<PAGE>
Prospectus Nov. 1, 1998
Stein Roe Mutual Funds
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund
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 10 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 by investing 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, and Appendix-Ratings.)
Each Fund seeks to achieve its objective by investing all of
its net investable assets in a corresponding portfolio of SR&F
Base Trust that has the identical investment objective and
substantially the same investment policies as the Fund. The
investment experience of each Fund will correspond to that of its
respective Portfolio. (See Master Fund/Feeder Fund: Structure
and Risk Factors.)
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 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, 1998,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. That
information, material incorporated by reference, and other
information regarding registrants that file electronically with
the SEC is available at the SEC's website, www.sec.gov. This
prospectus is also available electronically by using Stein Roe's
Internet address: 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 Funds ...............................8
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..............................21
By Electronic Transfer ..............21
By Exchange .........................22
Conditions of Purchase ..............22
Purchases Through Third Parties......22
Purchase Price and Effective Date ...22
How to Redeem Shares ...................23
By Written Request ..................23
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..............................31
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 (the
"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 seeks total return by investing for a high level of current
income and capital growth. Each Fund invests as described below.
Intermediate Bond Fund invests all of its net investable assets in
SR&F Intermediate Bond Portfolio ("Intermediate Bond Portfolio")
which pursues a high level of current income, consistent with
capital preservation, by investing primarily in marketable debt
securities. At least 60% of its 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, it invests at least 65% of its assets in securities
with an average life of between three and 10 years, and expects
that the dollar-weighted average life of its portfolio will be
between three and 10 years.
Income Fund invests all of its net investable assets in SR&F
Income Portfolio ("Income Portfolio") which 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 Portfolio 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") which 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 the investment objectives
and policies, please see Investment Policies and Portfolio
Investments and Strategies. There is, of course, no assurance
that any Fund or Portfolio will achieve its investment objective.
Investment Risks. The risks inherent in each Fund and 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 net asset value, but not the income
received from 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 Portfolios 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 no-load 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 no-load Stein Roe Fund. (See Distributions and Income
Taxes and Shareholder Services.)
Management and Fees. Stein Roe & Farnham Incorporated (the
"Adviser") is investment adviser to each Portfolio. In addition,
it provides administrative and bookkeeping and accounting services
to each Fund and each Portfolio. For a description of the Adviser
and its fees, see Management.
If you have any additional questions about the Funds, 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% 0.33%
12b-1 Fees None None None
Other Expenses (after fee waiver,
if applicable) 0.22% 0.22% 0.67%
Total Fund Operating Expenses ----- ----- -----
(after fee waiver, if applicable) 0.72% 0.83% 1.00%
===== ===== =====
___________________
*There is a $7.00 charge for wiring redemption proceeds to your
bank. A fee of $5.00 per quarter may be charged for accounts that
fall below stated minimums. (See How to Redeem Shares-General
Redemption Policies.)
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 $ 7 $23 $40 $ 89
Income Fund 8 26 46 103
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, 1999, 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%, 0.67% and 1.32%, 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.)
Each Fund pays the Adviser an administrative fee based on the
Fund's average daily net assets and each Portfolio pays the
Adviser a management fee based on the Portfolio's average daily
net assets. The expenses of both the Funds and the Portfolios are
summarized in the Fee Table above and are described under
Management. Each Fund bears its proportionate share of the fees
and expenses of its corresponding Portfolio. The trustees of the
Trust have considered whether the annual operating expenses of
each Fund, including its proportionate share of Portfolio
expenses, would be more or less than if the Fund invested directly
in the securities held by the Portfolio. The trustees concluded
that Fund 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 following tables 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 the Trust without charge upon request, contains
additional performance information.
