 (for 1990) is not
included.
In the case of a plan participant who is self-employed, the
contribution percentage limits described above are applied to the
participant's net earnings reduced by his share of the deductible
employer contribution. This effectively reduces the Money Purchase
Pension Plan and Profit-Sharing Plan contribution percentage limits
applicable to net earnings unreduced by the deductible contribution
to 20% and 13.044%, respectively.
By adopting both Plans, you gain the flexibility of contributing the
maximum amount in years during which you have sufficient profits
while retaining the possibility of contributing a lesser amount in
less profitable years. For example, an employer who wishes to
contribute the maximum amount in profitable years, but a lesser
amount in less profitable years, might elect to contribute 10% each
year under the Money Purchase Pension Plan and a discretionary amount
of up to 15% under the Profit-Sharing Plan in those years when the
employer has sufficient profits.
* * * *
Employer Data (Section II)
Your plan will be effective as of the first day of the first Plan
Year for which you adopt the Plan. The Plan Year may be the taxable
year for your business or any other consecutive twelve-month period
you wish to designate. If affiliated employers are adopting the
Plan, insert "See Exhibit" in Sections A and F and attach a page
indicating the name and type of entity for the employer and each
affiliated employer. If you are amending an existing plan, you also
must complete the enclosed Stein Roe & Farnham Defined Contribution Plan
Asset Transfer Form.
Eligibility (Section III)
Employees who meet the eligibility requirements on the Effective Date
will become Participants immediately. All other employees who become
Participants on the earlier of the first day of the Plan Year or the
first day of the seventh month of the Plan Year on or after they meet
the eligibility requirements which you select in this section.
Credited Service (Section IV)
A. For purposes of calculating eligibility and vesting service, a
minimum of 1,000 Hours of Service per Plan Year is required unless
you elect a lesser amount.
B. To determine Hours of Service, you must keep records of actual
hours worked unless you elect one of the Service Equivalency methods
numbered 2 through 5.
Compensation (Section V)
Compensation means W-2 earnings (or, in the case of a self-employed
person, Earned Income) up to $209,200 for 1990 (as adjusted from time
to time under the Code) actually paid during the Plan Year unless you
elect to include Employer Contributions made pursuant to a salary
reduction agreement.
Contributions (Section VI - Money Purchase Pension Plan)
Allocation of Employer Contributions (Section VII - Profit-Sharing
Plan)
A. The law requires an employer to contribute a minimum amount each
year for each Participant who is not a Key Employee as more fully
explained in this section and Section 5.2 of the Plan. Social
security contributions may not be considered in calculating this
minimum allocation.
B. This section permits you to integrate Employer Contributions with
social security contributions. If a plan is integrated, higher-paid
Participants earning compensation over the compensation level you
select will receive a proportionately larger share of Employer Contributions
than Participants earning compensation under the compensation level you
select because social security contributions by an employer are
considered in the calculation process. For a more complete explanation
of the integrated plan contribution method, please see Section 2.19,
2.22, 2.23, 2.35, 5.3, and 5.4 of the Plan.
Contribution Eligibility (Section VI.D - Money Purchase Pension Plan;
Section VII.C - Profit-Sharing Plan)
A Participant is entitled to share in Employer Contributions for the
Plan Year in which he retires, dies, or becomes totally and permanently
disabled. However, if he terminates employment for any other reason,
this section permits you to elect not to make an Employer Contribution
on his behalf if he is not employed on the last day of the Plan Year and
he worked 500 Hours of Service or less during the Plan Year. The Hours
of Service required for an Employer Contribution must exceed 500 hours
unless you specify a lesser number in the blank.
Allocation Limitations (Section X - Money Purchase Pension Plan; Section
XI - Profit-Sharing Plan)
Complete this section only if you maintain tax-qualified plans in
addition to the SteinRoe Plans.
This section describes how contributions or benefits are eliminated or
reduced in any year in which the aggregate contributions or benefits for
any Participant total more than the permitted limit for a Participant
covered by plans in addition to one or both of the SteinRoe Plans.
Since these provisions are highly technical and must be coordinated with
similar provisions in your other plans (to assure that the entire excess
amount of contributions and benefits, if any, is eliminated), we suggest
you discuss this matter with your legal adviser. You also should
consider whether you should include special or additional provisions to
satisfy the legal requirements for multiple plans.
Administration (Section XI - Money Purchase Pension Plan; Section XII -
Profit-Sharing Plan)
A. This section requires you to designate plan administrator. The plan
administrator is responsible for interpreting the provisions of your
plan and deciding all questions relating to your plan. Neither SteinRoe
Services Inc., Stein Roe & Farnham Incorporated, nor the SteinRoe Mutual
Funds may be designated as plan administrator. If you fail to designate
a plan administrator, the plan administrator will be the employer.
B. "Named Fiduciaries" are persons, in addition to the plan
administrator, who are responsible for controlling and managing the
operation and administration of your plan. Neither SteinRoe Services
Inc., Stein Roe & Farnham Incorporated, nor the SteinRoe Mutual Funds
may be designated as named Fiduciaries.
Trustee (Section XII - Money Purchase Pension Plan; Section XIII -
Profit-Sharing Plan)
The SteinRoe Plans permit you to select your own trustee or co-trustees
whose duties are outlined in the Trust Agreement accompanying the Plans.
You may select one or more individuals, or a corporation, partnership or
other organization which is authorized to exercise trust powers.
However, neither SteinRoe Services Inc., Stein Roe & Farnham
Incorporated, nor the SteinRoe Mutual Funds may act as trustee of your
plan. Also, generally an employer that is a corporation or partnership
may not act as trustee. However, officers of a corporation or members
of its board of directors and members of a partnership may do so. The
trustee(s) you select must sign the Adoption Agreement in this section.
Employer Signature (Section XIII - Money Purchase Pension Plan; Section
XIV - Profit-Sharing Plan)
Both the employer and each affiliated employer should date and sign the
Adoption Agreement in this section. If an affiliated employer does not
adopt the Plan, contributions still must be made on behalf of its
employees but they will not be deductible.
Bonding Requirements
Under ERISA, each fiduciary (other than certain exempt corporate
fiduciaries) of a tax-qualified retirement plan (and every other person
who handles the plan assets) must be bonded by a corporate surety
company authorized to issue federal surety bonds by the Secretary of the
Treasury. A surety bond protects the plan against loss through fraud or
dishonesty on the part of the fiduciary. Generally, the amount of the
bond must be the greater of $1,000 or 10% of a plan's assets.
The plan administrator and trustee of your plan are fiduciaries. In
addition, depending on your individual facts and circumstances, you may
have other fiduciaries. We suggest you check with your legal adviser as
to the fiduciaries who should be bonded under your plan and the
appropriate form and amount of bond you should obtain.
10618 1190
<PAGE>
STEIN ROE & FARNHAM DEFINED CONTRIBUTION PLAN
MODEL RESOLUTIONS
(For Corporations Only)
===================================================================
INSTRUCTIONS: Your board of directors must adopt resolutions
authorizing the adoption of your Plan on or before the end of your
corporation's taxable year. These model resolutions may be used if your
bylaws permit resolutions to be adopted without a meeting. Resolution 1
should only be used if you are amending an existing plan to become the
Plan. Resolution 3 should only be used if you wish to specify a
Limitation Year under Plan Sections 6.4 and 6.5(i) other than your Plan
Year. The resolution(s) should be signed by each director and returned
with your Adoption Agreement. You should also retain a copy of your
resolution(s) and Adoption Agreement with your corporate records.
* * * *
We, the undersigned, being all of the directors of ______________
_______________________________________________________________,
in lieu of holding a meeting on the date hereof, hereby consent to the
adoption of, and adopt, the following resolutions:
[ ] 1. RESOLVED, that the ______________________ is hereby amended
(Name of present plan)
by the action taken pursuant to the following resolution(s):
2. RESOLVED, that the Stein Roe & Farnham Paired Prototype Defined
Contribution Plan and its related Trust Agreement be and hereby are
adopted in the form and with those elections as indicated in the
attached Adoption Agreement and that the officers of this corporation be
and hereby are authorized and directed to execute the Adoption Agreement
and to do such other acts and execute such other documents as may be
necessary or desirable to establish and implement the Plan and Trust.
[ ] 3. RESOLVED, that the "Limitation Year" of this corporation and all
commonly controlled corporations, trades, or businesses adopting the
Plan and Trust for purposes of Internal Revenue Code section 415 shall
be the consecutive 12-month period beginning ______________ and ending
______________.
(Month and day) (Month and day)
Date: ________________ Directors:
______________________________________
(signature)
(SEAL)
______________________________________
(signature)
______________________________________
(signature)
______________________________________
(signature)
10621 1190
<PAGE>
PARTICIPANT ALLOCATION FORM
STEIN ROE & FARNHAM DEFINED CONTRIBUTION PLANS
=================================================================
Complete the participant investment information listed below and return
this form along with your check made payable to SteinRoe Services Inc.
to: Stein Roe Mutual Funds, P.O. Box 804058, Chicago, Illinois 60680,
Attention: Stein Roe Retirement Plan Department. If you have any
questions, please call us at 1-800-405-5070.
A list of the Stein Roe Funds available for investment can be found in
this kit. If this is your initial investment, you must return this form
with your Adoption Agreement. Payment of the plan set-up fee ($50 per
plan) must be made at the time of your initial investment.
If establishing both a Money Purchase Pension and Profit Sharing Plan,
use separate Participant Investment Forms for each.
- -----------------------------------------------------------------
SECTION I - GENERAL INFORMATION
Employer Name: ____________________________ EIN: __________________
Note: Your Trustee should apply to the IRS on IRS Form SS-4 for a
separate Tax I.D. number for your trust.
Employer Address: ________________________________________________
________________________________________________
City State Zip
Telephone: ______________________
Type of Plan (Check one):
[ ] Money Purchase Pension [ ] Profit-Sharing
SECTION II - PARTICIPANT INVESTMENT AND FUND ALLOCATION
1. Participant Name _______________
Fund* $ Amt.
Social Security No. ____________ Name By Fund
--------------------------
Address: _______________________
________________________________
City State Zip
Participant is (Check one): [ ] Employee [ ] Owner
*If no Fund is specified, contributions will be invested in Stein Roe
Government Reserves, a money market fund.
- -------------------------------------------------------------------
2. Participant Name _______________
Fund* $ Amt.
Social Security No. ____________ Name By Fund
--------------------------
Address: _______________________
________________________________
City State Zip
Participant is (Check one): [ ] Employee [ ] Owner
*If no Fund is specified, contributions will be invested in Stein Roe
Government Reserves, a money market fund.
- -------------------------------------------------------------------
3. Participant Name _______________
Fund* $ Amt.
Social Security No. ____________ Name By Fund
--------------------------
Address: _______________________
________________________________
City State Zip
Participant is (Check one): [ ] Employee [ ] Owner
*If no Fund is specified, contributions will be invested in Stein Roe
Government Reserves, a money market fund.
- -------------------------------------------------------------------
4. Participant Name _______________
Fund* $ Amt.
Social Security No. ____________ Name By Fund
--------------------------
Address: _______________________
________________________________
City State Zip
Participant is (Check one): [ ] Employee [ ] Owner
*If no Fund is specified, contributions will be invested in Stein Roe
Government Reserves, a money market fund.
- -------------------------------------------------------------------
5. Participant Name _______________
Fund* $ Amt.
Social Security No. ____________ Name By Fund
--------------------------
Address: _______________________
________________________________
City State Zip
Participant is (Check one): [ ] Employee [ ] Owner
*If no Fund is specified, contributions will be invested in Stein Roe
Government Reserves, a money market fund.
