1933 Act Registration No. 33-02633
1940 Act File No. 811-4552
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 38 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 39 [X]
STEIN ROE INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
One South Wacker Drive, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 1-800-338-2550
Heidi J. Walter Cameron S. Avery
Vice-President & Secretary Bell, Boyd & Lloyd
Stein Roe Income Trust Three First National Plaza
One South Wacker Drive 70 W. Madison Street, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602
(Name and Address of Agents for Service)
It is proposed that this filing will become effective (check
appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on November 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
Registrant has previously elected to register pursuant to Rule
24f-2 an indefinite number of shares of beneficial interest of
the following series: Stein Roe Income Fund, Stein Roe Cash
Reserves Fund, Stein Roe Intermediate Bond Fund, and Stein Roe
High Yield Fund.
This amendment to the Registration Statement has also been signed
by SR&F Base Trust.
<PAGE>
STEIN ROE INCOME TRUST
CROSS REFERENCE SHEET
ITEM
NO. CAPTION
- ----- -------
PART A (CASH RESERVES PROSPECTUS
AND BOND FUNDS PROSPECTUS)
1 Front cover
2 Fee Table; Summary
3 (a) Financial Highlights
(b) Inapplicable
(c) [Cash Reserves] The Funds; [Bond Funds] Investment
Return
(d) [Cash Reserves] Inapplicable; [Bond Funds] Financial
Highlights
4 Organization and Description of Shares; The Funds;
Investment Policies; Investment Restrictions; Risks and
Investment Considerations; Summary--Investment Risks; [Bond
Funds] Portfolio Investments and Strategies
5 (a) Management--Trustees and Investment Adviser
(b) Management--Trustees and Investment Adviser, Fees and
Expenses
(c) [Cash Reserves] Inapplicable; [Bond Funds] Management
--Portfolio Managers
(d) Inapplicable
(e) Management--Transfer Agent
(f) Management--Fees and Expenses; Financial Highlights; Fee
Table
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see statement of
additional information: General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) Summary
(f) Shareholder Services; Distributions and Income Taxes
(g) Distributions and Income Taxes
(h) [Bond Funds] Master Fund/Feeder Fund: Structure and Risk
Factors; [Cash Reserves] Inapplicable
7 How to Purchase Shares
(a) Management--Distributor
(b) How to Purchase Shares--Purchase Price and Effective Date;
Net Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inapplicable
(g) Inapplicable
8 (a) How to Redeem Shares; Shareholder Services
(b) How to Purchase Shares--Purchases Through Third Parties
(c) How to Redeem Shares--General Redemption Policies
(d) How to Redeem Shares--General Redemption Policies
9 Inapplicable
PART A (DEFINED CONTRIBUTION PLAN PROSPECTUSES FOR
INCOME FUND, INTERMEDIATE BOND FUND, AND CASH RESERVES FUND)
1 Front cover
2 Fee Table
3 (a) Financial Highlights
(b) Inapplicable
(c) [Cash Reserves] The Fund; [Intermediate Bond Fund and
Income Fund] Investment Return
(d) [Cash Reserves] Inapplicable; [Intermediate Bond Fund and
Income Fund] Financial Highlights
4 Organization and Description of Shares; The Fund;
Investment Policies; Investment Restrictions; Risks and
Investment Considerations; [Intermediate Bond Fund and
Income Fund] Portfolio Investments and Strategies
5 (a) Management--Trustees and Investment Adviser
(b) Management--Trustees and Investment Adviser,
Fees and Expenses
(c) [Cash Reserves] Inapplicable; [Intermediate Bond Fund and
Income Fund] Management--Portfolio Manager
(d) Inapplicable
(e) Management--Transfer Agent
(f) Management--Fees and Expenses; Financial Highlights
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see statement of
additional information: General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) For More Information
(f) Distributions and Income Taxes
(g) Distributions and Income Taxes
(h) Inapplicable
7 How to Purchase Shares
(a) Management--Distributor
(b) How to Purchase Shares; Net Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inapplicable
(g) Inapplicable
8 (a) How to Redeem Shares
(b) How to Purchase Shares
(c) Inapplicable
(d) Inapplicable
9 Inapplicable
PART B. (STATEMENT OF ADDITIONAL INFORMATION)
10 Cover page
11 Table of Contents
12 General Information and History
13 Investment Policies; Portfolio Investments and Strategies;
Investment Restrictions
14 Management
15(a) Inapplicable
(b) Principal Shareholders
(c) Principal Shareholders
16(a) Investment Advisory Services; Management; see prospectus:
Management, Fee Table
(b) Investment Advisory Services
(c) Inapplicable
(d) Investment Advisory Services
(e) Inapplicable
(f) Inapplicable
(g) Inapplicable
(h) Custodian; Independent Auditors
(i) Transfer Agent
17(a) Portfolio Transactions
(b) Inapplicable
(c) Portfolio Transactions
(d) Portfolio Transactions
(e) Portfolio Transactions
18 General Information and History
19(a) Purchases and Redemptions; see prospectus: How to Purchase
Shares, How to Redeem Shares, Shareholder Services
(b) Purchases and Redemptions; [Cash Reserves] Additional
Information on the Determination of Net Asset Value;
see prospectus: Net Asset Value
(c) Purchases and Redemptions
20 Additional Income Tax Considerations; [Bond Funds]
Portfolio Investments and Strategies--Taxation of Options
and Futures
21(a) Distributor
(b) Inapplicable
(c) Inapplicable
22 Investment Performance
23 Financial Statements
PART C
24 Financial Statements and Exhibits
25 Persons Controlled By or Under Common Control with
Registrant
26 Number of Holders of Securities
27 Indemnification
28 Business and Other Connections of Investment Adviser
29 Principal Underwriters
30 Location of Accounts and Records
31 Management Services
32 Undertakings
<PAGE>
Prospectus Nov. 1, 1998
Stein Roe Mutual Funds
Stein Roe Cash Reserves Fund
Cash Reserves Fund seeks to obtain maximum current income
consistent with capital preservation and maintenance of liquidity.
It seeks to achieve its objective by investing all of its net
investable assets in SR&F Cash Reserves Portfolio, a series of
SR&F Base Trust which has the identical investment objective and
substantially the same investment policies. The Portfolio invests
solely in money market instruments maturing in thirteen months or
less from the time of investment. The investment experience of
the Fund will correspond to that of the Portfolio. (See Master
Fund/Feeder Fund: Structure and Risk Factors.)
The Fund is a "no-load" money market fund and attempts to
maintain its net asset value at $1.00 per share. Fund shares are
neither insured nor guaranteed by the U.S. Government and there
can be no assurance that it will be able to maintain a stable net
asset value of $1.00 per share.
There are no sales or redemption charges, and the Fund has no
12b-1 plan. The Fund is a series of Stein Roe Income Trust.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated Nov. 1, 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 Fund..................................... 5
Investment Policies ......................... 6
Investment Restrictions ..................... 7
Risks and Investment Considerations ......... 8
How to Purchase Shares.......................10
By Check .................................10
By Wire...................................10
By Electronic Transfer ...................11
By Exchange ..............................11
Conditions of Purchase ...................11
Purchases Through Third Parties...........11
Purchase Price and Effective Date ........12
How to Redeem Shares ........................12
By Written Request .......................12
By Exchange...............................13
Special Redemption Privileges ............13
General Redemption Policies...............15
Shareholder Services.........................16
Net Asset Value..............................18
Distributions and Income Taxes...............19
Management ..................................20
Organization and Description of Shares ......21
Master Fund/Feeder Fund: Structure and
Risk Factors..............................22
Certificate of Authorization ................25
SUMMARY
Stein Roe Cash Reserves Fund (the "Fund") is a series of Stein Roe
Income Trust (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust. The Fund is
a "no-load" fund-there are no sales or redemption charges. (See
The Fund and Organization and Description of Shares.) This
prospectus is not a solicitation in any jurisdiction in which
shares of the Fund are not qualified for sale.
Net Asset Value. The Fund attempts to maintain its price per
share at $1.00. There is no assurance that it will always be able
to do so. (See Net Asset Value.)
Investment Objectives and Policies. The Fund is a money market
fund with the objective of seeking maximum current income
consistent with safety of capital and maintenance of liquidity.
The Fund invests all of its net investable assets in SR&F Cash
Reserves Portfolio (the "Portfolio"), which pursues its objective
by investing in a wide range of high-quality U.S. dollar-
denominated money market instruments maturing in thirteen months
or less from the date of purchase. Under normal market
conditions, the Portfolio will invest at least 25% of its total
assets in securities of issuers in the financial services
industry. (See Investment Policies.)
Investment Risks. The policy of normally investing at least 25%
of assets in securities of issuers in the financial services
industry may cause the Fund to be more adversely affected by
changes in market or economic conditions and other circumstances
affecting the financial services industry. In addition, since the
Portfolio may invest in securities of foreign branches of U.S.
banks, U.S. branches of foreign banks, and foreign banks and their
foreign branches, such as negotiable certificates of deposit
(Eurodollar CDs), and securities of foreign governments,
investment in the Fund might involve risks that are different in
some respects from an investment in a fund that invests only in
debt obligations of U.S. domestic issuers. (For a discussion of
risks, see Risks and Investment Considerations.)
Purchases. The minimum initial investment is $2,500, and
additional investments must be at least $100 (only $50 for
purchases by electronic transfer). Lower initial investment
minimums apply to IRAs, UGMAs, and automatic investment plans.
Shares may be purchased by check, by bank wire, by electronic
transfer, or by exchange from another no-load Stein Roe Fund. For
more detailed information, see How to Purchase Shares.
Redemptions. For information on redeeming shares, including the
special redemption privileges, see How to Redeem Shares.
Distributions. Dividends are declared each business day and are
paid monthly. Dividends will be reinvested in additional 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.)
Adviser and Fees. Stein Roe & Farnham Incorporated (the
"Adviser") provides administrative, management, and investment
advisory services to the Fund and the Portfolio. For a
description of the Adviser and its fees, see Management.
If you have any additional questions about the Fund, please
feel free to discuss them with a Stein Roe account representative
by calling 800-338-2550.
FEE TABLE
Shareholder Transaction Expenses
Sales Load Imposed on Purchases...............None
Sales Load Imposed on Reinvested Dividends....None
Deferred Sales Load...........................None
Redemption Fees...............................None*
Exchange Fees.................................None
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management and Administrative Fees ...........0.50%
12b-1 Fees....................................None
Other Expenses ...............................0.25%
-----
Total Fund Operating Expenses.................0.75%
=====
_________________________
*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.)
Example. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2) redemption at the
end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$8 $24 $42 $93
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will bear
directly or indirectly as an investor in the Fund. The table is
based upon actual expenses incurred in the last fiscal year.
The Fund pays the Adviser an administrative fee based on the
Fund's average daily net assets and the Portfolio pays the Adviser
a management fee based on its average daily net assets. The
expenses of both the Fund and the Portfolio are summarized in the
Fee Table and are described under Management. The Fund will bear
its proportionate share of Portfolio expenses. The trustees of
the Trust have considered whether the annual operating expenses of
the Fund, including its proportionate share of the expenses of the
Portfolio, would be more or less than if the Fund invested
directly in the securities held by the Portfolio. The trustees
concluded that the Fund's expenses would not be greater in such
case.
For purposes of the Example above, the figures assume that
the percentage amounts listed under Annual Fund Operating Expenses
remain the same during each of the periods; that all income
dividends and capital gains distributions are reinvested in
additional shares; and that, for purposes of fee breakpoints, the
net assets remain at the same level as in the most recently
completed fiscal year. The figures in the Example are not
necessarily indicative of past or future expenses, and actual
expenses may be greater or less than those shown. Although
information such as that shown in the Fee Table and Example is
useful in reviewing 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 table reflects the results of operations of the Fund
on a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction
with the financial statements and notes thereto, which may be
obtained from the Trust without charge upon request.
<TABLE>
<CAPTION>
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 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment
income 0.081 0.079 0.068 0.044 0.028 0.028 0.048 0.050 0.048 0.050
Distributions from
net investment
income (0.081) (0.079) (0.068) (0.044) (0.028) (0.028) (0.048) (0.050) (0.048) (0.050)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of expenses
to average net
assets 0.75% 0.76% 0.78% 0.78% 0.79% 0.79% 0.76% 0.78% 0.77% 0.75%
Ratio of net invest-
ment income to
average net assets 8.13% 7.94% 6.81% 4.40% 2.81% 2.77% 4.83% 4.98% 4.80% 4.98%
Total return 8.41% 8.20% 6.98% 4.49% 2.83% 2.81% 4.96% 5.07% 4.92% 5.09%
Net assets, end o
of period (000
omitted) $948,018 $949,803 $840,525 $711,087 $627,110 $554,713 $498,163 $476,840 $452,358 $493,954
</TABLE>
THE FUND
Stein Roe Cash Reserves Fund (the "Fund") is a no-load "mutual
fund." Mutual funds sell their own shares to investors and use
the money they receive to invest in a portfolio of securities. A
mutual fund allows you to pool your money with that of other
investors in order to obtain professional investment management.
Mutual funds generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping. Because the Fund invests only in money market
instruments, it is called a "money market fund." No-load funds do
not impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of Stein Roe Income Trust (the "Trust"),
an open-end management investment company which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
Although there can be no assurance that it will always be
able to do so, the Fund follows procedures designed to stabilize
its price per share at $1.00. The Statement of Additional
Information describes these procedures.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and accounting and
bookkeeping services to the Fund and the Portfolio. The Adviser
also manages several other mutual funds with different investment
objectives, including international funds, equity funds and
taxable and tax-exempt bond funds. To obtain prospectuses and
other information on any of those mutual funds, please call 800-
338-2550.
On March 2, 1998, the Fund became a "feeder fund"-that is, it
invested all of its assets in SR&F Cash Reserves Portfolio (the
"Portfolio"), a "master fund" that has an investment objective
identical to that of the Fund. The Portfolio is a series of SR&F
Base Trust. Prior to converting to a feeder fund, the Fund had
invested its 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 same 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 the Portfolio, the Fund's master
fund, are managed by the Adviser in the same manner as the assets
of the Fund were managed before conversion to the master
fund/feeder fund structure. (For more information, see Master
Fund/Feeder Fund: Structure and Risk Factors.)
Because the Fund strives to maintain a $1.00 per share value,
its return is usually quoted either as a current seven-day yield,
calculated by totaling the dividends on a share of the Fund for
the previous seven days and restating that yield as an annual
rate; or as an effective yield, calculated by adjusting the
current yield to assume daily compounding. The current and
effective yields for the seven-day period ended Sept. 30, 1998,
were 4.89% and 5.01%, respectively. To obtain current yield
information, you may call 800-338-2550.
From time to time, the Fund may also quote total return
figures. The total return from an investment in the Fund is
measured by the distributions received (assuming reinvestment)
plus or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period (including
reinvestment of distributions) by the value of the share at the
beginning of the period and subtracting one. For a given period,
an average annual total return may be calculated by finding the
average annual compounded rate that would equate a hypothetical
$1,000 investment to the ending redeemable value.
Comparison of the yield or total return of the Fund with
those of alternative investments should consider differences
between the Fund and the alternative investments, the periods and
methods used in calculation of the return being compared, and the
impact of taxes on alternative investments. Past performance is
no guarantee of future results.
INVESTMENT POLICIES
The Fund seeks to obtain maximum current income consistent with
the preservation of capital and the maintenance of liquidity. It
seeks to achieve its objective by investing all of its net
investable assets in the Portfolio, which has the identical
investment objective. The Portfolio seeks to achieve its
objective by investing all of its assets in U.S. dollar-
denominated money market instruments maturing in thirteen months
or less from time of investment. Each security must be rated (or
be issued by an issuer that is rated with respect to its short-
term debt) within the highest rating category for short-term debt
by at least two nationally recognized statistical rating
organizations ("NRSRO") (or, if rated by only one NRSRO, by that
rating agency), or, if unrated, determined by or under the
direction of the Board of Trustees to be of comparable quality.
These securities may include:
(1) Securities issued or guaranteed by the U.S. Government or by
its agencies or instrumentalities ("U.S. Government
Securities");
(2) Securities issued or guaranteed by the government of any
foreign country that are rated at time of purchase A or better
(or equivalent rating) by at least one NRSRO; /1/
(3) Certificates of deposit, bankers' acceptances and time
deposits of any bank (U.S. or foreign) having total assets in
excess of $1 billion, or the equivalent in other currencies
(as of the date of the most recent available financial
statements) or of any branches, agencies or subsidiaries (U.S.
or foreign) of any such bank;
(4) Commercial paper of U.S. or foreign issuers;
(5) Notes, bonds, and debentures rated at time of purchase A or
better (or equivalent rating) by at least one NRSRO;
(6) Repurchase agreements /2/ involving securities listed in (1)
above;
(7) Other high-quality short-term obligations.