Intermediate Bond Fund
<TABLE>
<CAPTION>
Years Ended June 30,
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $8.51 $8.65 $8.38 $8.53 $8.99 $9.26 $8.44 $8.67 $8.58 $8.74
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from Invest-
ment Operations
Net investment
income .74 .73 .69 .69 .65 .56 .58 .59 .60 .58
Net realized and
unrealized gains
(losses) on
investments .14 (.28) .16 .46 .27 (.59) .23 (.10) .17 .23
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from invest-
ment operations .88 .45 .85 1.15 .92 (.03) .81 .49 .77 .81
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Distributions
Net investment
income (.74) (.72) (.70) (.69) (.65) (.56) (.58) (.58) (.61) (.58)
Net realized
capital gains - - - - - (.08) - - - -
In excess of
realized gains - - - - - (.15) - - - -
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (.74) (.72) (.70) (.69) (.65) (.79) (.58) (.58) (.61) (.58)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net Asset Value,
End of Period $8.65 $8.38 $8.53 $8.99 $9.26 $8.44 $8.67 $8.58 $8.74 $8.97
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Ratio of net
expenses to
average net
assets (a) 0.73% 0.74% 0.73% 0.70% 0.67% 0.70% 0.70% 0.70% 0.73% 0.72%
Ratio of net in-
vestment income
to average net
assets (b) 8.71% 8.60% 8.17% 7.87% 7.22% 6.20% 6.94% 6.79% 6.97% 6.51%
Portfolio turnover
rate 197% 296% 239% 202% 214% 206% 162% 202% 210% 138%(d)
Total return (b) 10.97% 5.33% 10.62% 14.02% 10.59% (0.47%) 10.11% 5.76% 9.31% 9.51%
Net assets, end of
period (000
omitted) $165,056 $161,439 $184,444 $242,948 $311,728 $302,507 $301,733 $298,112 $328,784 $437,456
</TABLE>
Income Fund
<TABLE>
<CAPTION>
Years Ended June 30,
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $ 9.60 $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36 $ 9.79 $ 9.63 $ 9.88
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Invest-
ment Operations
Net investment
income .95 .92 .80 .76 .75 .69 .71 .71 .70 .69
Net realized and
unrealized gains
(losses) on invest-
ments .05 (.70) - .56 .59 (.74) .43 (.16) .25 .15
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 1.00 .22 .80 1.32 1.34 (.05) 1.14 .55 .95 .84
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions from
net investment
income (.95) (.92) (.80) (.76) (.75) (.69) (.71) (.71) (.70) (.69)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36 $ 9.79 $ 9.63 $ 9.88 $10.03
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expen-
ses to average
net assets (a) 0.90% 0.93% 0.95% 0.90% 0.82% 0.82% 0.82% 0.82% 0.84% 0.83%
Ratio of net invest-
ment income to
average net
assets (b) 9.97% 10.02% 8.98% 8.20% 7.62% 6.94% 7.55% 7.26% 7.26% 6.89%
Portfolio turnover
rate 94% 90% 77% 76% 39% 53% 64% 135% 138% 9%(d)
Total return (b) 11.06% 2.48% 9.30% 15.30% 14.64% (0.69%) 12.79% 5.70% 10.34% 8.72%
Net assets, end of
period (000
omitted) $110,376 $89,023 $93,952 $112,706 $151,594 $158,886 $174,327 $309,564 $375,272 $448,403
</TABLE>
High Yield Fund
Period Ended June 30, Year Ended June
30,
1997(c) 1998
Net Asset Value, Beginning of Period $10.00 $10.54
Income from Investment Operations
Net investment income .52 .85
Net realized and unrealized gains on investments .54
.61
Total from investment operations 1.06 1.46
Distributions
Net investment income (.52) (.85)
Net realized gains - (.15)
Total distributions (.52) (1.00)
Net Asset Value, End of Period $10.54 $11.00
Ratio of net expenses to average net assets (a) 1.00% (e)
1.00%
Ratio of net investment income to average net assets (b) 8.05%
(e) 7.79%
Total return (b) 10.88% 14.38%
Net assets, end of period (000 omitted) $13,482 $41,471
- -----
(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 1997,
respectively; for Income Fund, 0.83%, 0.85%, 0.88% and 0.85%
for the years ended June 30, 1994 through 1997, respectively;
and for High Yield Fund, 2.29% for the period ended June 30,
1997, and 1.32% for the year ended June 30, 1998.
(b) Computed giving effect to the Adviser's fee waiver.
(c) High Yield Fund commenced operations on Nov. 1, 1996.
(d) Prior to commencement of operations of the Portfolio.
(e) Annualized.
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 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 of the Trust invests in a separate portfolio of securities
and other assets, with its own objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
portfolio management, administrative, and accounting and
bookkeeping services to the Funds and the Portfolios. 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.
High Yield Fund was organized as a "feeder fund" and
Intermediate Bond Fund and Income Fund became "feeder funds" on
Feb. 2, 1998-that is, each invested all of its respective assets
in a "master fund" that has an investment objective identical to
that of the Fund. Each master fund is a series of SR&F Base
Trust; each master fund is referred to as a "Portfolio." Prior to
converting to a feeder fund, Intermediate Bond Fund and Income
Fund had invested their assets in a diversified group of
securities. Under the "master fund/feeder fund structure," a
feeder fund and one or more other feeder funds pool their assets
in a master portfolio that has the identical investment objective
and substantially the same investment policies as the feeder
funds. The purpose of such an arrangement is to achieve greater
operational efficiencies and reduce costs. The assets of each
Portfolio are managed by the Adviser in the same manner as the
assets of the feeder fund were managed before conversion to the
master fund/feeder fund structure. (For more information, see
Master Fund/Feeder Fund: Structure and Risk Factors.)
INVESTMENT POLICIES
Each Fund invests as described in the section 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.