- -------------------------------------------------------------------
6. Participant Name _______________
Fund* $ Amt.
Social Security No. ____________ Name By Fund
--------------------------
Address: _______________________
________________________________
City State Zip
Participant is (Check one): [ ] Employee [ ] Owner
*If no Fund is specified, contributions will be invested in Stein Roe
Government Reserves, a money market fund.
- -------------------------------------------------------------------
7. Participant Name _______________
Fund* $ Amt.
Social Security No. ____________ Name By Fund
--------------------------
Address: _______________________
________________________________
City State Zip
Participant is (Check one): [ ] Employee [ ] Owner
*If no Fund is specified, contributions will be invested in Stein Roe
Government Reserves, a money market fund.
- -------------------------------------------------------------------
I, the Plan Administrator, certify that the investment instructions
indicated on this form represent each participant's election(s) as
relayed to me by each participant for the listed contribution.
X____________________________________ __________________________
Signature Date
<PAGE>
ASSET TRANSFER FORM
STEIN ROE & FARNHAM DEFINED CONTRIBUTION PLANS
==================================================================
Instructions: To transfer assets held under another tax-qualified plan
to your Stein Roe & Farnham Defined Contribution Plan, complete and
return this form to Stein Roe Mutual Funds, P.O. Box 804058, Chicago,
Illinois 60680-4058, Attention: SteinRoe Services Inc. If you need to
establish your Stein Roe Plan, also complete and attach the appropriate
Adoption Agreement. If you already have established your Stein Roe
Plan, you must attach a copy of your Adoption Agreement, and notify the
IRS that you are merging your plans by filing Form 5310 with the IRS 30
days in advance of your merger. If you have questions about Form 5310,
please contact your legal adviser. If you have questions about this
form or the Stein Roe Plan, please call a Retirement Plan Representative
toll-free at 1-800-405-5070.
I. STEIN ROE PLAN (If this is a new plan, enter "New" in place of the
name and attach your Adoption Agreement.)
Name of Plan ____________________________________________
Type of Plan (Check one):
[ ] Profit Sharing [ ] Money Purchase Pension
Employer's Name __________________________ Phone _____________
Trustee's Name ___________________________ Phone _____________
Trustee's Address _____________________________________________
II. PRIOR PLAN
Name of Plan ____________________________________________
Trustee's Name ___________________________ Phone _____________
Trustee's Address _____________________________________________
Did the IRS issue a favorable opinion/determination letter on your Prior
Plan?
[ ] Yes [ ] No
III. ASSET TRANSFER (Check and complete one.)
[ ] A. Asset Transfer by Plan Amendment. Effective ________, 19__,
the Employer amended and restated the Prior Plan to be the
Stein Roe Plan as set forth in the attached Adoption
Agreement.
[ ] B. Asset Transfer by Plan Merger. Effective ___________, 19__,
the Employer adopted the Stein Roe Plan attached hereto. By
executing this form and by all other necessary and proper
acts as may be required of the Employer, the Employer hereby
merges the Prior Plan into the Stein Roe Plan.
Employer and Trustee of the Stein Roe Plan hereby authorize and direct
SteinRoe Services Inc. to forward a signed copy of this form to the
Trustee of the Prior Plan or, if none, the holder of annuity contracts
or other contracts issued by an insurance company (the "contract
holder") which shall serve as their direction to liquidate all Prior
Plan holdings and forward a check for the proceeds made payable and
addressed to SteinRoe Services Inc. for investment in the Stein Roe
Mutual Funds specified on the reverse side of this form. The
trustee/contract holder of the Prior Plan is hereby authorized and
directed to do that which is necessary under the Prior Plan and
applicable law to effectuate a direct transfer of funds from the Prior
Plan to the Stein Roe Plan without said funds being made available to
any participant or beneficiary or to the Employer. Employer hereby
warrants that the amendment merger of the Prior Plan is permitted under
applicable law, that all assets transferred qualify for transfer under
both the Stein Roe Plan and the Prior Plan, and that all acts required
thereunder have been or will be timely performed, including the filing
of Form 5310 with the IRS, if required.
IV. ASSET TRANSFER INFORMATION (Complete for each participant for whom
assets are being transferred. Use additional sheets if necessary. If
asset type is not specified, assets will be treated as deductible
Employer Contributions for all purposes. Rollovers must qualify under
Article 4 of the Stein Roe Plan.)
PARTICIPANTS'
NAMES (1) ______________ (2) ____________ (3) _____________
A. Employer
Contributions
(a) Current
year $______________ $____________ $_____________
(b) Prior
years $______________ $____________ $_____________
Sole proprietorship/Partnership Plans only: Amounts attributable to Pre-
1984 Owner-Employee Contributions
($______________) ($____________) ($____________)
(c) Sub-Total $______________ $____________ $_____________
B. Non-deductible
Voluntary
Contributions $______________ $____________ $_____________
C. Rollover
Contributions $______________ $____________ $_____________
D. Total $______________ $____________ $_____________
V. INVESTMENTS (If no Fund is specified, assets will be invested in
Stein Roe Government Reserves Fund, a money market fund. If a new
account is being opened, enter "New" under "Account No." Identify
contribution type with appropriate symbol after "Contribution Amount":
Employer (E); Voluntary (V); Rollover (R); or other Transfer (T).)
Fund Name Code
Stein Roe Balanced Fund (31)
Stein Roe Growth Stock Fund (32)
Stein Roe Capital Opportunities Fund (33)
Stein Roe International Fund (12)
Stein Roe Income Fund (09)
Stein Roe Government Income Fund (10)
Stein Roe Intermediate Bond Fund (35)
Stein Roe Cash Reserves Fund (36)
Stein Roe Special Fund (34)
Stein Roe Government Reserves Fund (39)
Stein Roe Growth & Income Fund (11)
Contri-
Fund Account bution
Participant's Name Social Security No. Code Number Amount
- -------------------------------------------------------------------
1. _______________ ___________________ ____ _________ $_______
2. _______________ ___________________ ____ _________ $_______
3. _______________ ___________________ ____ _________ $_______
TOTAL $
=======
VI. SIGNATURES (Participants' signatures are required if proceeds
transferred include their voluntary contributions.)
A. Plan Administrator: ______________________________ _________
(Signature) (Date)
B. Plan Trustee: ____________________________________ _________
(Signature) (Date)
C. Employer: ________________________________________ _________
(Signature & Title) (Date)
D. Participants: 1. _________________________________ ________
(Date)
2. _________________________________ ________
(Date)
3. _________________________________ ________
(Date)
VII. SIGNATURE GUARANTEE
________________________________________________
(Name of Institution)
________________________________________________
(Signature & Title)
<PAGE>
STEIN ROE & FARNHAM DEFINED CONTRIBUTION PLAN
BENEFICIARY DESIGNATION FORM
(Please Print of Type)
===================================================================
INSTRUCTIONS: To designate a Beneficiary to receive your death benefits
under the Plan, complete and file this form with your Plan
Administrator. Before competing the form, please read Sections 11.5
through 11.8 of the Plan and the reverse side. If you have any
questions, please call a shareholder representative toll free at (800)
338-2550.
I. GENERAL.
Name of Plan: ____________________________________________
Employer's Name ____________________ Phone: (___) ________
Address : ________________________________________________
(Street)
__________________________________________________________
(City) (State) (Zip)
Participant's Name: ________________ Phone: (___) ________
(During Business Hours)
Address : ________________________________________________
(Street)
__________________________________________________________
(City) (State) (Zip)
Social Security No.: _____________________________________
Date of Birth: _________ Sex: ____ Marital Status: ______
If married, Spouse's Name: _______________________________
Date of Birth: _______________ Social Security No.: ______
II. BENEFICIARY DESIGNATION.
Subject to certain rights your surviving spouse (if any) has to your
death benefits (explained in General Provision 9 on the reverse side),
your death benefits will be paid to your estate unless you dsignate a
Beneficiary on this form. If you are receiving benefits in the form of
installments at the time of your death, your death benefits will
continue to be paid to your Beneficiary(ies) under the same method.
Notwithstanding any Beneficiary designation you make on this form, if
you are receiving installments at the time of your death payable over a
period based on a joint and last survivor life expectancy of you and a
Beneficiary you designated at the time you elected installment payments,
your death benefits will be paid to that Beneficiary if he or she
survives you. If you are receiving benefits in the form of an annuity
at the time of your death, the terms of your annuity contract shall
govern the payment of your death benefits. If you are not receiving
benefits at the time of your death, your death benefits will be
distributed as your Beneficiary(ies) direct in accordance with Plan
Section 11.5(c). Payment of your death benefits will commence as soon
as practicable after your death unless your Beneficiary(ies) elect to
delay distribution as permitted under Plan Section 11.5(c).
I hereby revoke all prior designations of Beneficiaries and designate
the following Beneficiary(ies) to receive my death benefits:
NAME & DISTRIBUTION SOCIAL SECURITY BIRTH
RELATIONSHIP ADDRESS PERCENT OR TAX ID NO. DATE
- ------------ ------- ------------ --------------- -----
A. Primary Beneficiary(ies).
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
B. Contingent Beneficiary(ies).
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
C. Minor Beneficiary. (If Beneficiary is a minor, please specify
custodian to whom death benefits should be paid.) If
_____________ is a minor at the time of my death, I hereby desig-
(Beneficiary)
nate __________ as custodian under _______________________________
(Custodian) State where minor/custodian resides) the
Uniform Gifts (Transfers) to Minors Act to receive said beneficiary's
interest.
III. SIGNATURES.
A. Participant: If I am married, by signing below, I
acknowledge that I understand General Provision 9 on the
reverse side. General provision 9 explains that my spouse has
the right to a certain portion of my death benefits payable
in the form of a Qualified Survivor Annuity. I also
understand that if I am at least age 35 (or if applicable
regulations otherwise permit) I may waive the Qualified
Survivor Annuity by checking the following box provided my
spouse consents thereto by signing below and having his or her
signature notarized. [ ]
SIGNATURE: ________________________________ DATE: ____________
B. Participant's Spouse. (Only required if you are married
and waiving the Qualified Survivor Annuity.)
I hereby consent to the elections made by my spouse on this
form, including waiver of the distribution of his or her death
benefits in the form of a Qualified Survivor Annuity, which
form of distribution gives me the right to a certain portion
of his or her death benefits under the Plan payable to me in
the form of a nontransferable life annuity. I understand that
by signing below I am giving up this right which may result in
my not receiving any of his or her death benefits under the
Plan. I also understand that I am not required to sign below
and that my consent is irrevocable. Unless the following box
is checked, I further consent to any future changes my spouse
makes to his or her elections on this form, including a change
in a designated Beneficiary and understand that by so doing I
am giving up my right to limit my consent to the specific
elections made on this form. [ ]
SIGNATURE: ________________________________ DATE: ____________
Subscribed and sworn to before me this _____ day of _____________, 19__
_________________________________
(Notary Public)
(SEAL) My Commission Expires: __________
PSIMPP (1190)
<PAGE>
GENERAL PROVISIONS
==================
1. In order for death benefit designations you make on the front of
this form to be effective, this form must be filed with your Plan
Administrator prior to your death.
2. Notwithstanding any other provision of the Plan or this form to the
contrary, if your surviving spouse is your Beneficiary and he or she
elects to receive your death benefits in the form of installment
payments as provided in Plan Section 11.9(a)(iv) and then dies before
payments commence, your death benefits will be distributed in accordance
with Plan Section 11.9 as if your spouse were a Participant.
3. Trust Beneficiary(ies).
(a) If you name a trust as Beneficiary, the trustee of that
trust must be qualified to act at the time each payment to the
trust becomes due (subject to the terms of (b) and (c) below).