- ------------
/1/ For a description of certain NRSRO commercial paper, note, and
bond ratings, see the Appendix to the Statement of Additional
Information.
/2/ A sale of securities to the Portfolio in which the seller (a
bank or securities dealer that the Adviser believes to be
financially sound) agrees to repurchase the securities at a higher
price, which includes an amount representing interest on the
purchase price, within a specified time.
- ------------------
In accordance with its investment objective and policies, the
Portfolio may invest in variable and floating rate money market
instruments which provide for periodic or automatic adjustment in
coupon interest rates that are reset based on changes in amount
and directions of specified short-term interest rates.
Under normal market conditions, the Portfolio will invest at
least 25% of its total assets in securities of issuers in the
financial services industry (which includes, but is not limited
to, banks, personal credit and business credit institutions, and
other financial services institutions).
The Portfolio maintains a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining a stable net
asset value per share, and not in excess of 90 days. It is a
fundamental policy /3/ that the maturity of any instrument that
grants the holder an optional right to redeem at par plus interest
and without penalty will be deemed at any time to be the next date
provided for payment on exercise of such optional redemption
right.
- ------------------
/3/ A fundamental policy may be changed only with the approval of
a "majority of the outstanding voting securities" as defined in
the Investment Company Act of 1940.
- ------------------
INVESTMENT RESTRICTIONS
Each of the Fund and the Portfolio is diversified as that term is
defined in the Investment Company Act of 1940.
Neither the Fund nor the Portfolio will, with respect to 75%
of its total assets, invest more than 5% of its total assets in
the securities of any one issuer-this restriction does not apply
to U.S. Government Securities or repurchase agreements for such
securities. /4/ Notwithstanding the limitation on investment in a
single issuer, the Fund may invest all or substantially all of its
assets in another investment company having the identical
investment objective under a master fund/feeder fund structure.
- ------------
/4/ Notwithstanding the foregoing, and in accordance with Rule
2a-7 of the Investment Company Act of 1940 (the "Rule"), the
Portfolio will not, immediately after the acquisition of any
security (other than a Government Security or certain other
securities as permitted under the Rule), invest more than 5% of
its total assets in the securities of any one issuer; provided,
however, that it may invest up to 25% of its total assets in First
Tier Securities (as that term is defined in the Rule) of a single
issuer for a period of up to three business days after the
purchase thereof.
- ------------
Although neither the Fund nor the 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; and (3) participate in an
interfund lending program with other Stein Roe Funds and
Portfolios. The Fund and the Portfolio may not borrow money,
except for nonleveraging, temporary, or emergency purposes or in
connection with participation in the interfund lending program.
Neither the 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 Portfolio will not invest more than 10% of its net assets
in illiquid securities, including repurchase agreements maturing
in more than seven days (however, there is otherwise no limitation
on the percentage of assets which may be invested in repurchase
agreements).
The policies described in the second and third paragraphs of
this section, which summarize certain important investment
restrictions of the Fund and the Portfolio, and the policy with
respect to concentration of investment in the financial services
industry, can be changed only with the approval of a "majority of
the outstanding voting securities," as defined in the Investment
Company Act of 1940. All of the investment restrictions are set
forth in the Statement of Additional Information.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. There can be no
guarantee that the Fund or the Portfolio will achieve its
objective or be able at all times to maintain its net asset value
per share at $1.00.
In the event of a bankruptcy or other default of a seller of
a repurchase agreement, the Portfolio could experience both delays
in liquidating the underlying securities and losses, including:
(a) possible decline in the value of the collateral during the
period in which it seeks to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.
The investment objective of the Fund and the Portfolio is not
fundamental and may be changed by the Board of Trustees without a
vote of shareholders. If there is a change in the investment
objective, shareholders should consider whether the Fund remains
an appropriate investment in light of their then-current financial
position and needs.
The policy of investing at least 25% of its assets in
securities of issuers in the financial services industry may cause
the Portfolio to be more adversely affected by changes in market
or economic conditions and other circumstances affecting the
financial services industry. Because the Portfolio may invest in:
securities of foreign branches of U.S. banks (Eurodollars), U.S.
branches of foreign banks (Yankee dollars), and foreign banks and
their foreign branches, such as negotiable certificates of
deposit; securities of foreign governments; and securities of
foreign issuers, such as commercial paper and corporate notes,
bonds and debentures, investment in the Fund might involve risks
that are different in some respects from an investment in a fund
that invests only in debt obligations of U.S. domestic issuers.
Such risks may include future political and economic developments;
the possible imposition of foreign withholding taxes on interest
income payable on securities held in the portfolio; possible
seizure or nationalization of foreign deposits; the possible
establishment of exchange controls; or the adoption of other
foreign governmental restrictions that might adversely affect the
payment of principal and interest on securities in the portfolio.
Additionally, there may be less public information available about
foreign banks and their branches. Foreign banks and foreign
branches of foreign banks are not regulated by U.S. banking
authorities, and generally are not bound by accounting, auditing,
and financial reporting standards comparable to U.S. banks.
The Portfolio may invest in securities purchased on a when-
issued or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Portfolio enters
into the commitment, the securities may be delivered and paid for
a month or more after the date of purchase, when their value may
have changed and the yields then available in the market may be
greater. It will make such commitments only with the intention of
actually acquiring the securities, but may sell the securities
before settlement date if it is deemed advisable for investment
reasons.
The 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.
Year 2000 Compliance. Like other investment companies, financial
and business organizations and individuals around the world, the
Fund could be adversely affected if the computer systems used by
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 Fund's 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 Fund, to provide that date-related information and
data can be properly processed after January 1, 2000. Many Fund
service providers and vendors, including the 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 Fund
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 Fund will not be
adversely affected.
HOW TO PURCHASE SHARES
You may purchase shares 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 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 and for clients of the Adviser.
Subsequent purchases must be at least $100, or at least $50 if you
purchase by electronic transfer. If you wish to purchase shares
to be held by a tax-sheltered retirement plan sponsored by the
Adviser, you must obtain special forms for those plans. (See
Shareholder Services.)
By Check. To make an initial purchase of shares by check, please
complete and sign the application and mail it, together with a
check made payable to Stein Roe Mutual Funds, to SteinRoe Services
Inc., 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 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 Fund 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 the Fund be
cancelled because your check does not clear, you will be
responsible for any resulting loss incurred.
By Wire. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to the First National Bank of Boston. Your bank
may charge you a fee for sending the wire. If you are opening a
new account by wire transfer, you must first call 800-338-2550 to
request an account number and furnish your Social Security or
other tax identification number. Neither the Fund nor the Trust
will be responsible for the consequences of delays, including
delays in the banking or Federal Reserve wire systems. Your bank
must include the full name(s) in which your account is registered
and your account number, and should address its wire as follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Account No. 560-99696
Fund No. 36; Stein Roe Cash Reserves Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Participants in the Stein Roe Counselor [service mark] 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. 36; Stein Roe Cash Reserves Fund
Account of (exact name(s) in registration)
Counselor Account No. ________
By Electronic Transfer. You may also make subsequent investments
by an electronic transfer of funds from your bank account.
Electronic transfer allows you to make purchases at your request
("Special Investments") by calling 800-338-2550 or at 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 be cancelled because your electronic transfer does
not clear, you will be responsible for any resulting loss
incurred.
By Exchange. You may purchase shares by exchange of shares from
another 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 Automatic
Exchanges). Restrictions apply; please review the information
under How to Redeem Shares-By Exchange.
Conditions of Purchase. Each purchase order must be accepted by
an authorized officer of the Trust or its authorized agent or
designee and is not binding until accepted and entered on the
books of the Fund. Once your purchase order has been accepted,
you may not cancel or revoke it; you may, however, redeem the
shares. 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 Fund 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 shares made
directly with the Fund is made at its net asset value (see Net
Asset Value) next determined after receipt of an order in good
form, including receipt of payment as follows:
Check purchases-net asset value next determined after your
check is converted into federal funds (currently one business day
after receipt of your check). Your investment will begin earning
dividends on the day of purchase.
Wire purchases-net asset value next determined after receipt
of the wire. If your wire is received before 11:00 a.m., Central
time, your investment will begin earning dividends on the day of
purchase. If your wire is received at or after 11:00 a.m.,
Central time, your investment will begin earning dividends on the
following day.
Electronic transfer-net asset value next determined after 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. Your investment will begin earning
dividends on the day following the date of purchase.
Each purchase of shares through an Intermediary that is an
authorized agent 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 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 Fund by
verifying your signature);
(5) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this
prospectus (or a form of resolution acceptable to the Trust);
and
(6) The request must include other supporting legal documents as
required from organizations, executors, administrators,
trustees, or others acting on accounts not registered in their
names.
By Exchange. You may redeem all or any portion of your shares and
use the proceeds to purchase shares of any other 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 shares. The Telephone
Redemption by Check, Telephone Redemption by Wire and Check-
Writing Privileges, and Special Electronic Transfer Redemptions
are not available to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser. (See also General
Redemption Policies.)
Telephone Exchange Privilege. You may use the Telephone
Exchange Privilege to exchange an amount of $50 or more from your
account by calling 800-338-2550 or by sending a telegram; new
accounts opened by exchange are subject to the $2,500 initial
purchase minimum. Generally, you will be limited to four
Telephone Exchange round-trips per year and the Fund may refuse
requests for Telephone Exchanges in excess of four round-trips (a
round-trip being the exchange out of the Fund into another no-load
Stein Roe Fund, and then back to the 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 Fund.
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 Fund, 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 Fund. If the Trust were to suspend,
limit, modify, or terminate the Telephone Exchange Privilege, a
shareholder expecting to make a Telephone Exchange might find that
an exchange could not be processed or that there might be a delay
in the implementation of the exchange. (See How to Redeem Shares-
By Exchange.) During periods of volatile economic and market
conditions, you may have difficulty placing your exchange by
telephone.
Automatic Exchanges. You may use the Automatic Exchange
Privilege to automatically redeem a fixed amount from your account
for investment in another 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.
Telephone Redemption by Wire Privilege. You may use this
Privilege to redeem an amount of $1,000 or more from your account
by calling 800-338-2550. The proceeds will be transmitted by wire
to your account at a commercial bank previously designated by you
that is a member of the Federal Reserve System. The fee for
wiring proceeds (currently $7.00 per transaction) will be deducted
from the amount wired.
Check-Writing Privilege. You may redeem shares by writing
special checks in the amount of $50 or more. Your checks are
drawn against a special checking account maintained with the First
National Bank of Boston, and you will be subject to the bank's
procedures and rules relating to its checking accounts and to this
Privilege.
Electronic Transfer Privilege. You may redeem shares by
calling 800-338-2550 and requesting an electronic transfer
("Special Redemption") of the proceeds to a bank account
previously designated by you at a bank that is a member of the
Automated Clearing House or at scheduled intervals ("Automatic
Redemptions"-see Shareholder Services). Electronic transfers are
subject to a $50 minimum and a $100,000 maximum. A Special
Redemption request received by telephone after 3:00 p.m., Central
time, is deemed received on the next business day.
General Redemption Policies. You may not cancel or revoke your
redemption order once instructions have been received and
accepted. The Trust cannot accept a redemption request that
specifies a particular date or price for redemption or any special
conditions. Please call 800-338-2550 if you have any questions
about requirements for a redemption before submitting your
request. If you wish to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser, special procedures of
those plans apply. (See Shareholder Services-Tax-Sheltered
Retirement Plans.) The Trust reserves the right to require a
properly completed application before making payment for shares
redeemed.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the net asset value per
share at the time of redemption, it may be more or less than the
price you originally paid for the shares, even though the Fund
attempts to maintain its net asset value at $1.00 (rounded to the
nearest one cent), and may result in a realized capital gain or
loss.
The Trust normally intends to pay proceeds of a redemption
within two business days and generally no later than seven days
after proper instructions are received. If a request for
Telephone Redemption by Wire is received before 11:00 a.m.,
Central time, the proceeds will be paid on the day the order is
received; proceeds of an order received at or after 11:00 a.m.,
Central time, will be paid on the next business day. The Trust
will not be responsible for the consequences of delays, including
delays in the mail, banking, or Federal Reserve wire systems. If
you attempt to redeem shares within 15 days after they have been
purchased by check or electronic transfer, the Trust 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 Fund employs
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Fund and
its transfer agent to tape-record all instructions to redeem. In
addition, callers are asked to identify the account number and
registration, and may be required to provide other forms of
identification. Written confirmations of transactions are mailed
promptly to the registered address; a legend on the confirmation
requests that the shareholder review the transactions and inform
the Fund immediately if there is a problem. If the 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 the 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
Fund shares, as well as periodic statements detailing
distributions made by the Fund. Shares purchased by reinvestment
of dividends, by cross-reinvestment of dividends from another
Stein Roe Fund, or through an automatic investment plan will be
confirmed to you quarterly. In addition, the Trust will send you
semiannual and annual reports showing portfolio holdings and will
provide you annually with tax information.
To reduce the volume of mail you receive, only one copy of
certain materials, such as prospectuses and shareholder reports,
will be mailed to your household (same address). Please call 800-
338-2550 if you wish to receive additional copies free of charge.
This policy may not apply if you purchased shares through an
Intermediary.
Funds-on-Call(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 Stein Roe
Fund in which you plan to invest before making your investment.
Individual Retirement Accounts ("IRAs") for employed persons
and their non-employed spouses.
Prototype Money Purchase Pension and Profit-Sharing Plans for
self-employed individuals, partnerships, and corporations.
Simplified Employee Pension Plans permitting employers to
provide retirement benefits to their employees by utilizing IRAs
while minimizing administration and reporting requirements.
Special Services. The following special services are available to
shareholders. Please call 800-338-2550 or write the Trust for
additional information and forms.
Dividend Purchase Option-diversify your investments by having
distributions from one no-load Stein Roe 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 account ($1,000 minimum).
Check-Writing Privilege-redeem shares by writing special
checks against your Fund account ($50 minimum per check).
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 shares at
regular intervals directly from your bank account ($50 minimum;
$100,000 maximum).
Special Investments (electronic transfer)-purchase shares by
telephone and pay for them by electronic transfer of funds from
your bank account ($50 minimum; $100,000 maximum).
Automatic Exchange Plan-automatically redeem a fixed dollar
amount from your 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 Fund shares is the net asset
value per share. The net asset value of a share is normally
determined twice each day: at 11:00 a.m., Central time, and as of
the close of regular session trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., Central time). The net
asset value per share is computed by dividing the difference
between the values of assets and liabilities by the number of
shares outstanding and rounding to the nearest cent. Net asset
value will not be determined on days when the NYSE is closed
unless, in the judgment of the Board of Trustees, the net asset
value should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central time. The
Portfolio allocates net asset value, income, and expenses to the
Fund and any other of its feeder funds in proportion to their
respective interests in the Portfolio.
The Fund attempts to maintain its net asset value at $1.00
per share. Portfolio securities are valued based on their
amortized cost, which does not take into account unrealized gains
or losses. Other assets and securities for which this valuation
method does not produce a fair value are valued at a fair value
determined by the Board. The extent of any deviation between the
net asset value based upon market quotations or equivalents and
$1.00 per share based on amortized cost will be examined by the
Board of Trustees. If such deviation were to exceed 1/2 of 1%,
the Board would consider what action, if any, should be taken,
including selling portfolio instruments, increasing, reducing or
suspending distributions, or redeeming shares in kind.
DISTRIBUTIONS AND INCOME TAXES
Distributions. A dividend from net income of the Fund is declared
each business day to shareholders of record immediately before
3:00 p.m., Central time. (See How to Purchase Shares.) Dividends
are paid monthly and confirmed at least quarterly. If the net
asset value per share were to decline, or were believed likely to
decline, below $1.00 (rounded to the nearest cent), the Board
might temporarily reduce or suspend dividends in an effort to
maintain net asset value at $1.00 per share.
All of your income dividends and capital gains distributions
will be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank account; (3) applied to
purchase shares in your account with another no-load Stein Roe
Fund; or (4) applied to purchase shares in a no-load 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 shares of the Fund 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. Because
investment income consists primarily of interest, it is expected
that none of the dividends paid by the Fund will qualify under the
Internal Revenue Code for the dividends received deduction
available to corporations.
For federal income tax purposes, the 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 Fund
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for the Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a credit
on your federal income tax return.