The investment objective of INTERMEDIATE BOND FUND is to provide a
high level of current income, consistent with the preservation of
capital. It invests all of its net investable assets in SR&F
Intermediate Bond Portfolio ("Intermediate Bond Portfolio"), which
has the identical objective. Intermediate Bond Portfolio invests
primarily in marketable debt securities. Under normal market
conditions, it 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, Intermediate Bond Portfolio
invests at least 65% of its assets in securities with an average
life of between three and 10 years, and expects that the dollar-
weighted average life of its portfolio will be between three and
10 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.
Intermediate Bond Portfolio 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.
Intermediate Bond Portfolio 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, 1998, the investment
portfolio was invested, on average, as follows: AAA, U.S.
Government Securities or high-quality short-term instruments,
26.4%; AA, 8.8%; A, 26.2%; BBB, 26.7%; and BB and below, 11.9%.
The ratings are based on a dollar-weighted average, computed
quarterly, and reflect the higher of S&P or Moody's ratings. The
ratings do not necessarily reflect the current or future
composition of Intermediate Bond Portfolio.
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 invests all of its net
investable assets in SR&F Income Portfolio ("Income Portfolio"),
which has the identical objective.
Income Portfolio 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 Portfolio 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 Income Portfolio 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 Portfolio 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 Portfolio 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 Portfolio may
invest in unrated securities that the Adviser believes are
suitable for investment.
Under normal market conditions, Income Portfolio 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 Portfolio for a sufficient time to permit orderly
disposition thereof or to establish long-term holding periods for
federal income tax purposes.
Income Portfolio 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, 1998, the investment
portfolio was invested, on average, as follows: AAA, U.S.
Government Securities or high-quality short-term instruments,
7.3%; AA, 5.2%; A, 19.6%; BBB, 36.5%; BB, 20.5%; B, 9.7%; and CCC
and below or unrated, 1.2%. The ratings are based on a dollar-
weighted average, computed quarterly, and reflect the higher of
S&P or Moody's ratings. The ratings do not necessarily reflect
the current or future composition of Income Portfolio.
The investment objective of HIGH YIELD FUND is to seek total
return by investing for a high level of current income and capital
growth. It seeks to achieve its objective by investing all of its
net investable assets in SR&F High Yield Portfolio ("High Yield
Portfolio"), which has the identical objective.
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, 1998, the investment
portfolio was invested, on average, as follows: high-quality
short-term instruments, 2.1%; BBB, 1.2%; BB, 18.2%; B, 63.6%; and
CCC and below or unrated, 14.9%. The ratings are based on a
dollar-weighted average, computed quarterly, 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
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
Portfolio 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 Portfolio were investing in higher-quality debt securities.
Since the ratings of rating services (which evaluate the safety of
principal and interest payments, not market risks) are used only
as preliminary indicators of investment quality, the Adviser
employs its own credit research and analysis, from which it has
developed a proprietary credit rating system based upon
comparative credit analyses of issuers within the same industry.
These analyses may take into consideration such quantitative
factors as an issuer's present and potential liquidity,
profitability, internal capability to generate funds, debt/equity
ratio and debt servicing capabilities, and such qualitative
factors as an assessment of management, industry characteristics,
accounting methodology, and foreign business exposure.
Medium- and lower-quality debt securities tend to be less
marketable than higher-quality debt securities because the market
for them is less broad. The market for unrated debt securities is
even narrower. During periods of thin trading in these markets,
the spread between bid and asked prices is likely to increase
significantly, and a Portfolio may have greater difficulty selling
its portfolio securities. (See Net Asset Value.) The market
value of these securities and their liquidity may be affected by
adverse publicity and investor perceptions.
Derivatives. Consistent with its objective, each Portfolio may
invest in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange traded
options; futures contracts; futures options; securities
collateralized by underlying pools of mortgages or other
receivables; and other instruments, the value of which is
"derived" from the performance of an underlying asset or a
"benchmark" such as a security index, an interest rate, or a
currency ("Derivatives"). No Portfolio expects to invest more
than 5% of its net assets in any type of Derivative except: for
each Portfolio, options, futures contracts, and futures options;
and for Intermediate Bond Portfolio, 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 (including options and
futures) 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 Portfolio 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 on purchase of the securities, and the proceeds of prepayment
would likely be invested at lower interest rates. Each Portfolio
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 Portfolio 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 Portfolio may also invest in
floating rate instruments which provide for periodic adjustments
in coupon interest rates that are automatically reset based on
changes in amount and direction of specified market interest
rates. In addition, the adjusted duration of some of these
instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with an
adjusted duration of 2 would increase by approximately 2%. Income
Portfolio and High Yield Portfolio do not intend to invest more
than 5% of net assets in floating rate instruments. Intermediate
Bond Portfolio does not intend to invest more than 10% of net
assets in floating rate instruments.