(b) If no qualified trustee claims the portion of your death
benefit payable to the trust within 18 months after your death,
or if, within that period, it is established to the
satisfaction of your Plan Trustee that no trustee can or will
qualify to receive such amounts, such amounts shall be paid as
provided for in General Provision 4 below.
(c) If any payment would otherwise be made to the trustee(s) of
a trust which has terminated, such payment and any and all
later payments shall be made to the beneficiaries who received
the principal of such trust upon its termination and in the
same proportions as through such trust had terminated on the
date of each such payment.
4. Except to the extent otherwise expressly provided on the front of
this form, and subject to General Provision 3(c) above, your death
benefits:
(a) shall be paid in equal shares to your surviving Primary
Beneficiaries who are living at the time each such payment
becomes due.
(b) if there is no surviving Primary Beneficiary at the time a
payment becomes due, the payment shall be paid in equal shares
to the Surviving Contingent Beneficiaries at the time each such
payment becomes due; and
(c) if there is no Surviving Beneficiary to receive any amount
which becomes payable, such amount shall be paid to the
executor or administrator of your estate.
5. Neither the Plan nor the persons administering the Plan shall be
responsible for any failure of a trustee, executor or administrator to
perform the duties of trustee, executor or administrator, nor for the
application or disposition of any money paid to a trustee, executor or
administrator or trust beneficiary, and any money so paid shall fully
discharge the Plan and such persons for the amounts so paid.
6. The Plan and the persons administering the Plan shall be fully
discharged from all liability to any and all persons claiming under the
Plan in relying on evidence provided by affidavit or otherwise as shall
be satisfactory to persons administering the Plan in deterimining the
existence of any trust, the identity and qualifications of any
trustee(s), or any other questions of fact relative to payments due
under this Plan, and in making payment either to the trustee(s), any
beneficiary of a trust, or the executors or administrators of your
estate, as the case may be.
7. If any person to whom all or a portion of your death benefits is
payable is a minor and if either (i) you have not designated a person to
receive the minor's interest on behalf of such minor as Custodian under
the Illinois Uniform Transfers Act or similar statute, or (ii) the
person you designated refuses or is unable to act, your Plan Trustee may
in its sole discretion:
(a) distribute the interest to the legal guardian of such
minor; or
(b) designate an adult member of the minor's family, guardian
or a trust company (including your Plan Trustee), as those
terms are defined in the Illinois Transfers Act, or similar
statute, and distribute such minor's interest to the person so
designated.
8. The terms, provisions and limitations of the Plan and related Trust
Agreement and any amendments thereto are controlling over these General
Provisions and shall always govern all rights of you and your
Beneficiary(ies) and all persons claiming under, by or through them, or
any of them.
9. Explanation of Qualified Survivor Annuity.
If you die while you are married and before payment of your benefits has
commenced, the law requires 50% of your death benefits to be paid to
your surviving spouse in the form of a nontransferable life annuity
("Qualified Survivor Annuity") unless you waive this requirement.
However, if you waive this requirement, your spouse may not receive any
of your death benefits.
The amount of the annuity payments to your surviving spouse will
depend on the amount used to purchase the annuity and the annuity
purchase rate charged by the insurance company issuing the annuity. The
annuity will be purchased by your Plan Trustee from an insurance company
which it selects.
You may waive the Qualified Survivor Annuity at any time beginning
after the first day of the Plan Year during which you reach age 35 by
checking the box in Part III.A of this form provided your spouse
consents to your waiver by also signing in Part III.B and has his or her
signature notarized.
If you waive the Qualified Survivor Annuity, you may revoke your
waiver at any time before the earlier of your death or the date your
benefits commence. If you waive the Qualified Survivor Annuity and your
spouse consents thereto and you subsequently marry a different person,
your waiver will become void unless your new spouse consents thereto in
the same manner.
10. If any installment payment is less than a minimum amount that may
be established from time to time by Stein Roe & Farnham Incorporated or
the persons administering the Plan, then, at the option of any of them,
such installments may be paid less frequently. If the balance in the
account is less than $3,500 on the date installments are to commence,
the total balance shall be paid in a lump sum distribution in kind to
the person then entitled to receive such payments, the contingent
interest of any other person notwithstanding.
11. Notwithstanding any benefit distribution provision of the Plan or
any benefit distribution election by a Participant, all benefit
distributions are subject to the qualified domestic relations order
provisions of section 414(p) of the Internal Revenue Code.
<PAGE>
STEIN ROE & FARNHAM PROFIT SHARING
ADOPTION AGREEMENT #001
This is the Adoption Agreement for the Stein Roe & Farnham
Profit Sharing Plan (Prototype Paired Defined Contribution Plan
#001). The Plan is a prototype profit sharing plan designed to
be adopted either singly or in combination with the Stein Roe &
Farnham Money Purchase Pension Plan (Prototype Paired Defined
Contribution Plan #002). Please refer to the Checklist for
Establishing Your Plan and the Instructions for Completing Your
Adoption Agreement. You may also wish to consult with your tax
and legal advisors before executing your Adoption Agreement.
Failure to properly complete your Adoption Agreement may result
in disqualification of your Plan.
- -----------------------------------------------------------
The Employer hereby establishes a profit sharing plan and a
trust upon the respective terms and conditions contained in the
Prototype Paired Defined Contribution Plan (the "Plan") and the
Trust Agreement annexed hereto and appoints as Trustee of such
Trust the person(s) who have executed this Adoption Agreement
evidencing their acceptance of such appointment. The Plan and
the Trust Agreement shall be supplemented and modified by the
terms and conditions contained in this Adoption Agreement and
shall be effective on the Effective Date. The Sponsor will
inform the Employer of any amendments made to the Plan or the
discontinuance or abandonment of the Plan.
- -----------------------------------------------------------
I. SPONSOR DATA
A. Sponsor: Stein Roe & Farnham Incorporated.
B. Address: P.O. Box 804058, Chicago, Illinois 60680-4058,
Attention: Retirement Plan Department
C. Telephone: (800) 338-2550.
D. Sponsor of the Plan shall be Stein Roe & Farnham
Incorporated, or such other person qualified to act as
Sponsor as from time to time shall be designated by Stein
Roe & Farnham Incorporated on 30 days' written notice to the
Employer. If the Sponsor shall determine that it is no
longer desirable for it to act as Sponsor of this prototype
plan, it may resign as Sponsor and relieve itself of any
further responsibilities by giving the Employer 30 days'
prior written notice by certified or registered mail, return
receipt requested, postage prepaid. Employer agrees to
indemnify and hold harmless the Sponsor and each of its
officers, agents and employees against all claims,
liabilities, fines and penalties and expenses reasonably
incurred by or imposed upon it (including but not limited to
reasonable attorneys' fees) which arise as a result of
Employer's or Trustee's actions or failure to act in
connection with the operation and administration of the
Plan.
- -----------------------------------------------------------
II. EMPLOYER DATA
A. _________________________________________________________
Name of Employer and Employer Identification Number (EIN)
B. _________________________________________________________
Street Address
_________________________________________________________
City State Zip Code
C. _________________ D._________________________ E.__________
Telephone Number Employer's Taxable Year End Plan Year End
F. The Employer is:
[ ] a corporate entity
[ ] a non-corporate entity (e.g., self-employed person)
[ ] a corporation electing to be taxed under Subchapter S
G. _________________________
Effective Date (should be first day of the Plan Year)
H. If this is an amendment of an existing plan, complete the
following:
________________________________________________________
Name of Prior Plan
_____________________________________ _______________
Effective Date of Amendment Effective Date
(Should be the first day of the Plan of Prior Plan
Year of amendment)
I. _______________________________________________________
Limitation Year End (if different from E above)
- -----------------------------------------------------------
III. ELIGIBILITY
A. Employees shall be eligible to participate in the Plan upon
completion of the eligibility requirements (Plan Section
3.1; complete 1 and 2):
1. Years of Service. The Employee must complete (check
one):
[ ] One Year of Service.
[ ] ____ Years of Service. (You can require less or
more than one Year of Service, but not more than
two (2). If you select more than one Year of
Service, the Employee must be one hundred percent
(100%) vested once he becomes eligible, and you
must select vesting schedule B in Section IX of
this Adoption Agreement. If the Year of Service is
or includes a fractional year, an Employee will not
be required to complete any specified number of
Hours of Service (Section IV.A of this Adoption
Agreement) to receive credit for such fractional
year.)
2. Age. The Employee has attained age ____ (not greater
than age 21).
B. All Employees will be eligible to participate in the Plan
with the exception of the following (Plan Section 3.1; check
one or both, if applicable):
1. [ ] Union Employees. (Employees included in a unit
covered by a collective bargaining agreement between
the Employer and Employee representatives (as
defined in Section 3.1(b)(i) of the Plan), if
retirement benefits were the subject of good faith
bargaining.)
2. [ ] Nonresident Aliens. (Employees who are nonresident
aliens and who receive no earned income from the
Employer which constitutes income from sources
within the United States.)
Note: For purposes of this Section III, the term "Employee"
includes all employees of this Employer or any employer
aggregated with this Employer under Sections 414(b), (c), (m),
or (o) of the Internal Revenue Code and individuals who are
Leased Employees required to be considered Employees of any such
employer under Section 414(n) or (o) of the Code. If you or
your family own an interest in one or more trades or businesses
or lease employees from another trade or business, employees of
that trade or business may have to be considered Employees
eligible to participate in the Plan and you should discuss the
matter with your legal advisor.
- -----------------------------------------------------------
IV. CREDITED SERVICE
A. The Plan provides that a Year of Service requires at least
1,000 hours during any Plan Year. If a lower number of
hours is desired, state the number here: _____ (Plan Section
2.42.)
B. The Plan permits Hours of Service to be determined by the
use of Service Equivalencies under one of the methods
selected below. (Plan Section 2.19; check one.)
1. [ ] On the basis of actual hours for which an Employee is
paid or entitled to payment.
2. [ ] On the basis of days worked. An Employee will be
credited with ten (10) Hours of Service if under
Section 2.19 of the Plan such Employee would be
credited with at least one (1) Hour of Service during
the day.
3. [ ] On the basis of weeks worked. An Employee will be
credited with forty-five (45) Hours of Service if
under Section 2.19 of the Plan such Employee would be
credited with at least one (1) Hour of Service during
the week.
4. [ ] On the basis of semi-monthly payroll periods. An
Employee will be credited with ninety-five (95) Hours
of Service if under Section 2.19 of the Plan such
Employee would be credited with at least one (1) Hour
of Service during the semi-monthly payroll period.
5. [ ] On the basis of months worked. An Employee will be
credited with one hundred ninety (190) Hours of
Service if under Section 2.19 of the Plan such
Employee would be credited with at least one (1) Hour
of Service during the month.
C. Service with predecessor employer. (Plan Sections 3.3 and
8.5; choose 1 or 2.)
1. [ ] No credit will be given for service with a
predecessor employer.
2. [ ] Credit will be given for service with the following
predecessor employer(s):
Note: The Plan provides that if this is a continuation of a
predecessor plan, service under the predecessor plan must be
counted.
- -----------------------------------------------------------
V. COMPENSATION
A. Compensation (Plan Section 2.7; choose 1 or 2):
1. [ ] shall include
- or -
2. [ ] shall not include
Employer Contributions made pursuant to a salary reduction
agreement which are not includible in the gross income of
the Employee under Sections 125, 402(a)(8), 402(h) or 403(b)
of the Code.
B. The effective date of the election in A above shall be
_______________________________________________________
(not earlier than the first day of the first Plan Year
beginning after 1986).