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 Fund and the Portfolio, respectively. 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 Fund
and the Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South
Wacker Drive, Chicago, Illinois 60606, is responsible for managing
the investment portfolio of the Portfolio and the business affairs
of the Fund, the Portfolio, 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 Fund.
Fees and Expenses. The Adviser provides administrative services
to the Fund under an administrative agreement and investment
management services to the Portfolio under a management agreement.
The Adviser is entitled to receive a monthly administrative fee
from the Fund at an annual rate of 0.250% of the first $500
million of average net assets, 0.200% of the next $500 million,
and 0.150% thereafter; and a monthly portfolio management fee from
the Portfolio at an annual rate of 0.250% of the first $500
million of average net assets and 0.225% thereafter, each computed
and accrued daily.
Under a separate agreement with each Trust, the Adviser
provides certain accounting and bookkeeping services to the Fund
and the Portfolio, including computation of net asset value and
calculation of net income and capital gains and losses on
disposition of assets.
Portfolio Transactions. The Adviser places the orders for the
purchase and sale of portfolio securities. In doing so, the
Adviser seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors.
Transfer Agent. SteinRoe Services Inc., One South Wacker Drive,
Chicago, Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
Distributor. Fund shares 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 Fund or its shareholders. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
All 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 Fund and the Portfolio. 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
The Fund, an open-end management investment company, seeks to
achieve its objective by investing all of its assets in another
mutual fund having an investment objective identical to that of
the Fund. The shareholders of the Fund approved this policy of
permitting the Fund to act as a feeder fund by investing in the
Portfolio. Please refer to Investment Policies and Investment
Restrictions for a description of the investment objectives,
policies, and restrictions of the Fund and the Portfolio. The
management fees and expenses of both the Fund and the Portfolio
are described under Fee Table and Management. The Fund bears its
proportionate share of the Portfolio's expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
SR&F Cash Reserves 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 the Fund and other investors in
the Portfolio will be liable for all obligations of the Portfolio
that are not satisfied by the Portfolio. However, the risk of the
Fund incurring financial loss on account of such liability is
limited to circumstances in which liability was inadequately
insured and the Portfolio was unable to meet its obligations.
Accordingly, the trustees of the Trust believe that neither the
Fund nor its shareholders will be adversely affected by reason of
the Fund's investing in the Portfolio.
The Declaration of Trust of Base Trust provides that the
Portfolio will terminate 120 days after the withdrawal of the 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 the Fund's interests in the
Portfolio for such continuation without approval of the Fund's
shareholders.
The common investment objective of the Fund and the Portfolio
is non-fundamental and may be changed without shareholder
approval, subject, however, to at least 30 days' advance written
notice to the Fund's shareholders. The fundamental policies of
the Fund and the corresponding fundamental policies of the
Portfolio can be changed only with shareholder approval.
If the Fund, as an investor in the Portfolio, is requested to
vote on a proposed change in a fundamental policy of the Portfolio
or any other matter pertaining to the Portfolio (other than
continuation of the business of the Portfolio after withdrawal of
another investor), the Fund will solicit proxies from its
shareholders and vote its interest in the Portfolio for and
against such matters proportionately to the instructions to vote
for and against such matters received from Fund shareholders. The
Fund will vote shares for which it receives no voting instructions
in the same proportion as the shares for which it receives voting
instructions. There can be no assurance that any matter receiving
a majority of votes cast by Fund shareholders will receive a
majority of votes cast by all Portfolio investors. If other
investors hold a majority interest in the Portfolio, they could
have voting control over the Portfolio.
In the event that the Portfolio's fundamental policies were
changed so as to be inconsistent with those of the Fund, the Board
of Trustees of the Trust would consider what action might be
taken, including changes to the Fund's fundamental policies,
withdrawal of its 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 money market
instruments maturing in 13 months or less. Any of these actions
would require the approval of the Fund's shareholders. The Fund's
inability to find a substitute master fund or comparable
investment management could have a significant impact upon its
shareholders' investments. Any withdrawal of the Fund's assets
could result in a distribution in kind of 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 the Portfolio, including the 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
investment 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 the Portfolio, but members of
the general public may not invest directly in the Portfolio.
Other investors in the Portfolio are not required to sell their
shares at the same public offering price as the Fund, could incur
different administrative fees and expenses than the Fund, and
their shares might be sold with a sales commission. Therefore,
the Fund's shareholders might have different investment returns than
shareholders in another investment company that invests
exclusively in the Portfolio. Investment by such other investors
in the Portfolio would provide funds for the purchase of
additional portfolio securities and would tend to reduce the
Portfolio's operating expenses as a percentage of its net assets.
Conversely, large-scale redemptions by any such other investors in
the Portfolio could result in untimely liquidations of the
Portfolio's 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, the Portfolio's
security holdings may become less diverse, resulting in increased
risk.
Information regarding any other investors in the Portfolio
may be obtained by writing to SR&F Base Trust, 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.
__________________
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 Fund's investments in
its semiannual and annual reports to shareholders. These reports
discuss the market conditions and investment strategies that
affected the Fund's performance over the past six months and
year.
You may wish to read the SAI for more information on the Fund.
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.
MONEY MARKET FUNDS
To obtain free copies of Fund's semiannual and annual reports or
SAI, and to request other information about the Fund, 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.
<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.
- -----------
/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.
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
Prospectus Nov. 1, 1998
Defined Contribution Plans
Stein Roe Income Fund
Stein Roe Income Fund seeks high current income by investing
principally in medium-quality debt securities and, to a lesser
extent, in lower-quality securities which may involve greater
risk. (See Investment Policies.) The Fund seeks to achieve its
objective by investing all of its net investable assets in SR&F
Income Portfolio, a series of SR&F Base Trust that has the
identical investment objective and substantially the same
investment policies as the Fund. The investment experience of the
Fund will correspond to that of the Portfolio. (See Master
Fund/Feeder Fund: Structure and Risk Factors.)
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
Stein Roe Income Trust, an open-end management investment company.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated Nov. 1, 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. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Funds at Suite 3200, One South Wacker Drive, Chicago, IL 60606
or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of Stein
Roe Income Trust that may not be available as investment vehicles
for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Table of Contents
Page
Fee Table ...............................2
Financial Highlights.....................2
The Fund.................................3
Investment Policies......................4
Portfolio Investments and Strategies.....5
Investment Restrictions .................8
Risks and Investment Considerations .....8
How to Purchase Shares ..................9
How to Redeem Shares ...................10
Net Asset Value ........................10
Distributions and Income Taxes..........11
Investment Return.......................11
Management..............................12
Organization and Description of Shares..13
Master Fund/Feeder Fund: Structure
and Risk Factors....................13
For More Information....................15
___________________________
Fee Table
Shareholder Transaction Expenses
Sales Load Imposed on Purchases................None
Sales Load Imposed on Reinvested Dividends.....None
Deferred Sales Load............................None
Redemption Fees................................None
Exchange Fees..................................None
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management and Administrative Fees ............0.61%
12b-1 Fees.....................................None
Other Expenses.................................0.22%
-----
Total Fund Operating Expenses..................0.83%
=====
Example.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$8 $26 $46 $103
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based on
actual expenses incurred in the last fiscal year.
The Fund pays the Adviser an administrative fee based on the
Fund's average daily net assets, and the Portfolio pays the
Adviser a management fee based on its average daily net assets.
The expenses of both the Fund and the Portfolio are summarized in
the Fee Table. (The fees are described under Management.) The
Fund bears its proportionate share of Portfolio fees and expenses.
The trustees of Stein Roe Income Trust (the "Trust") have
considered whether the annual operating expenses of the Fund,
including its proportionate share of the expenses of the
Portfolio, would be more or less than if the Fund invested
directly in the securities held by the Portfolio. The trustees
concluded that the Fund's expenses would not be greater in such
case.
For purposes of the Example above, the figures assume that the
percentage amounts listed under Annual Fund Operating Expenses
remain the same during each of the periods, that all income
dividends and capital gains distributions are reinvested in
additional Fund shares, and that, for purposes of fee breakpoints,
net assets remain at the same level as in the most recently
completed fiscal year. The figures in the Example are not
necessarily indicative of past or future expenses, and actual
expenses may be greater or less than those shown. Although
information such as that shown in the Fee Table and Example is
useful in reviewing the Fund's expenses and in providing a basis
for comparison with other mutual funds, it should not be used for
comparison with other investments using different assumptions or
time periods. The Example does not reflect any charges or
expenses related to your employer's plan.
__________________________
Financial Highlights
The following table reflects the results of operations of the Fund
on a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction
with the Fund's financial statements and notes thereto. The
annual report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
<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>
__________________
(a) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the Adviser, this ratio would
have been 0.83%, 0.85%, 0.88% and 0.85% for the years ended
June 30, 1994 through 1997, respectively.
(b) Computed giving effect to the Adviser's expense limitation
undertaking.
(c) Prior to commencement of operations of the Portfolio.
___________________________
The Fund
The mutual fund offered by this prospectus is Stein Roe Income
Fund (the "Fund"). The Fund is a no-load "mutual fund." No-load
funds do not impose commissions or charges when shares are
purchased or redeemed. Mutual funds sell their own shares to
investors and invest the proceeds in a portfolio of securities. A
mutual fund allows you to pool your money with that of other
investors in order to obtain professional investment management.
Mutual funds generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping.
The Fund is a series of Stein Roe Income Trust (the "Trust"), an
open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
On Feb. 2, 1998, the Fund became a "feeder fund"-that is, it
invested all of its assets in SR&F Income Portfolio (the
"Portfolio"), a "master fund" that has an investment objective
identical to that of the Fund. The Portfolio is a series of SR&F
Base Trust. Prior to converting to a feeder fund, the Fund had
invested its 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 same 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 the Portfolio, the Fund's master
fund, are managed by the Adviser in the same manner as the assets
of the Fund were managed before conversion to the master
fund/feeder fund structure. (For more information, see Master
Fund/Feeder Fund: Structure and Risk Factors.)
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory services to the Portfolio and administrative
services to the Fund and the Portfolio. The Adviser also manages
several other mutual funds
with different investment objectives, including other bond funds,
equity funds, international funds, tax-exempt bond funds, and
money market funds. To obtain prospectuses and other information
on opening a regular account in any of these mutual funds, please
call 800-338-2550.
___________________________
Investment Policies
The investment objective of the Fund is to provide a high level of
current income. Consistent with this investment objective,
capital preservation and capital appreciation are regarded as
secondary objectives. The Fund invests all of its net investable
assets in the Portfolio, which has the same investment objective
and substantially the same investment policies as the Fund. The
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 Investors Service
("Moody's") or A or BBB by Standard & Poor's Corporation ("S&P").
The Adviser generally attributes to medium-quality securities the
same characteristics as rating services. Further information on
portfolio investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
Although the Portfolio will invest at least 60% of its assets in
medium- or higher-quality securities, it may also invest to a
lesser extent in securities of lower quality (in the case of rated
securities, having a rating by Moody's or S&P of not less than C).
Although the 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 predominantly speculative with
respect to the issuer's capacity to pay interest and repay
principal, and are commonly referred to as "junk bonds." The
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. The
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 the Portfolio may invest
in unrated securities that the Adviser believes are suitable for
investment.
Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer
default or bankruptcy. An economic downturn could severely
disrupt this market and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and
interest. In addition, lower-quality bonds are less sensitive to
interest rate changes than higher-quality instruments (see Risks
and Investment Considerations) and generally are more sensitive to
adverse economic changes or individual corporate developments.
During a period of adverse economic changes, including a period of
rising interest rates, issuers of such bonds may experience
difficulty in servicing their principal and interest payment
obligations.
Achievement of the investment objective will be more dependent on
the Adviser's credit analysis than would be the case if the
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 credit rating system based upon comparative credit
analyses of issuers within the same industry. These analyses may
take into consideration such quantitative factors as an issuer's
present and potential liquidity, profitability, internal
capability to generate funds, debt/equity ratio and debt servicing
capabilities, and such qualitative factors as an assessment of
management, industry characteristics, accounting methodology, and
foreign business exposure.
Medium- and lower-quality debt securities tend to be less
marketable than higher-quality debt securities because the market
for them is less broad. The market for unrated debt securities is
even narrower. During periods of thin trading in these markets,
the spread between bid and asked prices is likely to increase
significantly, and the 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.
Under normal market conditions, the 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 the Portfolio for a sufficient time to permit orderly
disposition thereof or to establish long-term holding periods for
federal income tax purposes.
The 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 the Portfolio.
___________________________
Portfolio Investments and Strategies
Derivatives.
Consistent with its objective, the 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"). The Portfolio
does not expect to invest more than 5% of its net assets in any
type of Derivative except for options, futures contracts, or
futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives (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.
REMICs. The 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 collateralized
mortgage obligations ("CMOs") in that they issue multiple classes
of securities. A REMIC is a CMO that qualifies for special tax
treatment under the Internal Revenue Code and invests in certain
mortgages principally secured by interests in real property.
Investors may purchase beneficial interests in REMICs, which are
known as "regular" interests, or "residual" interests. Guaranteed
REMIC pass-through certificates ("REMIC Certificates") issued by
FNMA or FHLMC represent beneficial ownership interests in a REMIC
trust consisting principally of mortgage loans or FNMA-, FHLMC- or
GNMA-guaranteed mortgage pass-through certificates. For FHLMC
REMIC Certificates, FHLMC guarantees the timely payment of
interest and also guarantees the payment of principal as payments
are required to be made on the underlying mortgage participation
certificates. FNMA REMIC Certificates are issued and guaranteed
as to timely distribution and principal and interest by FNMA.
Floating Rate Instruments. The 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%. The
Portfolio does not intend to invest more than 5% of net assets in
floating rate instruments.
Futures and Options. The 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. The 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. The
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 the
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.
Although the Portfolio may invest in foreign securities, it will
not invest in a foreign security if, as a result of such
investment, more than 25% of its total assets would be invested in
foreign securities. For purposes of this restriction, foreign
securities do not include securities represented by American
Depositary Receipts ("ADRs"), foreign debt securities denominated
in U.S. dollars, or securities guaranteed by a U.S. person such as
a corporation domiciled in the United States that is a parent or
affiliate of the issuer of the securities being guaranteed. The
Portfolio may invest in sponsored or unsponsored ADRs. In
addition to, or in lieu of, such direct investment, the 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 Portfolio
may contract to purchase an amount of foreign currency sufficient
to pay the purchase price of the securities at the settlement
date. Foreign securities may involve a greater degree of risk
(including risk related to exchange rate fluctuations, tax
provisions, or expropriation of assets) than securities of
domestic issuers. At June 30, 1998, no assets were invested in
foreign securities as defined above, and the Portfolio does not
currently intend to invest more than 5% of its net assets in such
securities. (See Risks and Investment Considerations.)
Short Sales Against the Box.
The 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.
Lending of Portfolio Securities.
Subject to certain restrictions, the 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 it. 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 the
Portfolio seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing its rights. The
Portfolio may participate in an interfund lending program, subject
to certain restrictions described in the Statement of Additional
Information.
When-Issued and Delayed-Delivery Securities; Standby Commitments.
The 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. The 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 settlement date.
When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that the 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 by the Portfolio on the sales
proceeds of the dollar roll.
The Portfolio may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Portfolio binds itself to accept delivery of a security at the
option of the other party to the agreement.
Rule 144A Securities.
The Portfolio may purchase securities that have been privately
placed but that are eligible for purchase and sale under Rule 144A
under the 1933 Act. That Rule permits certain qualified
institutional buyers, such as the Portfolio, to trade in privately
placed securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the restriction of investing
no more than 10% of net assets in illiquid securities. A
determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the Adviser
will consider the trading markets for the specific security,
taking into account the unregistered nature of a Rule 144A
security. In addition, the Adviser could consider the (1)
frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market,
and (4) nature of the security and of marketplace trades (e.g.,
the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity
of Rule 144A securities would be monitored and if, as a result of
changed conditions, it is determined that a Rule 144A security is
no longer liquid, the 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. The Portfolio does not expect to invest
as much as 5% of its total assets in Rule 144A securities that
have not been deemed to be liquid by the Adviser.
Portfolio Turnover.
In seeking to attain its objective, the Portfolio may sell
portfolio securities without regard to the period of time they
have been held. Further, the Adviser may purchase and sell
securities for the investment portfolio with a view to maximizing
current return, even if portfolio changes would cause the
realization of capital gains. Although the average stated
maturity of the portfolio generally will exceed ten years, the
Adviser may adjust the average maturity of the 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 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 of the Fund and the Portfolio is diversified as that term is
defined in the Investment Company Act of 1940.