Futures and Options. Each Portfolio may purchase and write
both call options and put options on securities, indexes and
foreign currencies, and enter into interest rate, index and
foreign currency futures contracts. Each Portfolio may also write
options on such futures contracts and purchase other types of
forward or investment contracts linked to individual securities,
indexes or other benchmarks, 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 Portfolio may write a call or put option only
if the option is covered. As the writer of a covered call option,
the Portfolio foregoes, during the option's life, the opportunity
to profit from increases in market value of the security covering
the call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid market
will exist when a Portfolio seeks to close out a position.
Because of low margin deposits required, the use of futures
contracts involves a high degree of leverage, and may result in
losses in excess of the amount of the margin deposit.
Foreign Securities. Each Portfolio may invest in foreign
securities, but will not invest in a foreign security if, as a
result of such investment, more than 25% of its total assets would
be invested in foreign securities. For purposes of this
restriction, foreign debt securities do not include securities
represented by American Depositary Receipts ("ADRs"), foreign debt
securities denominated in U.S. dollars, or securities guaranteed
by a U.S. person such as a corporation domiciled in the United
States that is a parent or affiliate of the issuer of the
securities being guaranteed. The Portfolios may invest in
sponsored or unsponsored ADRs. In addition to, or in lieu of,
such direct investment, a Portfolio may construct a synthetic
foreign position by (a) purchasing a debt instrument denominated
in one currency, generally U.S. dollars; and (b) concurrently
entering into a forward contract to deliver a corresponding amount
of that currency in exchange for a different currency on a future
date and at a specified rate of exchange. Because of the
availability of a variety of highly liquid U.S. dollar debt
instruments, a 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 Portfolios 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, 1998, no portion of any Portfolio's assets was
invested in foreign securities as defined above, and no Portfolio
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 Portfolio 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 Portfolio. The Portfolio would continue
to receive the equivalent of the interest or dividends paid by the
issuer on the securities loaned, and would also receive an
additional return that may be in the form of a fixed fee or a
percentage of the collateral. The Portfolio would have the right
to call the loan and obtain the securities loaned at any time on
notice of not more than five business days. In the event of
bankruptcy or other default of the borrower, the Portfolio could
experience both delays in liquidating the loan collateral or
recovering the loaned securities and losses including (a) possible
decline in the value of the collateral or in the value of the
securities loaned during the period while 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 Portfolios 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 Portfolio's assets may include securities purchased on a
when-issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time the
purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. A Portfolio makes such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
the Adviser deems it advisable for investment reasons. Securities
purchased in this manner involve a risk of loss if the value of
the security purchased declines before the settlement date.
When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that a Portfolio will
sell securities with a commitment to purchase similar, but not
identical, securities at a future date. Generally, the securities
are repurchased at a price lower than the sales price. Dollar
roll transactions involve the risk of restrictions on the
Portfolio's ability to repurchase the security if the counterparty
becomes insolvent; an adverse change in the price of the security
during the period of the roll or that the value of the security
repurchased will be less than the security sold; and transaction
costs exceeding the return earned on the sales proceeds of the
dollar roll.
Each Portfolio 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.
PIK and Zero Coupon Bonds. Each Portfolio 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 Portfolio accrues income with
respect to these securities prior to the receipt of such interest
in cash, it may have to dispose of portfolio securities under
disadvantageous circumstances in order to obtain cash needed to
pay income dividends in amounts necessary to avoid unfavorable tax
consequences. High Yield Portfolio may invest up to 20% of its
total assets in PIK and zero coupon bonds.
Short Sales Against the Box. Each Portfolio 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 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 Portfolio 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 Portfolios, 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, a
Portfolio's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that it 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. No Portfolio 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
Portfolio may sell portfolio securities without regard to the
period of time they have been held. Further, the Adviser may
purchase and sell securities for Income Portfolio 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 Income Portfolio generally
will exceed 10 years and the average stated maturity of High
Yield Portfolio will be from five to 10 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 a Portfolio 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
Each Fund and Portfolio is diversified as that term is defined in
the Investment Company Act of 1940.
No Fund or Portfolio may invest in a security if, as a result
of such investment: (1) with respect to 75% of its assets, more
than 5% of its total assets would be invested in the securities of
any one issuer, except for U.S. Government Securities or
repurchase agreements /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, a Fund, but not a Portfolio, may invest all of its
assets in another investment company having the identical
investment objective under a master fund/feeder fund structure.
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/1/ A repurchase agreement involves a sale of securities to a
Portfolio 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 Portfolio could experience
both delays in liquidating the underlying securities and losses.
A Portfolio may not invest more than 10% of its net assets in
repurchase agreements maturing in more than seven days and other
illiquid securities.