- -----------------------------------------------------------
VI. CONTRIBUTIONS
Profit Sharing Plan Formula. (Plan Section 4.1(b); choose A or
B.)
A. [ ] Discretionary pursuant to Employer resolution. If no
resolution is adopted, then _______% of Participants'
compensation, not to exceed current and accumulated Net
Profits.
B. [ ] _______% of Participants' compensation, plus
discretionary amount, if any, by Employer resolution, not
to exceed current and accumulated Net Profits.
Note: Each of these formulas is subject to maximum limitations
on contributions as provided in the Plan and the Internal
Revenue Code. In no event may the Employer Contribution exceed
15% of the aggregate compensation of all Participants for the
year, plus up to 10% credit carryover in certain circumstances.
Additional limitations are included in the Plan where the
Employer also has another qualified retirement plan. An
individual Participant's limit on contributions and forfeitures
per year is generally the lesser of 25% of compensation or
$30,000.
- -----------------------------------------------------------
VII. ALLOCATION OF EMPLOYER CONTRIBUTIONS
A. Minimum Allocation. (Plan Section 5.2.)
Participants who are eligible to receive the minimum
allocation provided by Section 5.2 of the Plan shall receive
a minimum allocation of contributions and forfeitures under
this Plan equal to 3% of compensation, or if lesser, but
only for integrated plans, the largest percentage of
compensation allocated on behalf of any Key Employee for the
Plan Year. If the Employer maintains a defined benefit plan
which is required to provide a minimum benefit to each Non-
Key Employee, the defined benefit minimum for any Non-Key
Employee covered by both the defined benefit plan and this
Plan may be offset by contributions made to this Plan
provided the defined benefit plan so permits. If the
Participant also participates in the Stein Roe & Farnham
Money Purchase Pension Plan, the required minimum allocation
must be made under the Money Purchase Pension Plan.
B. Formula. (Plan Section 5.3(b); choose 1 or 2.)
1. [ ] Non-Integrated Plan. Employer contributions shall be
allocated to the accounts of all eligible
Participants prorated upon compensation.
2. [ ] Integrated Plan. Employer contributions and
forfeitures in excess of those allocated under A
above shall be integrated with Social Security and
allocated in accordance with the provisions of Plan
Section 5.3(b). The Plan's Integration Level shall
be (choose (a), (b) or (c)):
(a) [ ] Taxable Wage Base. (The maximum amount
considered as wages for such year under
Section 3121(a)(1) of the Internal Revenue
Code (the Social Security Taxable Wage Base)
as of the beginning of the Plan Year.)
-or-
(b) [ ] $_______ (a dollar amount not to exceed the
Taxable Wage Base).
-or-
(c) [ ] _____% of the Taxable Wage Base (not to
exceed 100%).
Note: If you maintain any other plan in addition to this Plan,
only one plan may be integrated with Social Security.
C. Contribution Eligibility. (Plan Section 4.1(c).)
The Plan provides that all Participants will share in
Employer Contributions for the Plan Year, except the
following (if elected):
[ ] Participants who terminate employment during the Plan
Year with not more than 500 Hours of Service and who
are not Employees as of the last day of the Plan Year
(other than Participants who die, retire, or become
Totally and Permanently Disabled). If a lesser
number of hours than 500 is desired, state the number
here:
- -----------------------------------------------------------
VIII. DISTRIBUTIONS
Normal Retirement Age. (Plan Section 2.26; choose A and/or B.)
A. [ ] The date a Participant reaches age ____ (not more than 65
or less than 55). If no age is indicated, Normal
Retirement Age shall be 65.
B. [ ] The later of age _____ (not more than 65) or the _____
(not more than 5th) anniversary of the day the
Participant commenced participation in the Plan. The
participation commencement date is the first day of the
first Plan Year in which the Participant commenced
participation in the Plan.
- -----------------------------------------------------------
IX. VESTING
Employer Contributions will become vested if the Participant
terminates employment for any reasons other than retirement,
death, or disability pursuant to the following schedule. (Plan
Section 8.3; choose A, B, C, or D.) If a service requirement
greater than 1 year is chosen for eligibility in Section III.A.1
of this Adoption Agreement, vesting Schedule B must be chosen.
A. [ ] Years of Service Vested Percentage
---------------- -----------------
1 year 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 or more years 100%
B. [ ] 100 percent vesting immediately after satisfaction of the
eligibility requirements.
C. [ ] 100 percent vesting after ______ (not to exceed 3) years
of service.
D.[ ] Years of Service Vested Percentage
---------------- ----------------------------
1 year ______%
2 years ______% (not less than 20%)
3 years ______% (not less than 40%)
4 years ______% (not less than 60%)
5 years ______% (not less than 80%)
6 years 100%
Note: If vesting Schedule D is chosen, the vesting percentages
inserted must be at least as rapid as one of the above vesting
schedules at all points in time.
- -----------------------------------------------------------
X. INVESTMENTS
Each Participant shall be solely responsible for the investment
of his Account to the extent Invested in the Investment
Companies by giving such directions to the Plan Administrator
who will transmit them to the Trustee. The Trustee shall then
transmit the directions to SteinRoe Services Inc., transfer
agent for the Investment Companies. All investments shall be
subject to the restrictions and limitations set forth below and
in the Stein Roe & Farnham Prototype Paired Defined Contribution
Plan Contribution Allocation Form. No other investment
restrictions or limitations shall be imposed by the Plan
Sponsor.
A. Investment Companies. Each Participant's Account shall be
invested in the Investment Companies listed below and such
additional Investment Companies as may be made available
from time to time by Stein Roe & Farnham Incorporated;
provided, however, that no such Investment Company shall be
available to a Participant for investment unless and until
the Investment Company is registered for sale with the
Securities and Exchange Commission and the relevant
regulatory authority in the state in which the Participant
permanently resides. If no Investment Company is specified
for all or a portion of Trust assets, said assets shall be
invested in Stein Roe Cash Reserves Fund. Investments in
the Investment Companies are subject to the terms and
conditions set forth in the Investment Companies'
Prospectuses and Statements of Additional Information.
Stein Roe Cash Reserves Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Balanced Fund
Stein Roe Emerging Markets Fund
Stein Roe High Yield Fund
Stein Roe Growth Opportunities Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Capital Opportunities Fund
Stein Roe International Fund
Stein Roe Special Venture Fund
Stein Roe Young Investor Fund
B. Other Investments of Trust Assets. (Optional.) You may
elect to permit Trust assets to be invested in vehicles
other than the Investment Companies provided at least 75% of
the Trust assets are invested in the Investment Companies
and/or are subject to an investment advisory agreement
between Stein Roe & Farnham Incorporated and either one or
more Participants, or the Trustee, and further provided that
this 75% limitation may be waived or reduced by Stein Roe &
Farnham Incorporated. The Employer and Trustee are
responsible for establishing uniform and non-discriminatory
rules with respect to Other Investments. If you wish to
permit Other Investments, check the following box and
indicate the percentage of Trust assets to be so invested in
the blank. If the box is checked but no percentage is
entered or a percentage greater than 25% is entered in the
blank, the percentage shall be deemed to be 25%.
[ ] In addition to Investments in the Investment Companies,
up to ____% of the Trust assets may be invested in Other
Investments in accordance with such terms and conditions
as the Employer and the Trustee shall agree.
C. Telephone Exchange Privilege. (This Privilege permits the
Trustee to redeem shares with a value of not less than
$1,000 in one Investment Company by telephone and
automatically apply the proceeds to purchase shares of
another Investment Company subject to the terms and
conditions described below and in each Investment Company's
Prospectus as in effect from time to time. The Privilege
automatically applies to all Participant Accounts unless you
elect to decline the Privilege by checking the box.)
[ ] I do not want the Telephone Exchange Privilege.
The Privilege authorizes any Investment Company and its
transfer agent, each as the Trustee's attorney-in-fact, to
honor any telephonic requests, whether from the Trustee or
any other person, to redeem shares owned by the Trust in the
Investment Company and to direct the purchase with the
proceeds of shares of any of the other Investment Companies
available under the Privilege. Neither the Investment
Company nor its transfer agent, nor their officers,
directors or trustees, agents or employees shall be liable
for any loss, liability, cost or expense for acting upon
such requests. The certification, authorization,
appointments and restrictions herein shall continue until
five (5) business days after any Investment Company, the
Shares of which are held under the Plan, and its transfer
agent receive written notice from the Trustee of any change
thereof, which change, with the exception of termination,
will require a signature guarantee. Telephone Exchanges
generally are limited to four round-trips per year (a round-
trip being an exchange from one Investment Company to
another and back). Each Investment Company or its transfer
agent may suspend, limit or terminate the Privilege without
notice to the Trustee. Each Investment Company and its
transfer agent is further authorized to record telephone
instructions pursuant to this Privilege.
D. Valuations. Each Participant's Account invested in shares
of the Investment Companies shall be valued each business
day of the Investment Company as provided in the Prospectus
and Statement of Additional Information of the Investment
Company.
E. Contribution Restrictions. Contributions shall be subject
to the following restrictions, unless waived or reduced by
Stein Roe & Farnham Incorporated:
1. Contributions by or on behalf of each Participant may
only be invested in one Investment Company unless a
minimum of $500 is invested in each.
2. Each Employer Contribution shall be at least $50 and may
be made as often as once each calendar month.
3. Each Rollover Contribution shall be at least $500.
F. Fees. Fees to the Sponsor shall be those fees as shall be
established from time to time by the Sponsor. Unless the
Employer by separate agreement agrees to pay fees hereunder
directly, all fees shall be charged against each
Participant's Accounts either by reduction of contributions
into such Accounts or by redemption of shares of the
Investment Companies held for such Accounts. In the event
extraordinary services resulting from unusual administrative
responsibilities not herein contemplated are required,
additional extraordinary fees may be charged.
- -----------------------------------------------------------
XI. ALLOCATION LIMITATIONS
Complete this section only if you maintain or ever maintained
another qualified plan (other than the Stein Roe & Farnham Money
Purchase Pension Plan) in which any Participant in this Plan is
(or was) a Participant or could become a Participant. This
section must also be completed if you maintain a welfare benefit
fund, as defined in Section 419(e) of the Code, or an individual
medical account, as defined in Section 415(1)(2) of the Code,
under which amounts are treated as annual additions with respect
to any Participant in this Plan.
A. If a Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a
master or prototype plan (Plan Section 6.3; choose either 1
or 2):
1.[ ] The provisions of Section 6.2 will apply as if the
other plan were a master or prototype plan.
2. [ ] On an attachment, provide the method under which the
plans will limit total annual additions to the maximum
permissible amount, and will properly reduce any
excess amounts, in a manner that precludes Employer
discretion.
B. If a Participant is or has ever been a participant in a
defined benefit plan maintained by the Employer, attach an
explanation of the method under which the plans involved
will satisfy the 1.0 limitation in a manner that precludes
Employer discretion. (Plan Section 6.4.)
- -----------------------------------------------------------
XII. ADMINISTRATION
A. The Plan Administrator of the Plan will be (Plan Sections
2.30 and 13.4; choose 1,2,3, or 4):
1. [ ] The Trustee.
2. [ ] The Employer.
3. [ ] An Individual Plan Administrator designated by the
Employer:
___________________________________________________
Name
___________________________________________________
Business Address
4. [ ] A Committee of two or more Employees designated by
the Employer:
Name Title Signature Phone
___________________________________________________
___________________________________________________
___________________________________________________
Note: If no Plan Administrator has been designated or serving
at any time, the Employer will be deemed the Plan Administrator.
(Plan Section 13.4.)