Neither the Fund nor the 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, the Fund may invest all or
substantially all of its assets in another investment company
having the identical investment objective under a master
fund/feeder fund structure.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
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, the Portfolio could experience
both delays in liquidating the underlying securities and losses.
The 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 neither the Fund nor the 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.
Neither may 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 the Fund and the Portfolio. The Statement of
Additional Information contains all of the investment
restrictions.
- ---------------------------
Risks and Investment Considerations
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although the Portfolio
seeks to reduce risk by investing in a diversified portfolio, this
does not eliminate all risk. The risks inherent in the Fund
depend primarily upon the term and quality of the obligations in
the investment portfolio, as well as on market conditions.
A decline in prevailing levels of interest rates generally
increases the value of securities in the investment portfolio,
while an increase in rates usually reduces the value of those
securities. As a result, interest rate fluctuations will affect
net asset value, but not the income received from portfolio
securities. (Because yields on debt securities available for
purchase vary over time, no specific yield on Fund shares can be
assured.) In addition, if the bonds in the portfolio contain
call, prepayment or redemption provisions, during a period of
declining interest rates, these securities are likely to be
redeemed, and the Portfolio will probably be unable to replace
them with securities having as great a yield.
The Fund is designed for investors who seek a higher level of
income and who can accept greater levels of credit and other risks
associated with securities of medium or lower quality.
Investments in foreign securities, including ADRs, represent both
risks and opportunities not typically associated with investments
in domestic issuers. Risks of foreign investing include currency
risk, less complete financial information on issuers, different
accounting, auditing and financial reporting standards, different
settlement practices, less market liquidity, more market
volatility, less well-developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by nonresidents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
nonresidents. Foreign investments also tend to involve higher
transaction and custody costs.
The 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 the Fund and the Portfolio will
achieve their objective, nor can the 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 portfolio.
The investment objective is not fundamental and may be changed by
the Board of Trustees without a vote of shareholders. If there is
a change in the investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of
their then-current financial position and needs.
Year 2000 Compliance. Like other investment companies, financial
and business organizations and individuals around the world, the
Fund could be adversely affected if the computer systems used by
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 Fund's 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 Fund, to provide that date-related information and
data can be properly processed after January 1, 2000. Many Fund
service providers and vendors, including the 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 Fund
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 Fund will not be
adversely affected.
___________________________
How to Purchase Shares
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
Fund shares through your employer or limitations on the amount
that may be purchased, please consult your employer. Shares are
sold to eligible defined contribution plans at net asset value
(see Net Asset Value) next determined after receipt of payment by
the Fund. Each purchase of shares through a broker-dealer, bank
or other intermediary ("Intermediary") that is an authorized agent
or designee of the Trust for the receipt of orders is made at the
net asset value next determined after receipt of the order by the
Intermediary. An Intermediary, who accepts orders that are
processed at the net asset value next determined after receipt of
the order by the Intermediary, accepts such orders as 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.
Each purchase order must be accepted by an authorized officer of
the Trust in Chicago and is not binding until accepted and entered
on the books of the Fund. Once your purchase order has been
accepted, you may not cancel or revoke it; however, you may redeem
the shares. The Trust reserves the right not to accept any
purchase order that it determines not to be in the best interests
of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.
___________________________
How to Redeem Shares
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your Fund shares
through your employer's plan, including any charges that may be
imposed by the plan, please consult with your employer.
Exchange Privilege.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other no-load Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the no-load Stein
Roe Fund in which you wish to invest and read it carefully.
Contact your plan administrator for instructions on how to
exchange your shares or to obtain prospectuses of other no-load
Stein Roe Funds available through your plan. The Fund reserves
the right to suspend, limit, modify, or terminate the Exchange
Privilege or its use in any manner by any person or class;
shareholders would be notified of such a change.
General Redemption Policies.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the net asset value per
share at the time of redemption, it may be more or less than the
price you originally paid for the shares.
___________________________
Net Asset Value
The purchase or redemption price of Fund shares is the net asset
value per share. The net asset value of a Fund share is
determined 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 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 should
be determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time. The Portfolio allocates
net asset value, income, and expenses to the Fund and any other of
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 and are paid
monthly. The Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the 12-month period ended October 31
in that year. The Fund intends to distribute any undistributed
net investment income and net realized capital gains in the
following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional Fund shares.
Income Taxes.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
___________________________
Investment Return
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
The yield of the Fund is calculated by dividing its net investment
income per share (a hypothetical figure as defined in the SEC
rules) during a 30-day period by the net asset value per share on
the last day of the period. The yield formula provides for
semiannual compounding, which assumes that net investment income
is earned and reinvested at a constant rate and annualized at the
end of a six-month period.
Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Yield figures are not based on actual dividends paid. Past
performance is 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 Fund and the
Portfolio, respectively. See the Statement of Additional
Information for the names of and additional 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 Fund and the Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
Fund and the Portfolio, subject to the direction of the respective
Board of Trustees. 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 Fund.
Portfolio Manager.
Stephen F. Lockman has been manager of the Portfolio since its
inception in 1998. Prior thereto, he had been portfolio manager
of the Fund since 1997 and associate portfolio manager 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 Fund under an
administrative agreement and investment management services to the
Portfolio under a management agreement. The Adviser is entitled
to receive a monthly administrative fee from the Fund at an annual
rate of .150% of the first $100 million of average net assets and
.125% thereafter; and a monthly portfolio management fee from the
Portfolio at an annual rate of .500% of the first $100 million of
average net assets and .475% thereafter, each computed and accrued
daily.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund and the
Portfolio, including computation of net asset value and
calculation of net income and capital gains and losses on
disposition of assets.
Portfolio Transactions.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts. In doing
so, the Adviser seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors.
Transfer Agent.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty Financial, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
Distributor.
Shares of the Fund are offered for sale through Liberty Funds
Distributor, Inc. ("Distributor") without any sales commissions or
charges to the Fund or to its shareholders. The Distributor is a
subsidiary of Colonial Management Associates, Inc., which is an
indirect subsidiary of Liberty Financial. The business address of
the Distributor is One Financial Center, Boston, Massachusetts
02111; however, all Fund correspondence (including purchase and
redemption orders) should be mailed to SteinRoe Services Inc.,
P.O. Box 8900, Boston, Massachusetts 02205. All distribution and
promotional expenses are paid by the Adviser, including payments
to the Distributor for sales of Fund shares.
Custodian.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the Fund
and the Portfolio. 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
The Fund, which is 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 the Fund approved this
policy of permitting the Fund to act as a feeder fund by investing
in the 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 Fund and the Portfolio. The management fees
and expenses of the Fund and the Portfolio are described under Fee
Table and Management. The Fund bears its proportionate share of
the Portfolio's expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
The 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 the Fund and other investors in the Portfolio will be liable
for all obligations of the Portfolio that are not satisfied by the
Portfolio. However, the risk of the Fund incurring financial loss
on account of such liability is limited to circumstances in which
liability was inadequately insured and the Portfolio was unable to
meet its obligations. Accordingly, the trustees of the Trust
believe that neither the Fund nor its shareholders will be
adversely affected by reason of the Fund's investing in the
Portfolio.
The Declaration of Trust of Base Trust provides that the Portfolio
will terminate 120 days after the withdrawal of the 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 the Fund's interests in the
Portfolio for such continuation without approval of the Fund's
shareholders.
The common investment objective of the Fund and the Portfolio is
non-fundamental and may be changed without shareholder approval,
subject, however, to at least 30 days' advance written notice to
the Fund's shareholders.
The fundamental policies of the Fund and the corresponding
fundamental policies of the Portfolio can be changed only with
shareholder approval. If the Fund, as a Portfolio investor, is
requested to vote on a change in a fundamental policy of the
Portfolio or any other matter pertaining to the Portfolio (other
than continuation of the business of the Portfolio after
withdrawal of another investor), the Fund will solicit proxies
from its shareholders and vote its interest in the Portfolio for
and against such matters proportionately to the instructions to
vote for and against such matters received from Fund shareholders.
The Fund will vote shares for which it receives no voting
instructions in the same proportion as the shares for which it
receives voting instructions. There can be no assurance that any
matter receiving a majority of votes cast by Fund shareholders
will receive a majority of votes cast by all investors in the
Portfolio. If other investors hold a majority interest in the
Portfolio, they could have voting control over the Portfolio.
In the event that the Portfolio's fundamental policies were
changed so as to be inconsistent with those of the Fund, the Board
of 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 the Fund's shareholders. The Fund's inability to
find a substitute master fund or comparable investment management
could have a significant impact upon its shareholders'
investments. Any withdrawal of the Fund's assets could result in
a distribution in kind of 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 the Portfolio, including the 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 the Portfolio, but members of
the general public may not invest directly in the Portfolio.
Other investors in the Portfolio are not required to sell their
shares at the same public offering price as the Fund, might incur
different administrative fees and expenses than the Fund, and
might charge a sales commission. Therefore, the Fund's
shareholders might have different investment returns than
shareholders in another investment company that invests
exclusively in the Portfolio. Investment by such other investors
in the Portfolio would provide funds for the purchase of
additional 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
the 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 the Portfolio's net assets. As a result, the
Portfolio's security holdings may become less diverse, resulting
in increased risk.
Information regarding other investors in the 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.
___________________________
For More Information
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about the Fund.
_________________
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
Prospectus Nov. 1, 1998
Defined Contribution Plans
Stein Roe Intermediate Bond Fund
Stein Roe Intermediate Bond Fund seeks high current income by
investing primarily in marketable debt securities. The dollar-
weighted average life of the portfolio is expected to be between
three and ten years. The Fund seeks to achieve its objective by
investing all of its net investable assets in SR&F Intermediate
Bond Portfolio, a series of SR&F Base Trust that has the identical
investment objective and substantially the same investment
policies as the Fund. The investment experience of the Fund will
correspond to that of the Portfolio. (See Master Fund/Feeder
Fund: Structure and Risk Factors.)
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the Stein Roe Income Trust, an open-end management investment
company.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated Nov. 1, 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. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Funds at Suite 3200, One South Wacker Drive, Chicago, IL 60606
or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of Stein
Roe Income Trust that may not be available as investment vehicles
for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Table of Contents
Page
Fee Table ........................................2
Financial Highlights..............................2
The Fund..........................................3
Investment Policies...............................4
Portfolio Investments and Strategies..............5
Investment Restrictions ..........................8
Risks and Investment Considerations ..............9
How to Purchase Shares ..........................10
How to Redeem Shares ............................10
Net Asset Value .................................11
Distributions and Income Taxes...................11
Investment Return................................12
Management ......................................12
Organization and Description of Shares...........13
Master Fund/Feeder Fund: Structure
and Risk Factors..............................14
For More Information.............................15
___________________________
Fee Table
Shareholder Transaction Expenses
Sales Load Imposed on Purchases..................None
Sales Load Imposed on Reinvested Dividends.......None
Deferred Sales Load..............................None
Redemption Fees..................................None
Exchange Fees....................................None
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management and Administrative Fees ..............0.50%
12b-1 Fees.......................................None
Other Expenses ..................................0.22%
-----
Total Fund Operating Expenses ..................0.72%
=====
Example.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$7 $23 $40 $89
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year.
The Fund pays the Adviser an administrative fee based on the
Fund's average daily net assets, and the Portfolio pays the
Adviser a management fee based on its average daily net assets.
The expenses of both the Fund and the Portfolio are summarized in
the Fee Table. (The fees are described under Management.) The
Fund bears its proportionate share of Portfolio fees and expenses.
The trustees of Stein Roe Income Trust (the "Trust") have
considered whether the annual operating expenses of the Fund,
including its proportionate share of the expenses of the
Portfolio, would be more or less than if the Fund invested
directly in the securities held by the Portfolio. The trustees
concluded that the Fund's expenses would not be greater in such
case.
For purposes of the Example above, the figures assume that the
percentage amounts listed under Annual Fund Operating Expenses
remain the same during each of the periods and that all income
dividends and capital gains distributions are reinvested in
additional Fund shares. The figures in the Example are not
necessarily indicative of past or future expenses, and actual
expenses may be greater or less than those shown. Although
information such as that shown in the Fee Table and Example is
useful in reviewing the Fund's expenses and in providing a basis
for comparison with other mutual funds, it should not be used for
comparison with other investments using different assumptions or
time periods. The Example does not reflect any charges or
expenses related to your employer's plan.
__________________________
Financial Highlights
The following table reflects the results of operations of the Fund
on a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction
with the Fund's financial statements and notes thereto. The
annual report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
<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%(c)
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>
_____________
(a) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the Adviser, this ratio would
have been 0.71%, 0.75% and 0.75% for the years ended June 30,
1995 through 1997, respectively.
(b) Computed giving effect to the Adviser's fee waiver.
(c) Prior to commencement of operations of the Portfolio.
___________________________
The Fund
The mutual fund offered by this prospectus is Stein Roe
Intermediate Bond Fund (the "Fund"). The Fund is a no-load
"mutual fund." No-load funds do not impose commissions or charges
when shares are purchased or redeemed. Mutual funds sell their
own shares to investors and invest the proceeds in a portfolio of
securities. A mutual fund allows you to pool your money with that
of other investors in order to obtain professional investment
management. Mutual funds generally make it possible for you to
obtain greater diversification of your investments and simplify
your recordkeeping.
The Fund is a series of Stein Roe Income Trust (the "Trust"), an
open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
On Feb. 2, 1998, the Fund became a "feeder fund"-that is, it
invested all of its assets in SR&F Intermediate Bond Portfolio
(the "Portfolio"), a "master fund" that has an investment
objective identical to that of the Fund. The Portfolio is a
series of SR&F Base Trust. Prior to converting to a feeder fund,
the Fund had invested its 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 same 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 the
Portfolio, the Fund's master fund, are managed by the Adviser in
the same manner as the assets of the Fund were managed before
conversion to the master fund/feeder fund structure. (For more
information, see Master Fund/Feeder Fund: Structure and Risk
Factors.)
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory services to the Portfolio and administrative
services to the Fund and the Portfolio. The Adviser also manages
several other mutual funds with different investment objectives,
including other bond funds, equity funds, international funds,
tax-exempt bond funds, and money market funds. To obtain
prospectuses and other information on opening a regular account in
any of these mutual funds, please call 800-338-2550.
___________________________
Investment Policies
The investment objective of the Fund is to provide a high level of
current income, consistent with the preservation of capital, by
investing primarily in marketable debt securities. The Fund
invests all of its net investable assets in the Portfolio, which
has the same investment objective and substantially the same
investment policies as the Fund. Under normal market conditions,
the Portfolio will invest at least 65% of the value of its total
assets (taken at market value at the time of investment) in
convertible and non-convertible bonds and debentures, and at least
60% of its assets will be invested in the following:
(1) Marketable straight-debt securities of domestic issuers, and
of foreign issuers payable in U.S. dollars, rated at time of
purchase within the three highest grades assigned by Moody's
Investors Service, Inc. ("Moody's") or by Standard & Poor's
Corporation ("S&P");
(2) U.S. Government Securities;
(3) Commercial paper rated Prime-1 by Moody's or A-1 by S&P at
time of purchase, or, if unrated, issued or guaranteed by a
corporation with any outstanding debt rated Aa or better by
Moody's or AA or better by S&P; and
(4) Bank obligations, including repurchase agreements, of banks
having total assets in excess of $1 billion.
The Portfolio also may invest in mortgaged-backed and other debt
securities (including those convertible into or carrying warrants
to purchase common stocks or other equity interests, and privately
placed debt securities), preferred stocks, and marketable common
stocks that the Adviser considers likely to yield relatively high
income in relation to cost. Further information on portfolio
investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
Under normal market conditions, the Portfolio invests at least 65%
of its assets in securities with an average life of between three
and ten years, and expects that the dollar-weighted average life
of its portfolio will be between three and ten years. Average
life is the weighted average period over which the Adviser expects
the principal to be paid, and differs from stated maturity in that
it estimates the effect of expected principal prepayments and call
provisions. With respect to GNMA securities and other mortgage-
backed securities, average life is likely to be substantially less
than the stated maturity of the mortgages in the underlying pools.
With respect to obligations with call provisions, average life is
typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an average life equal to their
stated maturity. During periods of rising interest rates, the
average life of mortgage-backed securities and callable
obligations may increase substantially because they are not likely
to be prepaid, which may result in greater net asset value
fluctuation.