- -----------
Although no Fund or Portfolio may make loans, each 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 or Portfolio
may not borrow money, except for nonleveraging, temporary, or
emergency purposes or in connection with participation in the
interfund lending program. Neither aggregate borrowings
(including reverse repurchase agreements) nor aggregate loans at
any one time may exceed 33 1/3% of the value of 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 and each Portfolio. /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 voting 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 Portfolio
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
its master Portfolio, as well as on market conditions.
A decline in prevailing levels of interest rates generally
increases the value of securities in an investment portfolio,
while an increase in rates usually reduces the value of those
securities. As a result, interest rate fluctuations will affect
net asset value, but not the income received from 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 portfolio contain
call, prepayment or redemption provisions, during a period of
declining interest rates, these securities are likely to be
redeemed, and a Portfolio 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 Portfolio may enter into foreign currency forward
contracts and use options and futures contracts, as described
elsewhere in this prospectus, to limit or reduce foreign currency
risk.
There can be no assurance that a Fund will achieve its
objective, nor can a Portfolio assure that payments of interest
and principal on portfolio securities will be made when due. If
the rating of a portfolio security is lost or reduced, the
Portfolio 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 investment portfolio.
The investment objective of each Fund and its master
Portfolio is not fundamental and may be changed by the Board of
Trustees without a vote of shareholders. If there were a change
in an 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.
Year 2000 Compliance. Like other investment companies, financial
and business organizations and individuals around the world, the
Funds could be adversely affected if the computer systems used by
the Adviser and other service providers do not properly process
and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000
Problem." The Funds' Adviser, administrator, distributor and
transfer agent ("Liberty Companies") are taking steps that they
believe are reasonably designed to address the Year 2000 problem,
including working with vendors who furnish services, software and
systems to the Funds, to provide that date-related information and
data can be properly processed after January 1, 2000. Many Fund
service providers and vendors, including the Liberty Companies,
are in the process of making Year 2000 modifications to their
software and systems and believe that such modifications will be
completed on a timely basis prior to January 1, 2000. The Funds
will not pay the cost of these modifications. However, no
assurances can be given that all modifications required to ensure
proper data processing and calculation on and after January 1,
2000 will be timely made or that services to the Funds will not be
adversely affected.
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
no-load 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] program.
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., P.O. Box 8900, Boston, Massachusetts
02205. Participants in the Stein Roe Counselor [service mark]
program should send orders to SteinRoe Services Inc., 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. Credit card convenience checks will not be accepted for
initial or subsequent purchases into your account. Each
individual check submitted for purchase must be at least $100, and
the Funds 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 the Trust
will be responsible for the consequences of delays, including
delays in the banking or Federal Reserve wire systems. Your bank
must include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Account No. 560-99696
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] program
should address their wires as follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Account No. 560-99696
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 prescheduled
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 no-load 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 the Trust or its authorized
agent or designee 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. 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 a Fund's shareholders. The Trust also reserves
the right to waive or lower its investment minimums for any
reason. The Trust does not issue certificates for shares.
Purchases Through Third Parties. You may purchase (or redeem)
shares through 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 authorized agent or designee
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.
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 or designee 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., P.O. Box 8900, Boston, Massachusetts
02205. Participants in the Stein Roe Counselor [service mark]
program should send redemption requests to SteinRoe Services Inc.,
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, in English, 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 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 Fund
shares and use the proceeds to purchase shares of any other no-
load 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 no-load 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
no-load 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 no-load 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 no-load
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 no-load
Stein Roe Fund, and then back to that Fund). 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 the Funds.
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 for 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
the Funds, the Trust expects that it would provide shareholders
with prior written notice of any such action unless it appears
that the resulting delay in the suspension, limitation,
modification, or termination of the Telephone Exchange Privilege
would adversely affect the Funds. If the Trust were to suspend,
limit, modify, or terminate the Telephone Exchange Privilege, a
shareholder expecting to make a Telephone Exchange might find that
an exchange could not be processed or that there might be a delay
in the implementation of the exchange. (See How to Redeem Shares-
By Exchange.) During periods of volatile economic and market
conditions, you may have difficulty placing your exchange by
telephone.
Automatic Exchanges. You may use the Automatic Exchange
Privilege to automatically redeem a fixed amount from your Fund
account for investment in another no-load 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. 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 to such redemptions. (See Shareholder Services-
Tax-Sheltered Retirement Plans.) The Trust reserves the right to
require a properly completed application before making payment for
shares redeemed.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon that Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed
within seven days after proper instructions are received.
However, the Trust normally intends to pay proceeds of a Telephone
Redemption by Wire on the next business day. If you attempt to
redeem shares within 15 days after they have been purchased by
check or electronic transfer, the Trust will 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. 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.