B. Named Fiduciaries. The Plan Administrator (including all
members of a committee, if a committee is named) is a Named
Fiduciary for the Plan. If other persons are also to be
Named Fiduciaries, their names and addresses are:
Name Address
_________________________________________________________
_________________________________________________________
C. Powers. The Named Fiduciaries have all of the powers set
forth in the Plan. If any powers or duties are to be
allocated among them, or delegated to third parties,
indicate below what the powers or duties are and to whom
they are to be delegated. (Plan Section 13.3.)
_________________________________________________________
_________________________________________________________
_________________________________________________________
D. Withholding. If the Employer has not elected to permit
Trust assets to be invested in Other Investments in Section
X.B hereof, the Plan Administrator hereby directs SteinRoe
Services Inc., as transfer agent of the Investment Companies
listed in Section X.A hereof and such additional Investment
Companies as may be made available from time to time by
Stein Roe & Farnham Incorporated, to withhold federal income
tax from any designated distribution as defined in section
3405(d)(1) of the Internal Revenue Code, unless the
recipient properly elects in writing not to have withholding
apply, and hereby agrees to provide SteinRoe Services Inc.
with such information as may be required by SteinRoe
Services Inc. to withhold said tax.
- -----------------------------------------------------------
XIII. THE TRUSTEE
A. The Employer hereby appoints the following to serve as
Trustee(s) (Plan Section 2.39; name one or more):
________________________________ _____________________________
Date Name
________________________________ _____________________________
Witness Address
_____________________________
Signature
________________________________ _____________________________
Date Name
________________________________ _____________________________
Witness Address
_____________________________
Signature
- -----------------------------------------------------------
XIV. EMPLOYER SIGNATURE
The Employer acknowledges receipt of the current Prospectuses of
the Investment Companies designated for investment under the
Plan and represents that it has delivered copies thereof to each
Participant in the Plan, and that it will deliver to each
Participant making contributions and each new Participant a copy
of the then current Prospectuses of such Investment Companies.
The Employer further represents that the information in this
Adoption Agreement shall become effective only when approved and
countersigned by the Trustee(s). The right to reject this
Adoption Agreement for any reason is reserved.
Note: This Adoption Agreement must be used only in conjunction
with the basic Plan document #001. An Employer who has ever
maintained or who later adopts any plan (including, after
December 31, 1985, a welfare benefit fund, as defined in section
419(e) of the Code, which provides post-retirement medical
benefits allocated to separate accounts for Key Employees as
defined in Section 419A(d)(3)), or an individual medical
account, as defined in Section 415(1)(2) of the Code, in
addition to this Plan (other than the Stein Roe & Farnham Money
Purchase Pension Plan) may not rely on the opinion letter issued
by the National Office of the Internal Revenue Service as
evidence that this Plan is qualified under Section 401 of the
Internal Revenue Code. If the Employer who adopts or maintains
multiple plans wishes to obtain reliance that the plans are
qualified, application for a determination letter should be made
to the appropriate Key District Director of Internal Revenue.
The Adoption Agreement consists of 7 pages.
IN WITNESS WHEREOF, the Employer has caused this Adoption
Agreement to be executed by its duly authorized officers this
_____ day of _________________, 19 _____.
Date _____________________ ______________________________
Employer
(Corporate Seal)
By: _________________________
Signature
_________________________
Name
Attest: _____________________
_________________________
Title
10/97
<PAGE>
STEIN ROE & FARNHAM MONEY PURCHASE PENSION
ADOPTION AGREEMENT #002
This is the Adoption Agreement for the Stein Roe & Farnham Money
Purchase Pension Plan (Prototype Paired Defined Contribution Plan
#002). The Plan is a prototype money purchase pension plan
designed to be adopted either singly or in combination with the
Stein Roe & Farnham Profit Sharing Plan (Prototype Paired Defined
Contribution Plan #001). Please refer to the Checklist for
Establishing Your Plan and the Instructions for Completing Your
Adoption Agreement. You may also wish to consult with your tax and
legal advisers before executing your Adoption Agreement. Failure
to properly complete your Adoption Agreement may result in
disqualification of your Plan.
The Employer hereby establishes a money purchase pension plan and a
trust upon the respective terms and conditions contained in the
Prototype Paired Defined Contribution Plan (the "Plan") and the
Trust Agreement annexed hereto and appoints as Trustee of such
Trust the person(s) who have executed this Adoption Agreement
evidencing their acceptance of such appointment. The Plan and the
Trust Agreement shall be supplemented and modified by the terms and
conditions contained in this Adoption Agreement and shall be
effective on the Effective Date. The Sponsor will inform the
Employer of any amendments made to the Plan or the discontinuance
or abandonment of the Plan.
- -------------------------------------------------------------------
I. SPONSOR DATA
A. Sponsor: Stein Roe & Farnham Incorporated
B. Address: P.O. Box 804058, Chicago, Illinois 60680-4058,
Attention: Retirement Plan Department
C. Telephone: (800) 405-5070
D. Sponsor of the Plan shall be Stein Roe & Farnham Incorporated,
or such other person qualified to act as Sponsor as from time
to time shall be designated by Stein Roe & Farnham Incorporated
on 30 days' written notice to the Employer. If the Sponsor
shall determine that it is no longer desirable for it to act as
Sponsor of this prototype plan, it may resign as Sponsor and
relieve itself of any further responsibilities by giving the
Employer 30 days' prior written notice by certified or
registered mail, return receipt requested, postage prepaid.
Employer agrees to indemnify and hold harmless the Sponsor and
each of its officers, agents and employees against all claims,
liabilities, fines and penalties and expenses reasonably
incurred by or imposed upon it (including but not limited to
reasonable attorneys' fees) which arise as a result of
Employer's or trustee's actions or failure to act in connection
with the operation and administration of the Plan.
- -------------------------------------------------------------------
II. EMPLOYER DATA
A. _____________________________________________________________
Name of Employer and Employer Identification Number (EIN)
B. _____________________________________________________________
Street Address
_____________________________________________________________
City State Zip Code
C. ________________ D. _____________________ E. _______________
Telephone Number Employer's Taxable Year End Plan Year End
F. The Employer is:
[ ] a corporate entity
[ ] a non-corporate entity (e.g., self-employed person)
[ ] a corporation electing to be taxed under Subchapter S
G. __________________________________
Effective Date (Should be first day of the Plan Year)
H. If this is an amendment of an existing plan, complete the
following:
___________________________________________________________
Name of Prior Plan
___________________________________________________________
Effective Date of Amendment (Should be the first day of the
Plan Year of amendment)
___________________________________________________________
Effective Date of Prior Plan
I. ___________________________________________________________
Limitation Year End (if different from E above)
- -----------------------------------------------------------------
III. ELIGIBILITY
A. Employees shall be eligible to participate in the Plan upon
completion of the eligibility requirements (Plan Section 3.1;
complete 1 and 2):
1. Years of Service. The Employee must complete (check one):
[ ] One Year of Service.
[ ] _____ Years of Service. (You can require less or more
than one Year of Service, but not more than two (2). If
you select more than one Year of Service, the Employee
must be one hundred percent (100%) vested once he
becomes eligible, and you must select vesting schedule B
in Section VIII of this Adoption Agreement. If the Year
of Service is or includes a fractional year, an Employee
will not be required to complete any specified number of
Hours of Service (Section IV.A of this Adoption
Agreement) to receive credit for such fractional year.)
2. Age. The Employee has attained age ____ (not greater than
age 21).
B. All Employees will be eligible to participate in the Plan with
the exception of the following (Plan Section 3.1; check one or
both, if applicable):
1. [ ] Union Employees. (Employees included in a unit covered
by a collective bargaining agreement between the
Employer and Employee representatives (as defined in
Section 3.1(b)(i) of the Plan), if retirement benefit
were the subject of good faith bargaining.)
2. [ ] Nonresident Aliens. (Employees who are nonresident
aliens and who receive no earned income from the
Employer which constitutes income from sources within
the United States.)
Note: For purposes of this Section III, the term "Employee"
includes all employees of this Employer or any employer aggregated
with this Employer under section 414(b), (c), (m), or (o) of the
Internal Revenue Code and individuals who are Leased Employees
required to be considered Employees of any such employer under
section 414(n) or (o) of the Code. If you or your family own an
interest in one or more trades or businesses or lease employees
from another trade or business, employees of that trade or business
may have to be considered Employees eligible to participate in the
Plan and you should discuss the matter with your legal adviser.
- ------------------------------------------------------------------
IV. CREDITED SERVICE
A. The Plan provides that a Year of Service requires at least
1,000 hours during any Plan Year. If a lower number of hours
is desired, state the number here: _____ (Plan Section 2.42.)
B. The Plan permits Hours of Service to be determined by the use
of Service Equivalencies under one of the methods selected
below. (Plan Section 2.19; check one.)
1. [ ] On the basis of actual hours for which an Employee is
paid or entitled to payment.
2. [ ] On the basis of days worked. An Employee will be
credited with ten (10) Hours of Service if under Section
2.19 of the Plan such Employee would be credited with at
least one (1) Hour of Service during the day.
3. [ ] On the basis of weeks worked. An Employee will be
credited with forty-five (45) Hours of Service if under
Section 2.19 of the Plan such Employee would be credited
with at least one (1) Hour of Service during the week.
4. [ ] On the basis of semi-monthly payroll periods. An
Employee will be credited with ninety-five (95) Hours of
Service if under Section 2.19 of the Plan such Employee
would be credited with at least one (1) Hour of Service
during the semi-monthly payroll period.
5. [ ] On the basis of months worked. An Employee will be
credited with one hundred ninety (190) Hours of Service
if under Section 2.19 of the Plan such Employee would be
credited with at least one (1) Hour of Service during
the month.
C. Service with predecessor employer. (Plan Section 3.3 and 8.5;
choose 1 or 2.)
1. [ ] No credit will be given for service with a predecessor
employer.
2. [ ] Credit will be given for service with the following
predecessor employer(s):______________________________
______________________________________________________
Note: The Plan provides that if this is a continuation of a
predecessor plan, service under the predecessor plan must be
counted.
- -----------------------------------------------------------------
V. COMPENSATION
A. Compensation (Plan Section 2.7; choose 1 or 2):
1. [ ] shall include
- or -
2. [ ] shall not include
Employer Contributions made pursuant to a salary reduction
agreement which are not includible in the gross income of the
Employee under sections 125, 402(a)(8), 402(h) or 403(b) of the
Code.
B. The effective date of the election in A above shall be _________
(not earlier than the first day of the first Plan Year beginning after 1986).
- ------------------------------------------------------------------
VI. CONTRIBUTIONS
A. Minimum Allocation. (Plan Section 5.2.)
Participants who are eligible to receive the minimum allocation
provided by Section 5.2 of the Plan shall receive a minimum
contribution under this Plan equal to 3% of Compensation, or if
lesser, the largest percentage of Compensation allocated on
behalf of any Key Employee for the Plan Year. If the Employer
maintains a defined benefit plan which is required to provide a
minimum benefit to each Non-Key Employee, the defined benefit
minimum for any Non-Key Employee covered by both the defined
benefit plan and this Plan may be offset by contributions made
to this Plan provided the defined benefit plan so permits. If
the Participant also participates in the Stein Roe & Farnham
Profit Sharing Plan, the required minimum allocation must be
made under this Plan, even if the integrated plan combination
formula is selected.
B. Employer Contribution Formula. (Plan Section 4.1(a); choose 1
or 2.)
1. [ ] Non-Integrated Plan. The Employer will contribute
______% (not more than 25%) of compensation for each
Participant inclusive of the Minimum Allocation required
by A above.