The Portfolio may invest up to 35% of its total assets in debt
securities that are rated below investment grade (with no
permitted rating) and that, on balance, are considered
predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal according to the terms of the
obligation and, therefore, carry greater investment risk,
including the possibility of issuer default and bankruptcy. An
economic downturn could severely disrupt this market and adversely
affect the value of outstanding bonds and the ability of the
issuers to repay principal and interest. In addition, lower-
quality bonds are less sensitive to interest rate changes than
higher-quality instruments (see Risks and Investment
Considerations) and generally are more sensitive to adverse
economic changes or individual corporate developments. During a
period of adverse economic changes, including a period of rising
interest rates, issuers of such bonds may experience difficulty in
servicing their principal and interest payment obligations.
Achievement of the investment objective will be more dependent on
the Adviser's credit analysis than would be the case if the
Portfolio were investing exclusively in investment-grade debt
securities. Since the ratings of rating services (which evaluate
the safety of principal and interest payments, not market risks)
are used only as preliminary indicators of investment quality, the
Adviser employs its own credit research and analysis, from which
it has developed a credit rating system based upon comparative
credit analyses of issuers within the same industry. These
analyses may take into consideration such quantitative factors as
an issuer's present and potential liquidity, profitability,
internal capability to generate funds, debt/equity ratio and debt
servicing capabilities, and such qualitative factors as an
assessment of management, industry characteristics, accounting
methodology, and foreign business exposure.
Debt securities that are rated below investment grade tend to be
less marketable than higher-quality debt securities because the
market for them is less broad. The market for unrated debt
securities is even narrower. During periods of thin trading in
these markets, the spread between bid and asked prices is likely
to increase significantly, and the 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.
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 the
Portfolio.
___________________________
Portfolio Investments and Strategies
Derivatives.
Consistent with its objective, the 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"). The Portfolio
does not expect to invest more than 5% of its net assets in any
type of Derivative except for options, futures contracts, futures
options, and mortgage or other asset-backed securities.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives (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 Securities. The Portfolio may
invest in securities secured by mortgages or other assets such as
automobile or home improvement loans and credit card receivables.
These instruments may be issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities or by private
entities such as commercial, mortgage and investment banks and
financial companies or financial subsidiaries of industrial
companies.
Securities issued by GNMA represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the
Farmers Home Administration, or guaranteed by the Veterans
Administration. Securities issued by FNMA and FHLMC, U.S.
Government-sponsored corporations, also represent an interest in a
pool of mortgages.
The timely payment of principal and interest on GNMA securities is
guaranteed by GNMA and backed by the full faith and credit of the
U.S. Treasury. FNMA guarantees full and timely payment of
interest and principal on FNMA securities. FHLMC guarantees
timely payment of interest and ultimate collection of principal on
FHLMC securities. FNMA and FHLMC securities are not backed by the
full faith and credit of the U.S. Treasury.
Mortgage-backed debt securities, such as those issued by GNMA,
FNMA, and FHLMC, are of the "modified pass-through type," which
means the interest and principal payments on mortgages in the pool
are "passed through" to investors. Mortgage-backed securities
provide either a pro rata interest in underlying mortgages or an
interest in collateralized mortgage obligations ("CMOs"), which
represent a right to interest and/or principal payments from an
underlying mortgage pool. CMOs are not guaranteed by either the
U.S. Government or by its agencies or instrumentalities and are
usually issued in multiple classes, each of which has different
payment rights, prepayment risks, and yield characteristics.
Mortgage-backed securities involve the risk of prepayment on the
underlying mortgages at a faster or slower rate than the
established schedule. Prepayments generally increase with falling
interest rates and decrease with rising rates, but they also are
influenced by economic, social, and market factors. If mortgages
are prepaid during periods of declining interest rates, there
would be a resulting loss of the full-term benefit of any premium
paid on purchase of the securities, and the proceeds of prepayment
would likely be invested at lower interest rates. The 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. The 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. The 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%. The
Portfolio does not intend to invest more than 10% of net assets in
floating rate instruments.
Futures and Options. The 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. The 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. The
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 the
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.
Although the Portfolio may invest in foreign securities, it will
not invest in a foreign security if, as a result of such
investment, more than 25% of its total assets would be invested in
foreign securities. For purposes of this restriction, foreign
securities do not include securities represented by American
Depositary Receipts ("ADRs"), foreign debt securities denominated
in U.S. dollars, or securities guaranteed by a U.S. person such as
a corporation domiciled in the United States that is a parent or
affiliate of the issuer of the securities being guaranteed. The
Portfolio may invest in sponsored or unsponsored ADRs. In
addition to, or in lieu of, such direct investment, the 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 Portfolio
may contract to purchase an amount of foreign currency sufficient
to pay the purchase price of the securities at the settlement
date. Foreign securities may involve a greater degree of risk
(including risk related to exchange rate fluctuations, tax
provisions, or expropriation of assets) than securities of
domestic issuers. At June 30, 1998, no assets were invested in
foreign securities as defined above, and the Portfolio does not
currently intend to invest more than 5% of its net assets in such
securities. (See Risks and Investment Considerations.)
Short Sales Against the Box.
The 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.
Lending of Portfolio Securities.
Subject to certain restrictions, the 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 it. 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 the
Portfolio seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing its rights. The
Portfolio may participate in an interfund lending program, subject
to certain restrictions described in the Statement of Additional
Information.
When-Issued and Delayed-Delivery Securities; Standby Commitments.
The 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. The 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 the 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 by the Portfolio on the sales
proceeds of the dollar roll.
The Portfolio may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Portfolio binds itself to accept delivery of a security at the
option of the other party to the agreement.
Rule 144A Securities.
The Portfolio may purchase securities that have been privately
placed but that are eligible for purchase and sale under Rule 144A
under the 1933 Act. That Rule permits certain qualified
institutional buyers, such as the Portfolio, to trade in privately
placed securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the restriction of investing
no more than 10% of net assets in illiquid securities. A
determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the Adviser
will consider the trading markets for the specific security,
taking into account the unregistered nature of a Rule 144A
security. In addition, the Adviser could consider the (1)
frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market,
and (4) nature of the security and of marketplace trades (e.g.,
the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity
of Rule 144A securities would be monitored and if, as a result of
changed conditions, it is determined that a Rule 144A security is
no longer liquid, the 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. The Portfolio does not expect to invest
as much as 5% of its total assets in Rule 144A securities that
have not been deemed to be liquid by the Adviser.
Portfolio Turnover.
In seeking to attain its objective, the Portfolio may sell
portfolio securities without regard to the period of time they
have been held. The turnover rate 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 of the Fund and the Portfolio is diversified as that term is
defined in the Investment Company Act of 1940.
Neither the Fund nor the 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, the Fund may invest all of its
assets in another investment company having the identical
investment objective under a master fund/feeder fund structure.
- --------------
/1/ A repurchase agreement involves a sale of securities to the
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, the Portfolio could experience
both delays in liquidating the underlying securities and losses.
The 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 neither the Fund nor the 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.
Neither may borrow money, except for nonleveraging, temporary, or
emergency purposes or in connection with participation in the
interfund lending program. Neither the 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
Investments Restrictions (but not the footnote) are fundamental
policies of the Fund and the Portfolio. The Statement of
Additional Information contains all of the investment
restrictions.
___________________________
Risks and Investment Considerations
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although the Portfolio
seeks to reduce risk by investing in a diversified portfolio, this
does not eliminate all risk. The risks inherent in the Fund
depend primarily upon the term and quality of the obligations in
the portfolio, as well as on market conditions.
A decline in prevailing levels of interest rates generally
increases the value of securities in the investment portfolio,
while an increase in rates usually reduces the value of those
securities. As a result, interest rate fluctuations will affect
net asset value, but not the income received from portfolio
securities. (Because yields on debt securities available for
purchase vary over time, no specific yield on Fund shares can be
assured.) In addition, if the bonds in the portfolio contain
call, prepayment or redemption provisions, during a period of
declining interest rates, these securities are likely to be
redeemed, and the Portfolio will probably be unable to replace
them with securities having as great a yield.
The Fund is appropriate for investors who seek high income with
less net asset value fluctuation from interest rate changes than
that of a longer-term fund, and who can accept greater levels of
credit and other risks associated with securities that are rated
below investment grade.
Investments in foreign securities, including ADRs, represent both
risks and opportunities not typically associated with investments
in domestic issuers. Risks of foreign investing include currency
risk, less complete financial information on issuers, different
accounting, auditing and financial reporting standards, different
settlement practices, less market liquidity, more market
volatility, less well-developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by nonresidents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
nonresidents. Foreign investments also tend to involve higher
transaction and custody costs.
The 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 the Fund or the Portfolio will
achieve their objective, nor can the 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, it would not be required to sell the security, but the
Adviser would consider such a change in deciding whether to retain
the security in the portfolio.
The investment objective is not fundamental and may be changed by
the Board of Trustees without a vote of shareholders. If there is
a change in the investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of
their then-current financial position and needs.
Year 2000 Compliance. Like other investment companies, financial
and business organizations and individuals around the world, the
Fund could be adversely affected if the computer systems used by
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 Fund's 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 Fund, to provide that date-related information and
data can be properly processed after January 1, 2000. Many Fund
service providers and vendors, including the 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 Fund
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 Fund will not be
adversely affected.
___________________________
How to Purchase Shares
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
Fund shares through your employer or limitations on the amount
that may be purchased, please consult your employer. Shares are
sold to eligible defined contribution plans at net asset value
(see Net Asset Value) next determined after receipt of payment by
the Fund. Each purchase of shares through a broker-dealer, bank
or other intermediary ("Intermediary") that is an authorized agent
or designee of the Trust for the receipt of orders is made at the
net asset value next determined after receipt of the order by the
Intermediary. An Intermediary, who accepts orders that are
processed at the net asset value next determined after receipt of
the order by the Intermediary, accepts such orders as 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.
Each purchase order must be accepted by an authorized officer of
the Trust in Chicago and is not binding until accepted and entered
on the books of the Fund. Once your purchase order has been
accepted, you may not cancel or revoke it; however, you may redeem
the shares. The Trust reserves the right not to accept any
purchase order that it determines not to be in the best interests
of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.
___________________________
How to Redeem Shares
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
Exchange Privilege.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other no-load Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the no-load Stein
Roe Fund in which you wish to invest and read it carefully.
Contact your plan administrator for instructions on how to
exchange your shares or to obtain prospectuses of other no-load
Stein Roe Funds available through your plan. The Fund reserves
the right to suspend, limit, modify, or terminate the Exchange
Privilege or its use in any manner by any person or class;
shareholders would be notified of such a change.
General Redemption Policies.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions. The price at
which your redemption order will be executed is the net asset
value next determined after proper redemption instructions are
received. (See Net Asset Value.) Because the redemption price
you receive depends upon the Fund's net asset value per share at
the time of redemption, it may be more or less than the price you
originally paid for the shares.
___________________________
Net Asset Value
The purchase or redemption price of Fund shares is the net asset
value per share. The net asset value of a Fund share is
determined 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 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 should
be determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time. The Portfolio allocates
net asset value, income, and expenses to the Fund and any other of
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
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 and are paid
monthly. The Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the 12-month period ended October 31
in that year. The Fund intends to distribute any undistributed
net investment income and net realized capital gains in the
following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional Fund shares.
Income Taxes.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
___________________________
Investment Return
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
The yield of the Fund is calculated by dividing its net investment
income per share (a hypothetical figure as defined in the SEC
rules) during a 30-day period by the net asset value per share on
the last day of the period. The yield formula provides for
semiannual compounding, which assumes that net investment income
is earned and reinvested at a constant rate and annualized at the
end of a six-month period.
Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Yield figures are not based on actual dividends paid. Past
performance is 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 Fund and the
Portfolio, respectively. See the Statement of Additional
Information for the names of and additional 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 Fund and the Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
Fund and the Portfolio, subject to the direction of the respective
Board of Trustees. 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 Fund.
Portfolio Manager.
Michael T. Kennedy has been portfolio manager of the Portfolio
since its inception in 1998 and had been portfolio manger of the
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.
Fees and Expenses.
The Adviser provides administrative services to the Fund under an
administrative agreement and investment management services to the
Portfolio under a management agreement. The Adviser is entitled
to receive a monthly administrative fee from the Fund at an annual
rate of .150% of average net assets and a monthly portfolio
management fee from the Portfolio at an annual rate of .350% of
average net assets, each computed and accrued daily.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund and the
Portfolio, including computation of net asset value and
calculation of net income and capital gains and losses on
disposition of assets.
Portfolio Transactions.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts. In doing
so, the Adviser seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors.
Transfer Agent.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty Financial, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
Distributor.
Fund shares are offered for sale through Liberty Funds
Distributor, Inc. ("Distributor") without any sales commissions or
charges to the Fund or its shareholders. The Distributor is a
subsidiary of Colonial Management Associates, Inc., which is an
indirect subsidiary of Liberty Financial. The business address of
the Distributor is One Financial Center, Boston, Massachusetts
02111; however, all Fund correspondence (including purchase and
redemption orders) should be mailed to SteinRoe Services Inc.,
P.O. Box 8900, Boston, Massachusetts 02205. All distribution and
promotional expenses are paid by the Adviser, including payments
to the Distributor for sales of Fund shares.
Custodian.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the Fund
and the Portfolio. 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
The Fund, which is 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 the Fund approved this
policy of permitting the Fund to act as a feeder fund by investing
in the 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 Fund and the Portfolio. The management fees
and expenses of the Fund and the Portfolio are described under Fee
Table and Management. The Fund bears its proportionate share of
the Portfolio's expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
The 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 the Fund and other investors in the Portfolio will be liable
for all obligations of the Portfolio that are not satisfied by the
Portfolio. However, the risk of the Fund incurring financial loss
on account of such liability is limited to circumstances in which
liability was inadequately insured and the Portfolio was unable to
meet its obligations. Accordingly, the trustees of the Trust
believe that neither the Fund nor its shareholders will be
adversely affected by reason of the Fund's investing in the
Portfolio.
The Declaration of Trust of Base Trust provides that the Portfolio
will terminate 120 days after the withdrawal of the 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 the Fund's interests in the
Portfolio for such continuation without approval of the Fund's
shareholders.
The common investment objective of the Fund and the Portfolio is
non-fundamental and may be changed without shareholder approval,
subject, however, to at least 30 days' advance written notice to
the Fund's shareholders.
The fundamental policies of the Fund and the corresponding
fundamental policies of the Portfolio can be changed only with
shareholder approval. If the Fund, as a Portfolio investor, is
requested to vote on a change in a fundamental policy of the
Portfolio or any other matter pertaining to the Portfolio (other
than continuation of the business of the Portfolio after
withdrawal of another investor), the Fund will solicit proxies
from its shareholders and vote its interest in the Portfolio for
and against such matters proportionately to the instructions to
vote for and against such matters received from Fund shareholders.
The Fund will vote shares for which it receives no voting
instructions in the same proportion as the shares for which it
receives voting instructions. There can be no assurance that any
matter receiving a majority of votes cast by Fund shareholders
will receive a majority of votes cast by all investors in the
Portfolio. If other investors hold a majority interest in the
Portfolio, they could have voting control over the Portfolio.
In the event that the Portfolio's fundamental policies were
changed so as to be inconsistent with those of the Fund, the Board
of 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 the Fund's shareholders. The Fund's inability to
find a substitute master fund or comparable investment management
could have a significant impact upon its shareholders'
investments. Any withdrawal of the Fund's assets could result in
a distribution in kind of 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 the Portfolio, including the 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 the Portfolio, but members of
the general public may not invest directly in the Portfolio.
Other investors in the Portfolio are not required to sell their
shares at the same public offering price as the Fund, 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 the
Portfolio. Investment by such other investors in the 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 the 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 the
Portfolio's net assets. As a result, the Portfolio's security
holdings may become less diverse, resulting in increased risk.
Information regarding other investors in the 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.
___________________________
For More Information
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about the Fund.
____________________________
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
Prospectus Nov. 1, 1998
Defined Contribution Plans
Stein Roe Cash Reserves Fund
Stein Roe Cash Reserves Fund seeks to obtain maximum current
income consistent with capital preservation and maintenance of
liquidity. The Fund seeks to achieve its objective by investing
all of its net investable assets in SR&F Cash Reserves Portfolio,
a series of SR&F Base Trust, which has the identical investment
objective and substantially the same investment policies as the
Fund. The Portfolio invests solely in money market instruments
maturing in thirteen months or less from time of investment. The
investment experience of the Fund will correspond to that of the
Portfolio. (See Master Fund/Feeder Fund: Structure and Risk
Factors.)
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" money market fund and attempts to maintain
its net asset value at $1.00 per share. Shares of the Fund are
neither insured nor guaranteed by the U.S. Government and there
can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share. There are no sales or
redemption charges, and the Fund has no 12b-1 plan.