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. The
Trust reserves the right to redeem any account with a value of $10
or less without prior written notice to the shareholder. Due to
the proportionately higher costs of maintaining small accounts,
the transfer agent may charge and deduct from the account a $5 per
quarter minimum balance fee if the account is a regular account
with a balance below $2,000 or an UGMA account with a balance
below $800. This minimum balance fee does not apply to: (1)
shareholders whose accounts in the Stein Roe Funds total $50,000
or more, (2) Stein Roe IRAs, (3) other Stein Roe prototype
retirement plans, (4) accounts with automatic investment plans
(unless regular investments have been discontinued), or (5)
omnibus or nominee accounts. The transfer agent 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 you cause it to sustain
(such as loss from an uncollected check or electronic transfer or
any 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, 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(r) Automated Telephone Service. To access Stein Roe
Funds-on-Call(r), just call 800-338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-Call(r)
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(r) 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(r) 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 Stein Roe
Counselor [service mark] program is a professional investment
advisory service available to shareholders. This program is
designed to provide investment guidance in helping investors to
select a portfolio of Stein Roe Funds.
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 no-load 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 the Trust for
additional information and forms.
Dividend Purchase Option-diversify your Fund investments by
having distributions from one Fund account automatically invested
in another no-load 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)-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-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)-redeem shares
at any time and have the proceeds deposited directly to your bank
account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)-purchase Fund
shares at regular intervals directly from your bank account ($50
minimum; $100,000 maximum).
Special Investments (electronic transfer)-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-automatically redeem a fixed dollar
amount from your Fund account and invest it in another no-load
Stein Roe Fund account on a regular basis ($50 minimum; $100,000
maximum).
Automatic Redemptions (electronic transfer)-have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank account ($50 minimum; $100,000 maximum).
Systematic Withdrawals-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 or 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 regular session trading on the
New York Stock Exchange ("NYSE") (currently 3:00 p.m., Central
time) by dividing the difference between the values of its assets
and liabilities by the number of shares outstanding. 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.
Each Portfolio allocates net asset value, income, and expenses to
its feeder funds in proportion to their respective interests in
the Portfolio.
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 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.
We value a security at fair value if the value of the
security has been materially affected by events that have occurred
after the close of the market on whatever exchange the security is
traded. In this circumstance, we use fair value pricing to
protect long-term investors from the actions of short-term
investors who might buy or redeem shares in an attempt to profit
from short-term market movements.
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 October 31 in that year. The Funds intend
to distribute any undistributed net investment income and net
realized capital gains in the following year.
All of your income dividends and capital gains distributions
will be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank account; (3) applied to
purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment
normally occurs on the payable date. If a shareholder elected to
receive dividends and/or capital gains distributions in cash and
the postal or other delivery service selected by the transfer
agent is unable to deliver checks to the shareholder's address of
record, such shareholder's distribution option will automatically
be converted to having all dividends and other distributions
reinvested in additional shares. The 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.
No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
Income Taxes. Your distributions will be taxable to you, under
income tax law, whether received in cash or reinvested in
additional shares. For federal income tax purposes, any
distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates
on income dividends and distributions of net short-term capital
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 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. 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 no guarantee 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 the Board of SR&F Base Trust have overall management
responsibility for the Funds and the Portfolios. See Management
in the Statement of Additional Information for the names of and
other information about the trustees and officers. Since the
Trust and SR&F Base Trust have the same trustees, the trustees
have adopted conflict of interest procedures to monitor and
address potential conflicts between the interests of the Funds and
the Portfolios.
The Adviser, Stein Roe & Farnham Incorporated, One South
Wacker Drive, Chicago, Illinois 60606, is responsible for managing
the investment portfolios of the Portfolios and the business
affairs of the Funds, the Portfolios, the Trust, and SR&F 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 (or its predecessor)
has advised and managed mutual funds since 1949. The Adviser is a
wholly owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
The Adviser's mutual funds and institutional asset management
businesses are managed together with its affiliate, Colonial
Management Associates, Inc. ("CMA"). A single management team
includes employees of each company. CMA is a registered
investment adviser serving mutual funds and institutions. Certain
officers of CMA also are officers of the Adviser in their roles as
managers of the combined business. CMA shares personnel,
facilities and systems with the Adviser that the Adviser uses in
providing services to the Funds.
In approving the use of a single combined prospectus, the
Board considered the possibility that one Fund (or Portfolio)
might be liable for misstatements in the prospectus regarding
information concerning another Fund.
Portfolio Managers. Michael T. Kennedy has been manager of
Intermediate Bond Portfolio since its inception in 1998 and had
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. A chartered financial analyst and a
chartered investment counselor, he received his B.S. degree from
Marquette University and his M.M. from Northwestern University.
Mr. Kennedy is a member of the Adviser's Taxable Strategy Team and
managed $520 million in mutual fund net assets for the Adviser as
of June 30, 1998.
Stephen F. Lockman has been manager of High Yield Portfolio
since 1997 and of Income Portfolio since its inception in 1998.