2. [ ] Integrated Plan (complete a; b is optional). (a) The
Employer will contribute an amount equal to _____% (base
contribution percentage; not less than 3%) of each
Participant's Compensation (as defined in Section 2.7 of
the Plan) for the Plan Year, up to the Integration
Level plus ____% ("Integration Percentage") (not less
than 3% and not to exceed the base contribution
percentage by more than the lesser of: (1) the base
contribution percentage, or (2) the Maximum Disparity
Rate) of such Participant's compensation for the Plan
Year in excess of the Integration Level.
The Integration Level shall be (choose one):
(i) [ ] Taxable Wage Base: (The maximum amount
considered as wages for such year under
Section 3121(a)(1) of the Internal Revenue
Code (the social security taxable wage base)
as of the beginning of the Plan Year.)
(ii) [ ] $______ (a dollar amount not to exceed the
amount in (i) above).
(iii) [ ] _______% of the amount in (i) above (not to
exceed 100%).
(b) [ ] The Employer will contribute ______% (not to
exceed 25% minus the Integration Percentage) of
Compensation for each Participant.
Note: If you maintain any other plan in addition to this plan only
one plan may be integrated with social security.
C. Forfeitures for a given Plan Year (Plan Section 5.3(a); choose
1 or 2):
1. [ ] Shall be applied to reduce the Employer Contribution in
that year, or if in excess of the Employer Contribution
for such Plan Year, the excess amounts shall be used to
reduce the Employer Contribution in the next succeeding
Plan Year or Years.
-or-
2. [ ] Shall be added to the Employer Contribution and
allocated accordingly.
D. Contribution Eligibility (Plan Section 4.1(c)).
The Plan provides that all Participants will share in Employer
Contributions for the Plan Year, except the following (if
elected):
[ ] Participants who terminate employment during the Plan Year
with not more than 500 Hours of Service and who are not
Employees as of the last day of the Plan Year (other than
Participants who die, retire or become Totally and
Permanently Disabled). If a fewer number of Hours than 500
is desired, state the number here:______________
- -------------------------------------------------------------------
VII. DISTRIBUTIONS
Normal Retirement Age. (Plan Section 2.26; choose A and/or B.)
A. [ ] The date a Participant reaches age ______ (not more than 65
or less than 55). If no age is indicated, Normal
Retirement Age shall be 65.
B. [ ] The later of age ______ (not more than 65) or the ______
(not more than 5th) anniversary of the day the Participant
commenced participation in the Plan. The participation
commencement date is if the first day of the first Plan
Year in which the Participant commenced participation in
the Plan.
- -------------------------------------------------------------------
VIII. VESTING
Employer Contributions will become vested if the Participant
terminates employment for any reasons other than retirement, death,
or disability pursuant to the following schedule. (Plan Section
8.3; choose A, B, C, or D. If a service requirement greater than 1
year is chosen for eligibility in Section III.A.1 of this Adoption
Agreement, vesting schedule B must be chosen.)
A. [ ] Years of Service Vested Percentage
1 year 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 or more years 100%
B. [ ] 100 percent vesting immediately after satisfaction of the
eligibility requirements.
C. [ ] 100 percent vesting after ______ (not to exceed 3) years of
service.
D. [ ] Years of Service Vested Percentage
1 year ______%
2 years ______% (not less than 20%)
3 years ______% (not less than 40%)
4 years ______% (not less than 60%)
5 years ______% (not less than 80%)
6 years 100%
Note: If vesting schedule D is chosen, the vesting percentages
inserted must be at least as rapid as one of the above vesting
schedules at all points in time.
- -------------------------------------------------------------------
IX. INVESTMENTS
Each Participant shall be solely responsible for the investment of
his Account to the extent invested in the Investment Companies by
giving such directions to the Plan Administrator who will transmit
them to the Trustee. The Trustee shall then transmit the
directions to SteinRoe Services Inc., transfer agent for the
Investment Companies. All investments shall be subject to the
restrictions and limitations set forth below and in the Stein Roe &
Farnham Prototype Paired Defined Contribution Plan Contribution
Allocation Form. No other investment restrictions or limitations
shall be imposed by the Plan Sponsor.
A. Investment Companies. Each Participant's Account shall be
invested in the Investment Companies listed below and such
additional Investment Companies as may be made available from
time to time by Stein Roe & Farnham Incorporated; provided,
however, that no such Investment Company shall be available to
a Participant for investment unless and until the Investment
Company is registered for sale with the Securities and Exchange
Commission and the relevant regulatory authority in the state
in which the Participant permanently resides. If no Investment
Company is specified for all or a portion of Trust assets, said
assets shall be invested in Stein Roe Cash Reserves.
Investments in the Investment Companies are subject to the
terms and conditions set forth in the Investment Companies'
Prospectuses and Statements of Additional Information.
Stein Roe Cash Reserves Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Balanced Fund
Stein Roe Emerging Markets Fund
Stein Roe High Yield Fund
Stein Roe Growth Opportunities Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Capital Opportunities Fund
Stein Roe International Fund
Stein Roe Special Venture Fund
Stein Roe Young Investor Fund
B. Other Investments of Trust Assets. (Optional). You may elect
to permit Trust assets to be invested in vehicles other than
the Investment Companies provided at least 75% of the Trust
assets are invested in the Investment Companies and/or are
subject to an investment advisory agreement between Stein Roe &
Farnham Incorporated and either one or more Participants, or
the Trustee, and further provided that this 75% limitation may
be waived or reduced by Stein Roe & Farnham Incorporated. The
Employer and Trustee are responsible for establishing uniform
and non-discriminatory rules with respect to Other Investments.
If you wish to permit Other Investments, check the following
box and indicate the percentage of Trust assets to be so
invested in the blank. If the box is checked but no percentage
is entered or a percentage greater than 25% is entered in the
blank, the percentage shall be deemed to be 25%.
[ ] In addition to Investments in the Investment Companies, up to
_____% of the Trust assets may be Invested in Other Investments
in accordance with such terms and conditions as the Employer
and the Trustee shall agree.
C. Telephone Exchange Privilege. (This privilege permits the
Trustee to redeem shares with a value of not less than $1,000
in one Investment Company by telephone or telegraph and
automatically apply the proceeds to purchase shares of another
Investment Company subject to the terms and conditions
described below and in each Investment Company's Prospectus as
in effect from time to time. The Privilege automatically
applies to all Participant Accounts unless you elect to decline
the Privilege by checking the box.)
[ ] I do not want the Telephone Exchange Privilege.
The Privilege authorizes any Investment Company and its
transfer agent, each as the Trustee's attorney-in-fact, to
honor any telegraphic or telephonic requests, whether from the
Trustee or any other person, to redeem shares owned by the
Trust in the Investment Company and to direct the purchase with
the proceeds of shares of any of the other Investment Companies
available under the Privilege. Neither the Investment Company
nor its transfer agent, nor their officers, directors or
trustees, agents or employees shall be liable for any loss,
liability, cost or expense for acting upon such requests. The
certification, authorization, appointments and restrictions
herein shall continue until five(5) business days after any
Investment Company, the Shares of which are held under the
Plan, and its transfer agent receive written notice from the
Trustee of any change thereof, which change, with the exception
of termination, will require a signature guarantee. Telephone
Exchanges generally are limited to four round-trips per year (a
round-trip being an exchange from one Investment Company to
another and back). Each Investment Company or its transfer
agent may suspend, limit or terminate the Privilege without
notice to the Trustee. Each Investment Company and its
transfer agent is further authorized to record telephone
instructions pursuant to this Privilege.
D. Valuations. Each Participant's Account invested in shares of
the Investment Companies shall be valued each business day of
the Investment Company as provided in the Prospectus and
Statement of Additional Information of the Investment Company.
E. Contribution Restrictions. Contributions shall be subject to
the following restrictions, unless waived or reduced by Stein
Roe & Farnham Incorporated:
1. Contributions by or on behalf of each Participant may only
be invested in one Investment Company unless a minimum of
$500 is invested in each.
2. Each Employer Contribution shall be at least $50 and may be
made as often as once each calendar month.
3. Each Rollover Contribution shall be at least $500.
F. Fees. Fees to the Sponsor shall be those fees as shall be
established from time to time by the Sponsor. Unless the
Employer by separate agreement agrees to pay fees hereunder
directly, all fees shall be charged against each Participant's
Accounts either by reduction of contributions into such
Accounts or by redemption of shares of the Investment Companies
held for such Accounts. In the event extraordinary services
resulting from unusual administrative responsibilities not
herein contemplated are required, additional extraordinary fees
may be charged.
- -------------------------------------------------------------------
X. ALLOCATION LIMITATIONS
Complete this section only if you maintain or ever maintained
another qualified plan (other than the Stein Roe & Farnham Profit
Sharing Plan) in which any Participant in this Plan is (or was) a
Participant or could become a Participant. This section must also
be completed if you maintain a welfare benefit fund, as defined in
Section 419(e) of the Code, or an individual medical account, as
defined in Section 415(1)(2) of the Code, under which amounts are
treated as annual additions with respect to any Participant in this
Plan.
A. If a Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a
master or prototype plan (Plan Section 6.3; choose either 1 or
2):
1. [ ] The provisions of Section 6.2 will apply as if the
other plan were a master or prototype plan.
2. [ ] On an attachment, provide the method under which the
plans will limit total annual additions to the maximum
permissible amount, and will properly reduce any excess
amounts, in a manner that precludes Employer
discretion.
B. If a Participant is or has ever been a participant in a defined
benefit plan maintained by the Employer, attach an explanation
of the method under which the plans involved will satisfy the
1.0 limitation in a manner that precludes Employer discretion.
(Plan Section 6.4.)
- -------------------------------------------------------------------
XI. ADMINISTRATION
A. The Plan Administrator of the Plan will be (Plan Sections 2.30
and 13.4; choose 1, 2, 3, or 4):
1. [ ] The Trustee.
2. [ ] The Employer.
3. [ ] An Individual Plan Administrator designated by the
Employer:
__________________________________________
Name
______________________________________________
Address
4. A Committee of two or more Employees designated by the
Employer:
Name Title Signature
________________________________________________________
________________________________________________________
________________________________________________________
Note: If no Plan Administrator has been designated or serving at
any time, the Employer will be deemed the Plan Administrator.
(Plan Section 13.4.)
B. Named Fiduciaries. The Plan Administrator (including all
members of a committee, if a committee is named) is a Named
Fiduciary for the Plan. If other persons are also to be Named
Fiduciaries, their names and addresses are:
Name Address
______________________________________________________________
______________________________________________________________
C. Powers. The Named Fiduciaries have all of the powers set forth
in the Plan. If any powers or duties are to be allocated among
them, or delegated to third parties, indicate below what the
powers or duties are and to whom they are to be delegated.
(Plan Section 13.3.)
_____________________________________________________________
______________________________________________________________
______________________________________________________________
D. Withholding. If the Employer has not elected to permit Trust
assets to be invested in Other Investments in Section IX.B
hereof, the Plan Administrator hereby directs SteinRoe Services
Inc., as transfer agent of the Investment Companies listed in
Section IX.A hereof and such additional Investment Companies as
may be made available from time to time by Stein Roe & Farnham
Incorporated, to withhold federal income tax from any
designated distribution as defined in Section 3405(d)(1) of the
Internal Revenue Code, unless the recipient properly elects in
writing not to have withholding apply, and hereby agrees to
provide SteinRoe Services Inc. with such information as may be
required by SteinRoe Services Inc. to withhold said tax.