The Fund is a series of Stein Roe Income Trust, an open-end
management investment company. This prospectus contains
information you should know before investing in the Fund. Please
read it carefully and retain it for future reference.
A Statement of Additional Information dated Nov. 1, 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. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Funds at Suite 3200, One South Wacker Drive, Chicago, IL 60606
or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of Stein
Roe Income Trust that may not be available as investment vehicles
for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Table of Contents
Page
Fee Table ....................................2
Financial Highlights..........................2
The Fund......................................3
Investment Policies...........................4
Investment Restrictions.......................5
Risks and Investment Considerations ..........6
How to Purchase Shares .......................7
How to Redeem Shares .........................7
Net Asset Value ..............................8
Distributions and Income Taxes................8
Management....................................8
Organization and Description of Shares........9
Master Fund/Feeder Fund: Structure
and Risk Factors..........................10
For More Information.........................12
- ---------------------------
Fee Table
Shareholder Transaction Expenses
Sales Load Imposed on Purchases...............None
Sales Load Imposed on Reinvested Dividends....None
Deferred Sales Load...........................None
Redemption Fees...............................None
Exchange Fees.................................None
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management and Administrative Fees...........0.50%
12b-1 Fees...................................None
Other Expenses ..............................0.25%
-----
Total Fund Operating Expenses ...............0.75%
=====
Example.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$8 $24 $42 $93
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year.
The Fund pays the Adviser an administrative fee based on the
Fund's average daily net assets and the Portfolio pays the Adviser
a management fee based on its average daily net assets. The
expenses of both the Fund and the Portfolio are summarized in the
Fee Table and are described under Management. The Fund will bear
its proportionate share of Portfolio expenses. The trustees of
Stein Roe Income Trust (the "Trust") have considered whether the
annual operating expenses of the Fund, including its proportionate
share of the expenses of the Portfolio, would be more or less than
if the Fund invested directly in the securities held by the
Portfolio. The trustees concluded that the Fund's expenses would
not be greater in such case.
For purposes of the Example above, the figures assume that the
percentage amounts listed under Annual Fund Operating Expenses
remain the same during each of the periods; that all income
dividends and capital gains distributions are reinvested in
additional Fund shares; and that, for purposes of fee breakpoints,
the Fund's net assets remain at the same level as in the most
recently completed fiscal year. The figures in the Example are
not necessarily indicative of past or future expenses, and actual
expenses may be greater or less than those shown. Although
information such as that shown in the Fee Table and Example is
useful in reviewing the expenses and in providing a basis for
comparison with other mutual funds, it should not be used for
comparison with other investments using different assumptions or
time periods. The Example does not reflect any charges or
expenses related to your employer's plan.
__________________________
Financial Highlights
The following table reflects the results of operations of the Fund
on a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction
with the financial statements and notes thereto, which may be
obtained from the Trust without charge upon request.
<TABLE>
<CAPTION>
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 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment
income 0.081 0.079 0.068 0.044 0.028 0.028 0.048 0.050 0.048 0.050
Distributions from
net investment
income (0.081) (0.079) (0.068) (0.044) (0.028) (0.028) (0.048) (0.050) (0.048) (0.050)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of expenses
to average net
assets 0.75% 0.76% 0.78% 0.78% 0.79% 0.79% 0.76% 0.78% 0.77% 0.75%
Ratio of net invest-
ment income to
average net assets 8.13% 7.94% 6.81% 4.40% 2.81% 2.77% 4.83% 4.98% 4.80% 4.98%
Total return 8.41% 8.20% 6.98% 4.49% 2.83% 2.81% 4.96% 5.07% 4.92% 5.09%
Net assets, end o
of period (000
omitted) $948,018 $949,803 $840,525 $711,087 $627,110 $554,713 $498,163 $476,840 $452,358 $493,954
</TABLE>
___________________________
The Fund
Stein Roe Cash Reserves Fund (the "Fund") is a no-load "mutual
fund." Mutual funds sell their own shares to investors and use
the money they receive to invest in a portfolio of securities. A
mutual fund allows you to pool your money with that of other
investors in order to obtain professional investment management.
Mutual funds generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping. Because the Fund invests only in money market
instruments, it is called a "money market fund." No-load funds do
not impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of Stein Roe Income Trust (the "Trust"), an
open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.
On March 2, 1998, the Fund became a "feeder fund" - that is, it
invested all of its assets in SR&F Cash Reserves Portfolio (the
"Portfolio"), a "master fund" that has an investment objective
identical to that of the Fund. The Portfolio is a series of SR&F
Base Trust. Prior to converting to a feeder fund, the Fund had
invested its 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 same 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 the Portfolio, the Fund's master
fund, are managed by the Adviser in the same manner as the assets
of the Fund were managed before conversion to the master
fund/feeder fund structure. (For more information, see Master
Fund/Feeder Fund: Structure and Risk Factors.)
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory services to the Portfolio and administrative
services to the Fund and the Portfolio. The Adviser also manages
several other mutual funds with different investment objectives,
including other money market funds, equity funds, international
funds, and taxable and tax-exempt bond funds. To obtain
prospectuses and other information on opening a regular account in
any of these mutual funds, please call 800-338-2550.
Although there can be no assurance that it will always be able to
do so, the Fund follows procedures designed to stabilize its price
per share at $1.00. The Statement of Additional Information
describes these procedures. Because the Fund strives to maintain
a $1.00 per share value, its return is usually quoted either as a
current seven-day yield, calculated by totaling the dividends on a
Fund share for the previous seven days and restating that yield as
an annual rate, or as an effective yield, calculated by adjusting
the current yield to assume daily compounding. The current and
effective yields for the seven-day period ended Sept. 30, 1998,
were 4.89% and 5.01%, respectively. To obtain current yield
information, you may call 800-338-2550.
From time to time, the Fund may also quote total return figures.
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
Comparison of the yield or total return of the Fund with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Past performance is no guarantee of future results.
___________________________
Investment Policies
The Fund seeks to obtain maximum current income consistent with
the preservation of capital and the maintenance of liquidity. It
seeks to achieve its objective by investing all of its net
investable assets in the Portfolio, which has the identical
investment objective. The Portfolio invests all of its assets in
U.S. dollar-denominated money market instruments maturing in
thirteen months or less from time of investment. Each security
must be rated (or be issued by an issuer that is rated with
respect to its short-term debt) within the highest rating category
for short-term debt by at least two nationally recognized
statistical rating organizations ("NRSRO") (or, if rated by only
one NRSRO, by that rating agency), or, if unrated, determined by
or under the direction of the Board of Trustees to be of
comparable quality. These securities may include:
(1) Securities issued or guaranteed by the U.S. Government or by
its agencies or instrumentalities ("U.S. Government
Securities");
(2) Securities issued or guaranteed by the government of any
foreign country that are rated at time of purchase A or better
(or equivalent rating) by at least one NRSRO; /1/
(3) Certificates of deposit, bankers' acceptances and time
deposits of any bank (U.S. or foreign) having total assets in
excess of $1 billion, or the equivalent in other currencies
(as of the date of the most recent available financial
statements) or of any branches, agencies or subsidiaries (U.S.
or foreign) of any such bank;
(4) Commercial paper of U.S. or foreign issuers;
(5) Notes, bonds, and debentures rated at time of purchase A or
better (or equivalent rating) by at least one NRSRO;
(6) Repurchase agreements /2/ involving securities listed in (1)
above;
(7) Other high-quality short-term obligations.
- ----------------
/1/ For a description of certain NRSRO commercial paper, note, and
bond ratings, see the Appendix to the Statement of Additional
Information.
/2/ A sale of securities to the Portfolio in which the seller (a
bank or securities dealer that the Adviser believes to be
financially sound) agrees to repurchase the securities at a higher
price, which includes an amount representing interest on the
purchase price, within a specified time.
- ----------------
In accordance with its investment objective and policies, the
Portfolio may invest in variable and floating rate money market
instruments which provide for periodic or automatic adjustment in
coupon interest rates that are reset based on changes in amount
and directions of specified short-term interest rates.
Under normal market conditions, the Portfolio will invest at least
25% of its total assets in securities of issuers in the financial
services industry (which includes, but is not limited to, banks,
personal credit and business credit institutions, and other
financial services institutions).
The Portfolio maintains a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining a stable net
asset value per share, and not in excess of 90 days. It is a
fundamental policy that the maturity of any instrument that grants
the holder an optional right to redeem at par plus interest and
without penalty will be deemed at any time to be the next date
provided for payment on exercise of such optional redemption
right.
___________________________
Investment Restrictions
Each of the Fund and the Portfolio is diversified as that term is
defined in the Investment Company Act of 1940.
Neither the Fund nor the Portfolio will, with respect to 75% of
its total assets, invest more than 5% of its total assets in the
securities of any one issuer - this restriction does not apply to
U.S. Government Securities or repurchase agreements for such
securities./3/ Notwithstanding the limitation on investment in a
single issuer, the Fund may invest all or substantially all of its
assets in another investment company having the identical
investment objective under a master fund/feeder fund structure.
- -----------
/3/ Notwithstanding the foregoing, and in accordance with Rule 2a-
7 of the Investment Company Act of 1940 (the "Rule"), the
Portfolio will not, immediately after the acquisition of any
security (other than a Government Security or certain other
securities as permitted under the Rule), invest more than 5% of
its total assets in the securities of any one issuer; provided,
however, that it may invest up to 25% of its total assets in First
Tier Securities (as that term is defined in the Rule) of a single
issuer for a period of up to three business days after the
purchase thereof.
- -----------
Although neither the Fund nor the 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; and (3) participate in an
interfund lending program with other Stein Roe Funds and
Portfolios. The Fund and the Portfolio may not borrow money,
except for nonleveraging, temporary, or emergency purposes or in
connection with participation in the interfund lending program.
Neither the 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 Portfolio will not invest more than 10% of its net assets in
illiquid securities, including repurchase agreements maturing in
more than seven days (however, there is otherwise no limitation on
the percentage of assets which may be invested in repurchase
agreements).
The policies described in the second and third paragraphs of this
section, which summarize certain important investment restrictions
of the Fund and the Portfolio, and the policy with respect to
concentration of investment in the financial services industry,
can be changed only with the approval of a "majority of the
outstanding voting securities," as defined in the Investment
Company Act of 1940. All of the investment restrictions are set
forth in the Statement of Additional Information.
___________________________
Risks and Investment Considerations
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. There can be no
guarantee that the Fund or the Portfolio will achieve its
objective or be able at all times to maintain its net asset value
per share at $1.00.
In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Portfolio could experience both delays
in liquidating the underlying securities and losses, including:
(a) possible decline in the value of the collateral during the
period in which it seeks to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.
The investment objective of the Fund and the Portfolio is not
fundamental and may be changed by the Board of Trustees without a
vote of shareholders. If there is a change in the investment
objective, shareholders should consider whether the Fund remains
an appropriate investment in light of their then-current financial
position and needs.
The policy of investing at least 25% of its assets in securities
of issuers in the financial services industry may cause the
Portfolio to be more adversely affected by changes in market or
economic conditions and other circumstances affecting the
financial services industry. Because the Portfolio may invest in:
securities of foreign branches of U.S. banks (Eurodollars), U.S.
branches of foreign banks (Yankee dollars), and foreign banks and
their foreign branches, such as negotiable certificates of
deposit; securities of foreign governments; and securities of
foreign issuers, such as commercial paper and corporate notes,
bonds and debentures, investment in the Fund might involve risks
that are different in some respects from an investment in a fund
that invests only in debt obligations of U.S. domestic issuers.
Such risks may include future political and economic developments;
the possible imposition of foreign withholding taxes on interest
income payable on securities held in the portfolio; possible
seizure or nationalization of foreign deposits; the possible
establishment of exchange controls; or the adoption of other
foreign governmental restrictions that might adversely affect the
payment of principal and interest on securities in the portfolio.
Additionally, there may be less public information available about
foreign banks and their branches. Foreign banks and foreign
branches of foreign banks are not regulated by U.S. banking
authorities, and generally are not bound by accounting, auditing,
and financial reporting standards comparable to U.S. banks.
The Portfolio may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of these
securities are established at the time the Portfolio enters into
the commitment, the securities may be delivered and paid for a
month or more after the date of purchase, when their value may
have changed and the yields then available in the market may be
greater. It will make such commitments only with the intention of
actually acquiring the securities, but may sell the securities
before settlement date if it is deemed advisable for investment
reasons.
The 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.
Year 2000 Compliance. Like other investment companies, financial
and business organizations and individuals around the world, the
Fund could be adversely affected if the computer systems used by
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 Fund's 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 Fund, to provide that date-related information and
data can be properly processed after January 1, 2000. Many Fund
service providers and vendors, including the 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 Fund
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 Fund will not be
adversely affected.
___________________________
How to Purchase Shares
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
Fund shares through your employer or limitations on the amount
that may be purchased, please consult your employer. Shares are
sold to eligible defined contribution plans at the net asset value
(see Net Asset Value) next determined after receipt of payment by
the Fund. Each purchase of shares through a broker-dealer, bank
or other intermediary ("Intermediary") that is an authorized agent
or designee of the Trust for the receipt of orders is made at the
net asset value next determined after receipt of the order by the
Intermediary. An Intermediary, who accepts orders that are
processed at the net asset value next determined after receipt of
the order by the Intermediary, accepts such orders as 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.
Each purchase order must be accepted by an authorized officer of
the Trust in Chicago and is not binding until accepted and entered
on the books of the Fund. Once your purchase order has been
accepted, you may not cancel or revoke it; however, you may redeem
the shares. The Trust reserves the right not to accept any
purchase order that it determines not to be in the best interests
of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.
___________________________
How to Redeem Shares
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your Fund shares
through your employer's plan, including any charges that may be
imposed by the plan, please consult with your employer.
Exchange Privilege.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other no-load Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the no-load Stein
Roe Fund in which you wish to invest and read it carefully.
Contact your plan administrator for instructions on how to
exchange your shares or to obtain prospectuses of other no-load
Stein Roe Funds available through your plan. The Fund reserves
the right to suspend, limit, modify, or terminate the Exchange
Privilege or its use in any manner by any person or class;
shareholders would be notified of such a change.
General Redemption Policies.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions. The price at
which your redemption order will be executed is the net asset
value next determined after proper redemption instructions are
received. (See Net Asset Value.) Because the redemption price
you receive depends upon the net asset value per share at the time
of redemption, it may be more or less than the price you
originally paid for the shares.
___________________________
Net Asset Value
The purchase or redemption price of Fund shares is the net asset
value per share. The net asset value of a Fund share is normally
determined twice each day: at 11:00 a.m., Central time, and as of
the close of regular session trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., Central time). The net
asset value per share is computed by dividing the difference
between the values of assets and liabilities by the number of
shares outstanding and rounding to the nearest cent. Net asset
value will not be determined on days when the NYSE is closed
unless, in the judgment of the Board of Trustees, the net asset
value should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central time. The
Portfolio allocates net asset value, income, and expenses to the
Fund and any other of its feeder funds in proportion to their
respective interests in the Portfolio.
The Fund attempts to maintain its net asset value at $1.00 per
share. Portfolio securities are valued based on their amortized
cost, which does not take into account unrealized gains or losses.
Other assets and securities for which this valuation method does
not produce a fair value are valued at a fair value determined by
the Board. The extent of any deviation between the net asset
value based upon market quotations or equivalents and $1.00 per
share based on amortized cost will be examined by the Board of
Trustees. If such deviation were to exceed 1/2 of 1%, the Board
would consider what action, if any, should be taken, including
selling portfolio instruments, increasing, reducing or suspending
distributions, or redeeming shares in kind.
___________________________
Distributions and Income Taxes
Distributions.
A dividend from net income of the Fund is declared each business
day to shareholders of record immediately before 3:00 p.m.,
Central time. Dividends credited to your account are distributed
monthly. If the net asset value per share were to decline, or
were believed likely to decline, below $1.00 (rounded to the
nearest cent), the Board might temporarily reduce or suspend
dividends in an effort to maintain net asset value at $1.00 per
share.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital gain
distributions will be reinvested in additional Fund shares.
Income Taxes.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
___________________________
Management
Trustees and Investment Adviser.
The Board of Trustees of the Trust and the Board of SR&F Base
Trust have overall management responsibility for the Fund and the
Portfolio, respectively. See 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 Fund and the Portfolio.
The Fund's Adviser, Stein Roe & Farnham Incorporated, One South
Wacker Drive, Chicago, Illinois 60606, is responsible for managing
the investment portfolio of the Portfolio and the business affairs
of the Fund, the Portfolio, the Trust and SR&F Base Trust, subject
to the direction of the respective Boards. The Adviser is
registered as an investment adviser under the Investment Advisers
Act. 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 Fund.