Prior thereto, he had been portfolio manager of Income Fund since
1997 and associate portfolio manager of High Yield Portfolio since
1996 and of Income Fund since 1995. Mr. Lockman joined the
Adviser in 1994 and was a senior research analyst for the
Adviser's fixed income department from 1994 to 1997. Mr. Lockman
previously served as portfolio manager for the Illinois State
Board of Investment from 1987 to 1994. A chartered financial
analyst, Mr. Lockman earned a bachelor's degree from the
University of Illinois and a master's degree from DePaul
University. As of June 30, 1998, Mr. Lockman managed $526 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 the Portfolios under a management
agreement. The Adviser is entitled to receive a monthly
administrative fee from each Fund and a monthly portfolio
management fee from each Portfolio, based on its average net
assets and computed and accrued daily, at the following annual
rates:
Fund Management Fee Administrative Fee
- -------------------- ------------------------ ------------------------
Intermediate Bond
Fund N/A .150%
Intermediate Bond
Portfolio .350% N/A
Income Fund N/A .150% up to $100 million,
.125% thereafter
Income Fund .500% up to $100 million,
.475% thereafter N/A
High Yield Fund N/A .150% up to $500 million,
.125% thereafter
High Yield Portfolio .500% up to $500 million,
.475% thereafter N/A
Under a separate agreement with each Trust, the Adviser
provides certain accounting and bookkeeping services to the Funds
and the Portfolios 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. Shares of the Funds are distributed by Liberty Funds
Distributor, Inc. ("Distributor"), One Financial Center, Boston,
Massachusetts 02111. The Distributor is a subsidiary of Colonial
Management Associates, Inc., which is an indirect subsidiary of
Liberty Financial. Fund shares are offered for sale without any
sales commissions or charges to the Funds or their shareholders.
All distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
All Fund correspondence (including purchase and redemption
orders) should be mailed to SteinRoe Services Inc., P.O. Box 8900,
Boston, Massachusetts 02205. Participants in the Stein Roe
Counselor [service mark] program should send orders to SteinRoe
Services Inc., P.O. Box 803938, Chicago, Illinois 60680.
Custodian. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Funds and the Portfolios. 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.
As a business trust, the Trust is not required to hold annual
shareholder meetings. However, special meetings may be called for
purposes such as electing or removing trustees, changing
fundamental policies, or approving an investment advisory
contract.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS
Each Fund (each a series of the Trust, 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 the Fund. The shareholders of each
Fund approved this policy of permitting the Fund to act as a
feeder fund by investing in a master Portfolio. Please refer to
Investment Policies, Portfolio Investments and Strategies, and
Investment Restrictions for a description of the investment
objectives, policies, and restrictions of the Funds and the
Portfolios. The management fees and expenses of the Funds and the
Portfolios are described under Fee Table and Management. Each
feeder fund bears its proportionate share of the expenses of its
master Portfolio.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
Each 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 a Fund and other investors in a Portfolio will be liable for
all obligations of that Portfolio that are not satisfied by the
Portfolio. However, the risk of a Fund incurring financial loss
on account of such liability is limited to circumstances in which
liability was inadequately insured and a Portfolio was unable to
meet its obligations. Accordingly, the trustees of the Trust
believe that neither the Funds nor their shareholders will be
adversely affected by reason of a Fund's investing in a Portfolio.
The Declaration of Trust of Base Trust provides that a
Portfolio will terminate 120 days after the withdrawal of a Fund
or any other investor in the Portfolio, unless the remaining
investors vote to agree to continue the business of the Portfolio.
The trustees of the Trust may vote a Fund's interests in a
Portfolio for such continuation without approval of the Fund's
shareholders.
The common investment objective of each Fund and its master
Portfolio is non-fundamental and may be changed without
shareholder approval, subject, however, to at least 30 days'
advance written notice to Fund shareholders. The fundamental
policies of each Fund and the corresponding fundamental policies
of its master Portfolio can be changed only with shareholder
approval.
If a Fund, as a Portfolio investor, is requested to vote on a
change in a fundamental policy of a Portfolio or any other matter
pertaining to the Portfolio (other than continuation of the
business of the Portfolio after withdrawal of another investor),
the Fund will solicit proxies from its shareholders and vote its
interest in the Portfolio for and against such matters
proportionately to the instructions to vote for and against such
matters received from Fund shareholders. A 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 investors in the Portfolio. If
other investors hold a majority interest in a Portfolio, they
could have voting control over that Portfolio.