- -------------------------------------------------------------------
XII. THE TRUSTEE
Employer hereby appoints the following to serve as Trustee(s) (Plan
Section 2.39; name one or more):
________________________________ _____________________________
Date Name
________________________________ _____________________________
Witness Address
_____________________________
Signature
________________________________ _____________________________
Date Name
________________________________ _____________________________
Witness Address
_____________________________
Signature
- ------------------------------------------------------------
XIII. EMPLOYER SIGNATURE
The Employer acknowledges receipt of the current Prospectuses of
the Investment Companies designated for investment under the Plan
and represent that it has delivered copies thereof to each
Participant in the Plan, and that it will deliver to each
Participant making contributions and each new Participant a copy of
the then current Prospectuses of such Investment Companies. The
Employer further represents that the information in this Adoption
Agreement shall become effective only when approved and
countersigned by the Trustee(s). The right to reject this Adoption
Agreement for any reason is reserved.
Note: This Adoption Agreement must be used only in conjunction with
the basic plan document #01. An Employer who has ever maintained
or who later adopts any plan (including, after December 31, 1985, a
welfare benefit fund, as defined in section 419(e) of the Code,
which provides post-retirement medical benefits allocated to
separate accounts for Key Employees as defined in Section
419A(d)(3)), or an individual medical account, as defined in
Section 415(1)(2) of the Code, in addition to this Plan (other than
the Stein Roe & Farnham Profit Sharing Plan) may not rely on the
opinion letter issued by the National Office of the Internal
Revenue Service as evidence that this Plan is qualified under
Section 401 of the Internal Revenue Code. If the Employer who
adopts or maintains multiple plans wishes to obtain reliance that
the plans are qualified, application for a determination letter
should be made to the appropriate Key District Director of Internal
Revenue.
The Adoption Agreement consists of 6 pages.
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement
to be executed by its duly authorized officers this ________ day of
______________________, 19 _____.
Date _________________________ ________________________________
Employer
(Corporate Seal)
By: ______________________________
Signature
______________________________
Name
Attest: __________________________
______________________________
Title
10/97
<PAGE>
EXHIBIT 16(b)
Stein Roe High Yield Fund
Total Return As of June 30, 1997
<TABLE>
<CAPTION>
Initial
Investment Total
TOTAL RETURN Date Distributions +/- App/Depr = Return + Principal = ERV (ERV/Princ)-1
----------- ------------- -------- ------ --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund 11/1/96 $54 $56 $109 $1,000 $1,109 10.90%
</TABLE>
- --------------------------------------------------------------------------------
YIELD CALCULATION
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 reimbursement)
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 Stein Roe High Yield Fund for the 30-day period ended
June 30, 1997 was computed as follows:
6
2[((97,590.61 - 10,630.23/1,234,825.390 * $10.45)+1) - 1] = 8.12%
The yield of High Yield Fund at June 30, 1997, excluding the
expense reimbursement would have been 7.93%.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STEIN ROE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 360,947
<INVESTMENTS-AT-VALUE> 366,485
<RECEIVABLES> 22,338
<ASSETS-OTHER> 192
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 389,015
<PAYABLE-FOR-SECURITIES> 11,975
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,768
<TOTAL-LIABILITIES> 13,743
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 376,132
<SHARES-COMMON-STOCK> 37,965
<SHARES-COMMON-PRIOR> 32,129
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,398)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,538
<NET-ASSETS> 375,272
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 27,349
<OTHER-INCOME> 0
<EXPENSES-NET> 2,838
<NET-INVESTMENT-INCOME> 24,511
<REALIZED-GAINS-CURRENT> (196)
<APPREC-INCREASE-CURRENT> 9,039
<NET-CHANGE-FROM-OPS> 33,354
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (24,589)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 131,567
<NUMBER-OF-SHARES-REDEEMED> (92,360)
<SHARES-REINVESTED> 17,736
<NET-CHANGE-IN-ASSETS> 65,708
<ACCUMULATED-NII-PRIOR> 78
<ACCUMULATED-GAINS-PRIOR> (6,202)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,630
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,879
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.63
<PER-SHARE-NII> .70
<PER-SHARE-GAIN-APPREC> .25
<PER-SHARE-DIVIDEND> (.70)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.88
<EXPENSE-RATIO> .84
<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-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 320,628
<INVESTMENTS-AT-VALUE> 324,848
<RECEIVABLES> 11,307
<ASSETS-OTHER> 130
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 336,285
<PAYABLE-FOR-SECURITIES> 5,988
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,513
<TOTAL-LIABILITIES> 7,501
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 339,062
<SHARES-COMMON-STOCK> 37,610
<SHARES-COMMON-PRIOR> 34,729
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14,498)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,220
<NET-ASSETS> 328,784
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,987
<OTHER-INCOME> 0
<EXPENSES-NET> 2,284
<NET-INVESTMENT-INCOME> 21,703
<REALIZED-GAINS-CURRENT> (1,179)
<APPREC-INCREASE-CURRENT> 7,114
<NET-CHANGE-FROM-OPS> 27,638
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 22,030
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 119,668
<NUMBER-OF-SHARES-REDEEMED> (110,940)
<SHARES-REINVESTED> 16,336
<NET-CHANGE-IN-ASSETS> 30,672
<ACCUMULATED-NII-PRIOR> 327
<ACCUMULATED-GAINS-PRIOR> (13,319)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,091
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,338
<AVERAGE-NET-ASSETS> 311,227
<PER-SHARE-NAV-BEGIN> 8.58
<PER-SHARE-NII> .60
<PER-SHARE-GAIN-APPREC> .17
<PER-SHARE-DIVIDEND> (.61)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.74
<EXPENSE-RATIO> .73
<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-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 449,577
<INVESTMENTS-AT-VALUE> 449,577
<RECEIVABLES> 1,615
<ASSETS-OTHER> 4,060
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 455,252
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,894
<TOTAL-LIABILITIES> 2,894
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 452,222
<SHARES-COMMON-STOCK> 452,275
<SHARES-COMMON-PRIOR> 476,757
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 136
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 452,358
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 26,831
<OTHER-INCOME> 0
<EXPENSES-NET> 3,716
<NET-INVESTMENT-INCOME> 23,115
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 23,115
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (23,115)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 846,211
<NUMBER-OF-SHARES-REDEEMED> (890,574)
<SHARES-REINVESTED> 19,881
<NET-CHANGE-IN-ASSETS> (24,482)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 136
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,208
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,716
<AVERAGE-NET-ASSETS> 481,785
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .048
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.048)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> STEIN ROE HIGH YIELD FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 12,996
<INVESTMENTS-AT-VALUE> 13,482
<RECEIVABLES> 33
<ASSETS-OTHER> 26
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,541
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 59
<TOTAL-LIABILITIES> 59
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,996
<SHARES-COMMON-STOCK> 1,279
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 219
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 267
<NET-ASSETS> 13,482
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 566
<OTHER-INCOME> 0
<EXPENSES-NET> 62
<NET-INVESTMENT-INCOME> 504
<REALIZED-GAINS-CURRENT> 219
<APPREC-INCREASE-CURRENT> 267
<NET-CHANGE-FROM-OPS> 990
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (504)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,080
<NUMBER-OF-SHARES-REDEEMED> (1,512)
<SHARES-REINVESTED> 428
<NET-CHANGE-IN-ASSETS> 13,482
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 143
<AVERAGE-NET-ASSETS> 9,475
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> .54
<PER-SHARE-DIVIDEND> (.52)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.54
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
EXHIBIT 19(a)
Please do not remove label For office use only ________
[Logo] Stein Roe Mutual Funds
Building Wealth for Generations [service mark]
MUTUAL FUND APPLICATION
Mail to:
STEIN ROE MUTUAL FUNDS
P.O. Box 8900
Boston, MA 02205-8900
This application is for:
[ ] New account
[ ] Change to current account (see Section 13)
_________________________
Account number
- -------------------------------------------------------------------------
If you have questions, please call us toll-free.
Monday - Friday--7 a.m. to 8 p.m. (CST)
Saturday & Sunday--8 a.m. to 2 p.m. (CST)
800-338-2550
http://www.steinroe.com
Liberty Securities Corporation, Distributor
Member SIPC
Stein Roe Mutual Funds, P.O. Box 8900, Boston, MA 02205-8900 800-338-2550
- -------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
Please check one of the boxes below to indicate the type of account
and complete the related information.
[ ] INDIVIDUAL OR [ ] JOINT* ACCOUNT
______________________________________________
Owner's name (First, middle initial, last)
_______________________________________________
Joint owner's name (First, middle initial, last)
____________________________________________________________________
Owner's Social Security number Joint owner's Social Security number
__________________________________________________________
Owner's citizenship Joint owner's citizenship
*Joint tenants with right of survivorship, unless indicated otherwise.
[ ] UNIFORM GIFTS (TRANSFERS) TO MINORS ACCOUNT (UGMA/UTMA)
_________________________________________ as custodian for:
Name of one custodian only
_________________________________________ under the
Name of one minor only
__________________ Uniform Gifts (Transfers) to Minors Act.
State of residence
_____________________________________________________
Minor's Social Security number Minor's birthdate
[ ] ORGANIZATION OR OTHER ACCOUNT
Please complete and return the Certificate of Authorization on the
last page of the prospectus.
_______________________________________________
Name of corporation, partnership, estate, etc.
_________________________________________
Tax identification number
[ ] TRUST OR RETIREMENT ACCOUNT
For a Stein Roe IRA, please call us for a separate application.
_________________________________________
Name of trustee(s)
_________________________________________
_________________________________________
Name of trust
____________________________________________________
Date of trust Trust's tax identification number
_________________________________________
Trust beneficiary(ies)
_________________________________________
Trust beneficiary(ies)
2. ADDRESS
_________________________________________
Street Address or P.O. box
_________________________________________
_________________________________________
City State Zip code
_________________________________________
Daytime telephone Evening Telephone
[ ] CONSOLIDATED QUARTERLY STATEMENTS
Check the box above if you would like to link your new Stein Roe account
to an existing Stein Roe account--even if the existing account is
registered to another member in your household. Linking your accounts
allows us to consolidate your Stein Roe accounts on one quarterly
statement. Please provide the existing Stein Roe account number below.
Statements will be sent to the address on the existing account.
________________________________________________
Existing account number
3. FUND SELECTION
Fill in the amount you would like to invest in each of the funds below.
The initial minimum is $2,500; for custodial accounts (UGMAs), the
minimum is $1,000. When an Automatic Investment Plan in Section 6 is
established, Stein Roe reduces the minimum initial investment to $1,000
for each new account ($500 for UGMAs and $100 for Young Investor Fund).
If you do not specify a fund, your investment will be in Stein Roe Cash
Reserves Fund, a money market fund.
MONEY MARKET FUNDS
Cash Reserves Fund (036) $_____
TAX-EXEMPT FUNDS
Municipal Money Market Fund (030) _____
Intermediate Municipals Fund (008)_____
Managed Municipals Fund (037) _____
High-Yield Municipals Fund (028) _____
BOND FUNDS
Intermediate Bond Fund (035) _____
Income Fund (009) _____
High Yield Fund (015) _____
GROWTH AND INCOME FUNDS
Balanced Fund (031) _____
Growth & Income Fund (011) _____
GROWTH FUNDS
Growth Stock Fund (032) CLOSED*
Young Investor Fund (014) _____
Special Fund (034) _____
Growth Opportunities Fund (020) _____
Special Venture Fund (016) _____
Capital Opportunities (033) _____
International Fund (012) _____
Emerging Markets Fund (018)** _____
*This Fund is closed to new investors. You must be a current shareholder
in any Stein Roe Fund to open an additional account in your name. To
verify your status as a current shareholder, please provide account
number with new investment amount below.