Fees and Expenses.
The Adviser provides administrative services to the Fund under an
administrative agreement and investment management services to the
Portfolio under a management agreement. The Adviser is entitled
to receive a monthly administrative fee from the Fund at an annual
rate of .25% of the first $500 million of average net assets, .20%
of the next $500 million, and .15% thereafter; and a monthly
portfolio management fee from the Portfolio at an annual rate of
.250% of the first $500 million of average net assets and .225%
thereafter, each computed and accrued daily.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund and the
Portfolio, including computation of net asset value and
calculation of net income and capital gains and losses on
disposition of assets.
Portfolio Transactions.
The Adviser places the orders for the purchase and sale of
portfolio securities. 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 Fund are offered for sale through Liberty Funds
Distributor, Inc. ("Distributor") without any sales commissions or
charges to the Fund or its shareholders. The Distributor is a
subsidiary of Colonial Management Associates, Inc., which is an
indirect subsidiary of Liberty Financial. The business address of
the Distributor is One Financial Center, Boston, Massachusetts
02111; however, all Fund correspondence (including purchase and
redemption orders) should be mailed to SteinRoe Services Inc.,
P.O. Box 8900, Boston, Massachusetts 02205. All distribution and
promotional expenses are paid by the Adviser, including payments
to the Distributor for sales of Fund shares.
Custodian.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the Fund
and the Portfolio. 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
The Fund, an open-end management investment company, seeks to
achieve its objective by investing all of its assets in another
mutual fund having an investment objective identical to that of
the Fund. The shareholders of the Fund approved this policy of
permitting the Fund to act as a feeder fund by investing in the
Portfolio. Please refer to Investment Policies and Investment
Restrictions for a description of the investment objectives,
policies, and restrictions of the Fund and the Portfolio. The
management fees and expenses of both the Fund and the Portfolio
are described under Fee Table and Management. The Fund bears its
proportionate share of the Portfolio's expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
SR&F Cash Reserves 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 the Fund and other investors in the Portfolio
will be liable for all obligations of the Portfolio that are not
satisfied by the Portfolio. However, the risk of the Fund
incurring financial loss on account of such liability is limited
to circumstances in which liability was inadequately insured and
the Portfolio was unable to meet its obligations. Accordingly,
the trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's
investing in the Portfolio.
The Declaration of Trust of Base Trust provides that the Portfolio
will terminate 120 days after the withdrawal of the 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 the Fund's interests in the
Portfolio for such continuation without approval of the Fund's
shareholders.
The common investment objective of the Fund and the Portfolio is
non-fundamental and may be changed without shareholder approval,
subject, however, to at least 30 days' advance written notice to
the Fund's shareholders. The fundamental policies of the Fund and
the corresponding fundamental policies of the Portfolio can be
changed only with shareholder approval.
If the Fund, as an investor in the Portfolio, is requested to vote
on a proposed change in a fundamental policy of the Portfolio or
any other matter pertaining to the Portfolio (other than
continuation of the business of the Portfolio after withdrawal of
another investor), the Fund will solicit proxies from its
shareholders and vote its interest in the Portfolio for and
against such matters proportionately to the instructions to vote
for and against such matters received from Fund shareholders. The
Fund will vote shares for which it receives no voting instructions
in the same proportion as the shares for which it receives voting
instructions. There can be no assurance that any matter receiving
a majority of votes cast by Fund shareholders will receive a
majority of votes cast by all Portfolio investors. If other
investors hold a majority interest in the Portfolio, they could
have voting control over the Portfolio.
In the event that the Portfolio's fundamental policies were
changed so as to be inconsistent with those of the Fund, the Board
of Trustees of the Trust would consider what action might be
taken, including changes to the Fund's fundamental policies,
withdrawal of its 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 money market
instruments maturing in 13 months or less. Any of these actions
would require the approval of the Fund's shareholders. The Fund's
inability to find a substitute master fund or comparable
investment management could have a significant impact upon its
shareholders' investments. Any withdrawal of the Fund's assets
could result in a distribution in kind of 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 the Portfolio, including the 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
investment 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 the Portfolio, but members of
the general public may not invest directly in the Portfolio.
Other investors in the Portfolio are not required to sell their
shares at the same public offering price as the Fund, could incur
different administrative fees and expenses than the Fund, and
their shares might be sold with a sales commission. Therefore,
Fund shareholders might have different investment returns than
shareholders in another investment company that invests
exclusively in the Portfolio. Investment by such other investors
in the Portfolio would provide funds for the purchase of
additional portfolio securities and would tend to reduce the
Portfolio's operating expenses as a percentage of its net assets.
Conversely, large-scale redemptions by any such other investors in
the Portfolio could result in untimely liquidations of the
Portfolio's 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, the Portfolio's
security holdings may become less diverse, resulting in increased
risk.
Information regarding any other investors in the Portfolio may be
obtained by writing to SR&F Base Trust, 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.
___________________________
For More Information
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about the Fund.
___________________________
<PAGE>
Statement of Additional Information Dated Nov. 1, 1998
STEIN ROE INCOME TRUST
Money Market Fund
Stein Roe Cash Reserves Fund
Bond Funds
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
This Statement of Additional Information is not a prospectus
but provides additional information that should be read in
conjunction with the Funds' Prospectuses dated Nov. 1, 1998 and
any supplements thereto. A Prospectus may be obtained at no
charge by telephoning 800-338-2550.
TABLE OF CONTENTS
Page
General Information and History...........................2
Investment Policies.......................................3
Cash Reserves Fund.....................................3
Intermediate Bond Fund.................................6
Income Fund............................................7
High Yield Fund........................................8
Portfolio Investments and Strategies......................9
Investment Restrictions..................................26
Additional Investment Considerations.....................29
Purchases and Redemptions................................30
Management...............................................32
Financial Statements.....................................34
Principal Shareholders...................................35
Investment Advisory Services.............................36
Distributor..............................................38
Transfer Agent...........................................39
Custodian................................................39
Independent Auditors.....................................40
Portfolio Transactions...................................40
Additional Income Tax Considerations.....................42
Additional Information on the Determination of Net
Asset Value-Cash Reserves Fund.........................43
Investment Performance...................................44
Appendix-Ratings.........................................51
GENERAL INFORMATION AND HISTORY
The following mutual funds are separate series of Stein Roe
Income Trust (the "Trust"):
Stein Roe Cash Reserves Fund ("Cash Reserves Fund")
Stein Roe Intermediate Bond Fund ("Intermediate Bond Fund")
Stein Roe Income Fund ("Income Fund")
Stein Roe High Yield Fund ("High Yield Fund")
Each series invests in a separate portfolio of securities and
other assets, with its own objectives and policies. The series of
the Trust are referred to collectively as "the Funds."
Intermediate Bond Fund, Income Fund, and High Yield Fund are
referred to collectively as the "Bond Funds." On Nov. 1, 1995,
the name of the Trust and each of its series was changed to
separate "SteinRoe" into two words.
Currently four series of the Trust are authorized and
outstanding. Each share of a series, without par value, is
entitled to participate pro rata in any dividends and other
distributions declared by the Board on shares of that series, and
all shares of a series have equal rights in the event of
liquidation of that series. Each whole share (or fractional
share) outstanding on the record date established in accordance
with the By-Laws shall be entitled to a number of votes on any
matter on which it is entitled to vote equal to the net asset
value of the share (or fractional share) in United States dollars
determined at the close of business on the record date (for
example, a share having a net asset value of $10.50 would be
entitled to 10.5 votes). As a business trust, the Trust is not
required to hold annual shareholder meetings. However, special
meetings may be called for purposes such as electing or removing
trustees, changing fundamental policies, or approving an
investment advisory contract. If requested to do so by the
holders of at least 10% of its outstanding shares, the Trust will
call a special meeting for the purpose of voting upon the question
of removal of a trustee or trustees and will assist in the
communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940. All shares of the
Trust are voted together in the election of trustees. On any
other matter submitted to a vote of shareholders, shares are voted
by individual series and not in the aggregate, except that shares
are voted in the aggregate when required by the Investment Company
Act of 1940 or other applicable law. When the Board of Trustees
determines that the matter affects only the interests of one or
more series, shareholders of the unaffected series are not
entitled to vote on such matters.
Stein Roe & Farnham Incorporated (the "Adviser") provides
administrative and accounting and recordkeeping services to the
Funds and the Portfolios and provides investment advisory services
to the Portfolios.
Special Considerations Regarding Master Fund/Feeder Fund Structure
Rather than invest in securities directly, each Fund seeks to
achieve its objective by pooling its assets with those of other
investment companies for investment in another mutual fund having
the identical investment objective and substantially the same
investment policies as its feeder funds. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. Each Fund invests all of its net investable assets
in a separate master fund that is a series of SR&F Base Trust, as
follows:
Master/Feeder
Status
Feeder Fund Master Fund Established
- ------------------- ------------------------------ -------------
Cash Reserves Fund SR&F Cash Reserves Portfolio
("Cash Reserves Portfolio") March 2, 1998
Intermediate Bond
Fund SR&F Intermediate Bond Portfolio
("Intermediate Bond Portfolio") Feb. 2, 1998
Income Fund SR&F Income Portfolio ("Income
Portfolio") Feb. 2, 1998
High Yield Fund SR&F High Yield Portfolio
("High Yield Portfolio") Nov. 1, 1996
The master funds are referred to collectively as the "Portfolios."
Intermediate Bond Portfolio, Income Portfolio, and High Yield
Portfolio are referred to collectively as the "Bond Portfolios."
For more information, please refer to the Prospectus under the
caption Master Fund/Feeder Fund: Structure and Risk Factors.
INVESTMENT POLICIES
The following information supplements the discussion of the
investment objectives and policies described in the Prospectuses.
In pursuing its objective, each Fund will invest as described
below and may employ the investment techniques described under
Portfolio Investments and Strategies in its Prospectus and in this
Statement of Additional Information. The investment objective of
each Fund and Portfolio is a nonfundamental policy and may be
changed by the Board of Trustees without the approval of a
"majority of the outstanding voting securities." /1/
- -------------------
/1/ A "majority of the outstanding voting securities" means the
approval of the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding shares
are present or represented by proxy or (ii) more than 50% of the
outstanding shares.
- -------------------
Cash Reserves Fund
Cash Reserves Fund seeks to obtain maximum current income
consistent with the preservation of capital and the maintenance of
liquidity. It invests all of its net investable assets in Cash
Reserves Portfolio, which has the identical investment objective.
Cash Reserves Portfolio seeks to achieve its objective by
investing all of its assets in U.S. dollar-denominated money
market instruments maturing in thirteen months or less from time
of investment. Each security must be rated (or be issued by an
issuer that is rated with respect to its short-term debt) within
the highest rating category for short-term debt by at least two
nationally recognized statistical rating organizations ("NRSRO")
(or, if rated by only one NRSRO, by that rating agency) or, if
unrated, determined by or under the direction of the Board of
Trustees to be of comparable quality. These securities may
include:
(1) Securities issued or guaranteed by the U.S. Government or by
its agencies or instrumentalities ("U.S. Government
Securities");
(2) Securities issued or guaranteed by the government of any
foreign country that are rated at time of purchase A or better
(or equivalent rating) by at least one NRSRO;
(3) Certificates of deposit, bankers' acceptances and time
deposits of any bank (U.S. or foreign) having total assets in
excess of $1 billion, or the equivalent in other currencies
(as of the date of the most recent available financial
statements) or of any branches, agencies or subsidiaries (U.S.
or foreign) of any such bank;
(4) Commercial paper of U.S. or foreign issuers;
(5) Notes, bonds, and debentures rated at time of purchase A or
better (or equivalent rating) by at least one NRSRO;
(6) Repurchase agreements /2/ involving securities listed in (1)
above;
(7) Other high-quality short-term debt obligations.
- ------------
/2/ A repurchase agreement involves the sale of securities to the
Fund, with the concurrent agreement of the seller to repurchase
the securities at the same price plus an amount equal to an
agreed-upon interest rate, within a specified time. In the event
of a bankruptcy or other default of a seller of a repurchase
agreement, Cash Reserves Portfolio could experience both delays in
liquidating the underlying securities and losses.
- ------------
Cash Reserves Portfolio will maintain a dollar-weighted
average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per share and not in excess
of 90 days. It is a fundamental policy which may not be changed
without the approval of a majority of the outstanding voting
securities, that the maturity of any instrument that grants the
holder the right to redeem at par plus interest and without
penalty will be deemed at any time to be the next date provided
for payment on exercise of such optional redemption right.
It is the intention of Cash Reserves Portfolio, as a general
policy, to hold securities to maturity. However, Cash Reserves
Portfolio may attempt, from time to time, to increase its yield by
trading to take advantage of variations in the markets for short-
term money market instruments. In addition, redemptions of shares
of Cash Reserves Fund could necessitate the sale of portfolio
securities and these sales may occur when such sales would not
otherwise be desirable. While Cash Reserves Portfolio seeks to
invest in high-quality money market instruments, these investments
are not entirely without risk. An increase in interest rates will
generally reduce the market value of portfolio investments and a
decline in interest rates will generally increase the market value
of portfolio investments. Investments in instruments other than
U.S. Government Securities are also subject to default by the
issuer.
Investment in Cash Reserves Fund might involve risks that are
different in some respects from an investment in a fund that
invests only in debt obligations of U.S. domestic issuers because
the investment policy permits it to invest in securities of
foreign branches of U.S. banks (Eurodollars), U.S. branches of
foreign banks (Yankee dollars), and foreign banks and their
foreign branches, such as negotiable certificates of deposit;
securities of foreign governments; and securities of foreign
issuers, such as commercial paper and corporate notes, bonds and
debentures. Such risks may include future political and economic
developments, the possible imposition of foreign withholding taxes
on interest income payable on securities held in the portfolio,
possible seizure or nationalization of foreign deposits, the
possible establishment of exchange controls, or the adoption of
other foreign governmental restrictions that might adversely
affect the payment of principal and interest on securities in the
investment portfolio. Additionally, there may be less public
information available about foreign banks and their branches.
Foreign banks and foreign branches of foreign banks are not
regulated by U.S. banking authorities, and generally are not bound
by accounting, auditing, and financial reporting standards
comparable to U.S. banks.
Cash Reserves Portfolio may invest in notes and bonds that
bear floating or variable rates of interest, and that ordinarily
have stated maturities in excess of thirteen months, but permit
the holder to demand earlier payment of principal and accrued
interest, upon not more than 30 days' advance notice, at any time
or after stated intervals not exceeding thirteen months. Such
instruments are commonly referred to as "demand" obligations.
Variable rate demand notes include master demand notes, which are
obligations that permit Cash Reserves Portfolio to invest
fluctuating amounts, which may change daily without penalty,
pursuant to direct arrangements between Cash Reserves Portfolio,
as lender, and the borrower. The interest rates on these notes
fluctuate from time to time. The issuer of such obligations
normally has a right, after a given period, to prepay the
outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's
prime rate, and is adjusted automatically each time the rate
changes. The interest rate on a variable rate obligation is
adjusted automatically at the end of specified intervals.
Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because
these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments
will generally be traded, and there generally is no established
secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support
arrangements, Cash Reserves Portfolio's right to redeem is
dependent on the ability of the borrower to pay principal and
interest on demand. Such obligations frequently are not rated by
credit rating agencies and it may invest in obligations that are
not so rated only if the Board of Trustees determines that the
obligations are of comparable quality to the other obligations in
which it may invest.
Cash Reserves Portfolio may purchase from financial
institutions participation interests in securities. A
participation interest gives Cash Reserves Portfolio an undivided
interest in the security in the proportion that its participation
interest bears to the total principal amount of the security. It
may also purchase certificates of participation, such as
participations in a pool of mortgages or credit card receivables.
Participation interests and certificates of participation both may
have fixed, floating or variable rates of interest with remaining
maturities of one year or less. If these instruments are unrated,
or have been given a rating below that which is permissible for
purchase, they will be backed by an irrevocable letter of credit
or guarantee of a bank, or the payment obligation otherwise will
be collateralized by U.S. Government Securities, or, in the case
of unrated participation interests, the Board of Trustees must
have determined that the instrument is of comparable quality to
those instruments in which Cash Reserves Portfolio may invest.
Under normal market conditions, Cash Reserves Portfolio will
invest at least 25% of its assets in securities of issuers in the
financial services industry. This policy may cause Cash Reserves
Portfolio to be more adversely affected by changes in market or
economic conditions and other circumstances affecting the
financial services industry. The financial services industry
includes issuers that, according to the Directory of Companies
Required to File Annual Reports with the Securities and Exchange
Commission, are in the following categories: State banks; national
banks; savings and loan holding companies; personal credit
institutions; business credit institutions; mortgage-backed
securities; financial services; security and commodity brokers,
dealers and services; life, accident and health insurance
carriers; fire, marine, casualty and surety insurance carriers;
insurance agents, brokers and services.