In the event that a Portfolio's fundamental policies were
changed so as to be inconsistent with those of the corresponding
Fund, the Board of Trustees of the Trust would consider what
action might be taken, including changes to the Fund's fundamental
policies, withdrawal of the Fund's assets from the Portfolio and
investment of such assets in another pooled investment entity, or
the retention of an investment adviser to invest those assets
directly in a portfolio of securities. Any of these actions would
require the approval of a Fund's shareholders. A 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 a Fund's assets could result in a
distribution in kind of portfolio securities (as opposed to a cash
distribution) to the Fund. Should such a distribution occur, the
Fund could 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 the Fund and could affect the liquidity of the
Fund.
Each investor in a Portfolio, including a Fund, may add to or
reduce its investment in the Portfolio on each day the NYSE is
open for business. The investor's percentage of the aggregate
interests in the 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 the 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 the
Portfolio effected on such day; and (ii) the denominator of which
is the aggregate beginning of the day net asset value of the
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 the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio as of the close
of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in a Portfolio, but members of
the general public may not invest directly in the Portfolio.
Other investors in a Portfolio are not required to sell their
shares at the same public offering price as a Fund, might incur
different administrative fees and expenses than the Fund, and
might charge a sales commission. Therefore, Fund shareholders
might have different investment returns than shareholders in
another investment company that invests exclusively in a
Portfolio. Investment by such other investors in a Portfolio
would provide funds for the purchase of additional portfolio
securities and would tend to reduce the operating expenses as a
percentage of the Portfolio's net assets. Conversely, large-scale
redemptions by any such other investors in a Portfolio could
result in untimely liquidations of the Portfolio's security
holdings, loss of investment flexibility, and increases in the
operating expenses of the Portfolio as a percentage of its net
assets. As a result, a Portfolio's security holdings may become
less diverse, resulting in increased risk.
Information regarding other investors in a Portfolio may be
obtained by writing to SR&F Base Trust at Suite 3200, One South
Wacker Drive, Chicago, IL 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 ____________________________
(name of Corporation/Association)
(the "Corporation") and that the following individual(s):
Authorized Persons
_______________________________ __________________________
Name Title
_______________________________ __________________________
Name Title
_______________________________ __________________________
Name Title
is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or
redeem shares of that Fund payable to any person or in any manner,
or to redeem shares of that Fund and apply the proceeds of such
redemption to purchase shares of another Fund (an "exchange"), and
to execute any necessary forms in connection therewith.
Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.
If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that the
Corporation's Charter and By-laws provide that he is the only
person authorized to so act.
Unless expressly declined on the Application (or other form
acceptable to the Funds), the undersigned further certifies that
the Corporation has authorized by resolution or otherwise the
establishment of the Telephone Exchange and Telephone Redemption
by Check Privileges for the Corporation's account with any Fund
offering any such Privilege. If elected on the Application (or
other form acceptable to the Funds), the undersigned also
certifies that the Corporation has similarly authorized
establishment of the Electronic Transfer, Telephone Redemption by
Wire, and Check-Writing Privileges for the Corporation's account
with any Fund offering said Privileges. The undersigned has
further authorized each Fund and its transfer agent to honor any
written, telephonic, or telegraphic instructions furnished
pursuant to any such Privilege by any person believed by the Fund
or its transfer agent or their agents, officers, directors,
trustees, or employees to be authorized to act on behalf of the
Corporation and agrees that neither the Fund nor its transfer
agent, their agents, officers, directors, trustees, or employees
will be liable for any loss, liability, cost, or expense for
acting upon any such instructions.
These authorizations shall continue in effect until five business
days after the Fund and its transfer agent receive written notice
from the Corporation of any change.
IN WITNESS WHEREOF, I have hereunto subscribed my name as
Secretary and affixed the seal of this Corporation this ____ day
of ___________________, 19___.
________________________________
Secretary
_________________________________
Signature Guarantee*
*Only required if the person signing
the Certificate is the only person
named as "Authorized Person."
CORPORATE
SEAL
HERE
For More Information
You can obtain more information about the Funds' investments in
their semiannual and annual reports to shareholders. These
reports discuss the market conditions and investment strategies
that affected the Funds' performance over the past six months and
year.
You may wish to read the SAI for more information on the Funds.
The SAI is incorporated into this prospectus by reference, which
means that it is legally considered to be part of this prospectus
and you are deemed to have been told of its contents.
BOND FUNDS
To obtain free copies of Funds' semiannual and annual reports or
SAI, and to request other information about the Funds, write or
call:
Stein Roe Mutual Funds
One South Wacker Drive
Suite 3200
Chicago, IL 60606
800-338-2550
www.steinroe.com
Text-only versions of all Fund documents can be viewed online or
downloaded from the Securities and Exchange Commission (SEC) at
www.sec.gov. You can also obtain copies by visiting the SEC's
Public Reference Room in Washington, DC, by calling 800-SEC-0330,
or by sending your request and the appropriate fee to the SEC's
public reference section, Washington, DC 20549-6009.
Investment Company Act file number: 811-4552
LIBERTY FUNDS DISTRIBUTOR, INC.