______________________________________________________________________
Current Stein Roe Fund account number New Growth Stock Fund
investment amount
**To discourage short-term trading, there is a 1 percent redemption fee
imposed on the sale of shares held for less than 90 days.
4. INVESTMENT METHOD
Check one box below. (Money orders and cashier's checks not accepted.)
[ ] BY CHECK: Payable to Stein Roe Mutual Funds
[ ] BY EXCHANGE FROM:
Your account must be registered identically to invest by exchange.
______________________________
Fund name
___________________________ ____________________________
Account number Number of shares or $ amount
[ ] BY WIRE: Call us for instructions at 800-338-2550
5. TELEPHONE AND ONLINE REDEMPTION OPTIONS
A. Telephone/Online Redemption Options. You can redeem shares by
telephone or online two ways: with Telephone/Online Redemption, a check
is mailed to your address of record; with Telephone/Online Exchange,
redemption proceeds are used to purchase shares in another Stein Roe
Fund. Most shareholders prefer these conveniences. They apply unless
you check the boxes below.
I DO NOT WANT:
[ ] Telephone Redemption [ ] Online Redemption
[ ] Telephone Exchange [ ] Online Exchange
B. ACH Redemption Option. Check either or both boxes if you wish to be
able to redeem shares at any time by telephone or online and have the
proceeds sent to your bank account designated in Section 8. ($50
minimum; $100,000 maximum.)
[ ] ACH Telephone Redemption
[ ] ACH Online Redemption
C. Telephone Redemption by Wire. Check the box below if you wish to
redeem shares at any time and wire the proceeds to your bank account
designated in Section 8. ($1,000 minimum for all funds; $100,000 maximum
for all funds except money market funds.) [ ]
If you decide to add these options at a later date, you will be required
to obtain a signature guarantee.
6. AUTOMATIC INVESTMENT PLAN
Please allow 3 weeks to establish this option.
[ ] A. Regular Investments. This option allows you to make scheduled
investments into your accounts(s) directly from your bank account
by electronic transfer. When this option is established, Stein
Roe reduces the minimum initial investment to $1,000 for each new
account ($500 for UGMAs and $100 for Young Investor Fund).
Please remember to include a check for the appropriate minimum
and also complete Section 8.
_________________________________________________________________________
Fund name Account number or ("new") Amount (minimum $50 monthly)
_________________________________________________________________________
Fund name Account number or ("new") Amount (minimum $50 monthly)
I authorize Stein Roe Mutual Funds to draw on my bank account to purchase
shares for the account(s) listed above. Check one period below to
indicate the frequency of your automatic investments.
[ ] Monthly [ ] Quarterly [ ] Every 6 months [ ] Annually
Check one box below to indicate which day of the month your investment
should be made:
[ ] 5th or [ ] 20th day of the month
Please begin: [ ] Immediately or [ ] _______ (specify month)
[ ] B. Special Investments. You can also make subsequent purchases by
telephone or online and pay for them by electronic transfer from
your bank account on request. Check the box above for this
option, which saves you the trouble and expense of arranging for a
wire transfer or writing a check. Please also complete Section 8.
($50 minimum; $100,000 maximum).
7. DISTRIBUTION OPTIONS
We will automatically reinvest all distributions for you. If you want
this option, you do not need to fill out this section. Please check
below only if you prefer that your distributions be: invested in
shares of another Stein Roe Fund with the same account registration (a
$1,000 minimum applies to the account in which you are investing);
deposited into your bank account; or sent by check to your registered
address.
Dividends Capital Gains
(check one or both)
[ ] A. Distribution Purchase [ ] [ ]
Invest into _______________ __________________________
Fund name Account number (or "new")
from: _____________________ ___________________________
Fund name Account number (or "new")
[ ] B. Automatic deposit direct to your bank [ ] [ ]
account. Please also complete Section 8.
[ ] C. Send check to registered address [ ] [ ]
8. BANK INFORMATION
Complete this section if you have selected options from Sections 5B, 5C,
6A, 6B, or 7B. You must use the same bank account for these options.
[ ] checking [ ] savings
________________________________________________________________
Name of bank
________________________________________________________________
Street address of bank
________________________________________________________________
City State Zip code
________________________________________________________________
Name(s) on bank account
______________________________ ________________________________
Bank account number ACH Routing number (see diagram below)
Attach voided check here.
- ------------------------------------------------------
Joe Investor 0000
123 Main Street ______ 19__
Anytown, USA 12345
Pay to the
order of ________________________________ $_________
______________________________________________ Dollars
Anytown Bank USA
Memo ____________ ______________________________
1 000 000000 00 0000000000
- ------------------------------------------------------
ACH ROUTING NUMBER YOUR ACCOUNT NUMBER
A unique nine-digit number Unique to your account at
that allows for the electronic your financial institution
transfer of funds and identi-
fies your financial institution
within the Automatic Clearing
House Network.
9. AUTOMATIC EXCHANGE PLAN
With this option you can authorize Stein Roe to regularly exchange shares
from one existing Stein Roe Fund account to another with the same account
registration. A $1,000 minimum applies to each new account.
________________________________________________________________
Redeem shares from (Fund name) Account number
________________________________________________________________
Amount ($50 minimum)
________________________________________________________________
Purchase shares from (Fund name) Account number
Check one box below to indicate frequency of exchange and fill in
dates between the 1st and 28th of the month:
[ ] Twice monthly on the ___ and ___ beginning ______ (Specify month)
[ ] Monthly on the ______ beginning __________ (Specify month)
[ ] Quarterly on the ______ of _______________ (List four months)
[ ] Twice yearly on the _____ of _____________ (List two months)
[ ] Annually on the _____ of _________________ (Specify month)
10. MONEY MARKET FUND OPTIONS
[ ] FREE CHECK WRITING
Available for Cash Reserves Fund and Municipal Money Market Fund only.
Check the above box and complete the signature card below if you wish
to write checks ($50 minimum) on your money market fund account
Please also complete Section 12.
PLEASE DO NOT DETACH
- ---------------------------------------------------------------------
Bank of Boston Check Writing Signature Card (for money market funds only)
Select Fund:[ ] Cash Reserves Fund [ ] Municipal Money Market Fund
Account name(s) as registered: ____________________________
By signing this card, I authorize Bank of Boston to honor any check drawn
by me on an account with the bank and to redeem and pay to bank shares in
my Fund account having a redemption price equal to the amount of such
check. I agree to be subject to the rules governing the Check Writing
Redemption option as in effect from time to time.
Signature (sign as you will on checks) Signature guarantee*
_____________________________________ ________________________________
_____________________________________ ________________________________
Number of signatures on each check*: __________
*Required if you are adding these options to an existing account; or if
you are requesting check writing for a Trust, Corporation or other
Organization account, guarantee required for any person signing these
cards who has not signed in Section 12. Otherwise a signature guarantee
is not required.
If left blank, only one signature is required for joint tenant accounts,
but all signatures are required for all other types of accounts.
For office use only: Account no. _________________ Date: ______________
You are subject to Fund and bank rules pertaining to checking
accounts under the privilege as in effect from time to time. For a
joint tenancy account with rights of survivorship, each owner appoints
each other owner as attorney-in-fact with power to authorize redemptions
on his behalf by signing checks under the privilege unless the reverse
side indicates all owners must sign checks.
You agree to hold Fund and its transfer agent free from any liability
resulting from payment of any forged, altered, lost or stolen check
unless you notify Fund and bank of such misappropriation no later than 14
days after the earliest of the date on which you (a) discover the
misappropriation or (b) receive a copy of the check cancelled by bank. A
copy of a cancelled check paid during a calendar month is deemed
received 6 days after posting in the U.S. mail to your registered address
with Fund unless you notify Fund of non-receipt by certified mail within
20 days after the close of such month.
You agree to hold Fund and its transfer agent free from any liability for
any other check misappropriated by the same wrongdoer and paid from
proceeds of a redemption made in good faith on or after the date you
notify Fund of the first misappropriated check.
- -----------------------------------------------------------------------
11. TERMS AND CONDITIONS OF SERVICES
Please read carefully before signing in Section 12. By electing an
automatic service, you agree to the following terms and conditions and
those stated in the Fund prospectus as in effect from time to time.
*By signing this application, you agree that any privilege you elect may
be restricted or terminated at any time without notice to you. Your
termination of a privilege will be effective no later than five business
days after the Fund(s) or its transfer agent receives 1) your request;
2) notice and proof of your death, or if a trust, termination thereof;
or 3) the closing of an affected Fund or bank account.
*All privileges except Automatic Dividend Deposit, Dividend Purchase
Option, Automatic Investment Plan, Money Market Fund Check Writing,
Automatic Exchange, Automatic Redemption Plan and Telephone Redemption
by Wire will be transferred automatically to any new account you open in
any other Fund offering the privileges into which a telephone or written
exchange is made.
*You authorize the Fund(s) and its transfer agent to initiate any and
all credit or debit entries (and reversals thereof) to effect electronic
transfers under any privilege and redeem shares of any Fund(s) you own
equal to the amount of any loss incurred by any of them in effecting any
electronic transfer and retain the proceeds.
*To discourage short-term trading, there is a 1 percent redemption fee
imposed on the sale of Emerging Markets Fund shares held for less than
90 days.
12. SIGNATURE(S)
By signing this form, I certify that:
*I have received the current Fund prospectus and have read the Terms and
Conditions of Services in Section 11 and agree to be bound by their
terms as governed by Illinois law. I have full authority and legal
capacity to purchase Fund shares and establish and use any related
privileges.
*By signing below, I certify under penalties or perjury that:
-All information and certifications on this application are true and
correct, including the Social Security or other tax identification
number (TIN) in Section 1.
-If I have not provided a TIN, I have not been issued a number but have
applied (or will apply) for one and understand that if I do not
provide the Fund(s) a TIN within 60 days, the Fund(s) will withhold
31 percent from all my dividend, capital gain and redemption payments
until I provide one.
-Check one of the following only if applicable:
[ ] The IRS has informed me I am subject to backup withholding as a
result of a failure to report all interest or dividend income.
[ ] I am a trust or organization that qualifies for the IRS backup
withholding exemption.
*Unless I have declined the Telephone Redemption, Telephone Exchange,
Online Redemption and Online Exchange privileges in Section 5A, I have
authorized the Fund and its agents to act upon instructions received by
telephone to redeem my shares of the Fund or to exchange them for shares
of another Stein Roe Fund, and I agree that, subject to the Funds
employing reasonable procedures to confirm that such telephone or online
instructions are genuine, neither the Fund, nor any of its agents will
be liable for any loss, injury, damage, or expense as a result of acting
upon, and will not be responsible for the authenticity of, any telephone
instructions, and will hold the Fund and its agents harmless from any
loss, claims or liability arising from its or their compliance with
these instructions. Accordingly, I understand that I will bear any
risk of loss resulting from unauthorized instructions.
*THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
Sign below exactly as your name(s) appears in Section 1.
x________________________________________________________________
Signature Date
________________________________________________________________
Title (if owner is an organization)
x________________________________________________________________
joint owner's signature Date
________________________________________________________________
Title (if owner is an organization)
13. SIGNATURE GUARANTEE (IF REQUIRED)
A signature guarantee is not required if you are establishing a new
account. For existing accounts, a signature guarantee is required if
you are adding or making changes to options listed in Sections 5, 6, 7B,
8 or 10. We are unable to accept notarizations.
Signature(s) guaranteed by:
________________________________________________________________
Name of institution
________________________________________________________________
Name of authorized officer
________________________________________________________________
Signature of authorized officer
Guarantor's stamp:
APP10/97