Intermediate Bond Fund
Intermediate Bond Fund's investment objective is to provide a
high level of current income, consistent with the preservation of
capital, by investing primarily in marketable debt securities. It
seeks to achieve its objective by investing all of its net
investable assets in Intermediate Bond Portfolio, which has the
identical investment objective. Under normal market conditions,
Intermediate Bond Portfolio will invest at least 65% of the value
of its total assets (taken at market value at the time of
investment) in convertible and non-convertible bonds and
debentures, and at least 60% of its assets will be invested in the
following:
(1) Marketable straight-debt securities of domestic issuers, and
of foreign issuers payable in U.S. dollars, rated at time of
purchase within the three highest grades assigned by Moody's
Investors Service, Inc. ("Moody's") (Aaa, Aa, or A) or by
Standard & Poor's Corporation ("S&P") (AAA, AA, or A);
(2) U.S. Government Securities;
(3) Commercial paper rated Prime-1 by Moody's or A-1 by S&P at
time of purchase, or, if unrated, issued or guaranteed by a
corporation with any outstanding debt rated Aa or better by
Moody's or AA or better by S&P; and
(4) Bank obligations, including repurchase agreements, of banks
having total assets in excess of $1 billion.
Under normal market conditions, Intermediate Bond Portfolio
invests at least 65% of its assets in securities with an average
life of between three and ten years, and expects that the dollar-
weighted average life of its portfolio will be between three and
ten years. Average life is the weighted average period over which
the Adviser expects the principal to be paid, and differs from
stated maturity in that it estimates the effect of expected
principal prepayments and call provisions. With respect to GNMA
securities and other mortgage-backed securities, average life is
likely to be substantially less than the stated maturity of the
mortgages in the underlying pools. With respect to obligations
with call provisions, average life is typically the next call date
on which the obligation reasonably may be expected to be called.
Securities without prepayment or call provisions generally have an
average life equal to their stated maturity. During periods of
rising interest rates, the average life of mortgage-backed
securities and callable obligations may increase substantially
because they are not likely to be prepaid, which may result in
greater net asset value fluctuation.
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 (including
those convertible into, or carrying warrants to purchase, common
stocks or other equity interests); and marketable common stocks
that the Adviser considers likely to yield relatively high income
in relation to cost.
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 for more information on
the risks associated with investing in debt securities rated below
investment grade.)
Income Fund
Income Fund seeks to achieve its objective by investing all
of its net investable assets in Income Portfolio, which has the
identical investment objective. Income Portfolio invests
principally in medium-quality debt securities, which are
obligations of issuers that the Adviser believes possess adequate,
but not outstanding, capacities to service their debt securities,
such as securities rated A or Baa by Moody's or A or BBB by S&P.
The Adviser generally attributes to medium-quality securities the
same characteristics as do rating services.
Although Income 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 the 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 predominantly
speculative with respect to the issuer's capacity to pay interest
and repay principal. 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
for more information on the risks associated with investing in
debt securities rated below investment grade.) 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.
High Yield Fund
High Yield Fund seeks total return by investing for a high
level of current income and capital growth. High Yield Fund seeks
to achieve its objective by investing all of its net investable
assets in High Yield Portfolio, which has the identical investment
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 will
invest normally offer a current yield or yield to maturity that is
significantly higher than the yield from securities rated in the
three highest categories assigned by rating services such as S&P
or Moody's.
Under normal circumstances, at least 65% of High Yield
Portfolio's assets will be invested in high-yield, high-risk
medium- and lower-quality debt securities rated lower than Baa by
Moody's and lower than BBB by S&P, or equivalent ratings as
determined by other rating agencies or unrated securities that the
Adviser determines to be of comparable quality. Medium-quality
debt securities, although considered investment grade, have some
speculative characteristics. Lower-quality debt securities are
obligations of issuers that are considered predominantly
speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation and,
therefore, carry greater investment risk, including the
possibility of issuer default and bankruptcy, and are commonly
referred to as "junk bonds." Some issuers of debt securities
choose not to have their securities rated by a rating service, and
High Yield Portfolio may invest in unrated securities that the
Adviser has researched and believes are suitable for investment.
High Yield Portfolio may invest in debt obligations that are in
default, but such obligations are not expected to exceed 10% of
High Yield Portfolio's assets. (See Portfolio Investments and
Strategies for more information on the risks associated with
investing in debt securities rated below investment grade.)
High Yield Portfolio may invest up to 35% of its total assets
in other securities including, but not limited to, pay-in-kind
bonds, securities issued in private placements, bank loans, zero
coupon bonds, foreign securities, convertible securities, futures,
and options. High Yield Portfolio may also invest in higher-
quality debt securities. Under normal market conditions, however,
High Yield Portfolio is unlikely to emphasize higher-quality debt
securities since generally they offer lower yields than medium-
and lower-quality debt securities with similar maturities. High
Yield Portfolio may also invest in common stocks and securities
that are convertible into common stocks, such as warrants.
PORTFOLIO INVESTMENTS AND STRATEGIES
Derivatives
Consistent with its objective, each Bond 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").
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because using them is
more efficient or less costly than direct investment that cannot
be readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and directions
of movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives.
High Yield Portfolio does not currently intend to invest more
than 5% of its net assets in any types of Derivatives except
options, futures contracts, and futures options. Income Portfolio
does not currently intend to invest, nor has it during its past
fiscal year invested, more than 5% of its net assets in any type
of Derivative, except options, futures contracts, and futures
options. Intermediate Bond Portfolio does not currently intend to
invest, nor has it during its past fiscal year invested, more than
5% of its net assets in any type of Derivative except options,
futures contracts, futures options and obligations collateralized
by either mortgages or other assets. (See Mortgage and Other
Asset-Backed Securities, Variable and Floating Rate Instruments,
and Options and Futures below.)
Medium- and Lower-Quality Debt Securities
Each Bond Portfolio may invest in medium- and lower-quality
debt securities. Medium-quality debt securities, although
considered investment grade, have some speculative
characteristics. Lower-quality securities, commonly referred to
as "junk bonds," are those rated below the fourth highest rating
category or bond of comparable quality.
Investment in medium- or lower-quality debt securities
involves greater investment risk, including the possibility of
issuer default or bankruptcy. A 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 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. The market value of these securities
and their liquidity may be affected by adverse publicity and
investor perceptions.
Mortgage and Other Asset-Backed Securities
Each Bond Portfolio may invest in securities secured by
mortgages or other assets such as automobile or home improvement
loans and credit card receivables. These instruments may be
issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities or by private entities such as commercial,
mortgage and investment banks and financial companies or financial
subsidiaries of industrial companies.
Mortgage-backed securities provide either a pro rata interest
in underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") which represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities, and are usually issued in multiple classes each
of which has different payment rights, prepayment risks and yield
characteristics. Mortgage-backed securities involve the risk of
prepayment on the underlying mortgages at a faster or slower rate
than the established schedule. Prepayments generally increase
with falling interest rates and decrease with rising rates but
they also are influenced by economic, social and market factors.
If mortgages are prepaid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of
any premium paid by the Portfolio on purchase of the CMO, and the
proceeds of prepayment would likely be invested at lower interest
rates. The Portfolios tend to invest in CMOs of classes known as
planned amortization classes ("PACs") which have prepayment
protection features tending to make them less susceptible to price
volatility.
Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to support payments on
the underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.
REMICs
Each Bond 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.
Variable and Floating Rate Instruments
In accordance with its investment objective and policies,
Cash Reserves Portfolio may invest in variable and floating rate
money market instruments which provide for periodic or automatic
adjustments in coupon interest rates that are reset based on
changes in amount and direction of specified short-term interest
rates. Cash Reserves Portfolio will not invest in a variable or
floating rate instrument unless the Adviser determines that as of
any reset date the market value of the instrument can reasonably
be expected to approximate its par value.
Each Bond Portfolio may invest in floating rate instruments
which provide for periodic adjustments in coupon interest rates
that are automatically reset based on changes in amount and
direction of specified market interest rates. In addition, the
adjusted duration of some of these instruments may be materially
shorter than their stated maturities. To the extent such
instruments are subject to lifetime or periodic interest rate caps
or floors, such instruments may experience greater price
volatility than debt instruments without such features. Adjusted
duration is an inverse relationship between market price and
interest rates and refers to the approximate percentage change in
price for a 100 basis point change in yield. For example, if
interest rates decrease by 100 basis points, a market price of a
security with an adjusted duration of 2 would increase by
approximately 2%. Neither Income Portfolio nor High Yield
Portfolio intends to invest more than 5% of its net assets in
floating rate instruments. Intermediate Bond Portfolio does not
intend to invest more than 10% of its net assets in floating rate
instruments.
Lending of Portfolio Securities
Subject to restriction (7) under Investment Restrictions,
each Bond 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. 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 the Portfolio seeks to enforce its rights
thereto, (b) possible subnormal levels of income and lack of
access to income during this period, and (c) expenses of enforcing
its rights.
No Bond Portfolio has loaned portfolio securities during its
last fiscal year, nor does it intend to loan more than 5% of its
net assets.
Repurchase Agreements
Each Portfolio may invest in repurchase agreements, provided
that it will not invest more than 10% of net assets in repurchase
agreements maturing in more than seven days and any other illiquid
securities. A repurchase agreement is a sale of securities to a
Portfolio in which the seller agrees to repurchase the securities
at a higher price, which includes an amount representing interest
on the purchase price, within a specified time. In the event of
bankruptcy of the seller, a Portfolio could experience both losses
and delays in liquidating its collateral.
When-Issued and Delayed-Delivery Securities; Reverse Repurchase
Agreements; Standby Commitments
Each Portfolio may purchase instruments on a when-issued or
delayed-delivery basis. Although the payment terms are
established at the time it enters into the commitment, the
instruments may be delivered and paid for some time after the date
of purchase, when their value may have changed and the yields
available in the market may be greater. They will make such
commitments only with the intention of actually acquiring the
instruments, but may sell them before settlement date if it is
deemed advisable for investment reasons. Securities purchased in
this manner involve risk of loss if the value of the security
purchased declines before settlement date.
Securities purchased by a Bond Portfolio on a when-issued or
delayed-delivery basis are sometimes done on a "dollar roll"
basis. Dollar roll transactions consist of the sale of securities
with a commitment to purchase similar but not identical
securities, generally at a lower price at a future date. A dollar
roll may be renewed after cash settlement and initially may
involve only a firm commitment agreement by a Portfolio to buy a
security. A dollar roll transaction involves the following risks:
if the broker-dealer to whom a Portfolio sells the security
becomes insolvent, the Portfolio's right to purchase or repurchase
the security may be restricted; the value of the security may
change adversely over the term of the dollar roll; the security
which a Portfolio is required to repurchase may be worth less than
a security which the Portfolio originally held; and the return
earned by a Portfolio with the proceeds of a dollar roll may not
exceed transaction costs.
Each Bond Portfolio may enter into reverse repurchase
agreements with banks and securities dealers. A reverse
repurchase agreement is a repurchase agreement in which the
Portfolio is the seller of, rather than the investor in,
securities and agrees to repurchase them at an agreed-upon time
and price. Use of a reverse repurchase agreement may be
preferable to a regular sale and later repurchase of securities
because it avoids certain market risks and transaction costs.
A standby commitment is a delayed-delivery agreement in which
the Portfolio binds itself to accept delivery of and to pay for an
instrument within a specified period at the option of the other
party to the agreement. Standby commitment agreements create an
additional risk because the other party to the standby agreement
generally will not be obligated to deliver the security, but the
Portfolio will be obligated to accept it if delivered. Depending
on market conditions, the Portfolio may receive a commitment fee
for assuming this obligation. If prevailing market interest rates
increase during the period between the date of the agreement and
the settlement date, the other party can be expected to deliver
the security and, in effect, pass any decline in value to the
Portfolio. If the value of the security increases after the
agreement is made, however, the other party is unlikely to deliver
the security. In other words, a decrease in the value of the
securities to be purchased under the terms of a standby commitment
agreement will likely result in the delivery of the security, and,
therefore, such decrease will be reflected in the net asset value.
However, any increase in the value of the securities to be
purchased will likely result in the non-delivery of the security
and, therefore, such increase will not affect the net asset value
unless and until the Portfolio actually obtains the security.
At the time a Portfolio enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement or standby commitment, liquid assets
(cash, U.S. Government or other "high grade" debt obligations) of
the Portfolio having a value at least as great as the purchase
price of the securities to be purchased is segregated on the books
of the Portfolio and held by the custodian throughout the period
of the obligation. The use of these investment strategies, as
well as borrowing under a line of credit as described below, may
increase net asset value fluctuation.
Short Sales Against the Box
Each Portfolio may sell securities short against the box;
that is, enter into short sales of securities that it currently
owns or has the right to acquire through the conversion or
exchange of other securities that it owns at no additional cost.
A Portfolio may make short sales of securities only if at all
times when a short position is open the Portfolio owns at least an
equal amount of such securities or securities convertible into or
exchangeable for securities of the same issue as, and equal in
amount to, the securities sold short, at no additional cost.
In a short sale against the box, a Portfolio does not deliver
from its portfolio the securities sold. Instead, the Portfolio
borrows the securities sold short from a broker-dealer through
which the short sale is executed, and the broker-dealer delivers
such securities, on behalf of the Portfolio, to the purchaser of
such securities. The Portfolio is required to pay to the broker-
dealer the amount of any dividends paid on shares sold short.
Finally, to secure its obligation to deliver to such broker-dealer
the securities sold short, the Portfolio must deposit and
continuously maintain in a separate account with its custodian an
equivalent amount of the securities sold short or securities
convertible into or exchangeable for such securities at no
additional cost. A Portfolio is said to have a short position in
the securities sold until it delivers to the broker-dealer the
securities sold. A Portfolio may close out a short position by
purchasing on the open market and delivering to the broker-dealer
an equal amount of the securities sold short, rather than by
delivering portfolio securities.
Short sales may protect a Portfolio against the risk of
losses in the value of its portfolio securities because any
unrealized losses with respect to such portfolio securities should
be wholly or partially offset by a corresponding gain in the short
position. However, any potential gains in such portfolio
securities should be wholly or partially offset by a corresponding
loss in the short position. The extent to which such gains or
losses are offset will depend upon the amount of securities sold
short relative to the amount the Portfolio owns, either directly
or indirectly, and, in the case where the Portfolio owns
convertible securities, changes in the conversion premium.
Short sale transactions involve certain risks. If the price
of the security sold short increases between the time of the short
sale and the time a Portfolio replaces the borrowed security, the
Portfolio will incur a loss and if the price declines during this
period, it will realize a short-term capital gain. Any realized
short-term capital gain will be decreased, and any incurred loss
increased, by the amount of transaction costs and any premium,
dividend or interest which the Portfolio may have to pay in
connection with such short sale. Certain provisions of the
Internal Revenue Code may limit the degree to which a Portfolio is
able to enter into short sales. There is no limitation on the
amount of a Portfolio's assets that, in the aggregate, may be
deposited as collateral for the obligation to replace securities
borrowed to effect short sales and allocated to segregated
accounts in connection with short sales. No Portfolio currently
expects that more than 5% of its total assets would be involved in
short sales against the box.
Line of Credit
Subject to restriction (8) under Investment Restrictions,
each Fund and Portfolio may establish and maintain a line of
credit with a major bank in order to permit borrowing on a
temporary basis to meet share redemption requests in circumstances
in which temporary borrowing may be preferable to liquidation of
portfolio securities.
Interfund Borrowing and Lending Program
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the Portfolios may lend money to and borrow
money from other mutual funds advised by the Adviser. A Portfolio
will borrow through the program when borrowing is necessary and
appropriate and the costs are equal to or lower than the costs of
bank loans.
PIK and Zero Coupon Bonds
Each Bond 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.
Rated Securities
For a description of the ratings applied by Moody's and S&P
(two of the approved NRSROs) to debt securities, please refer to
the Appendix. The rated debt securities for a Portfolio include
securities given a rating conditionally by Moody's or
provisionally by S&P. If the rating of a security held by a
Portfolio is withdrawn or reduced, the Portfolio is not required
to sell the security, but the Adviser will consider such fact in
determining whether that Portfolio should continue to hold the
security. To the extent that the ratings accorded by a NRSRO for
debt securities may change as a result of changes in such
organizations, or changes in their rating systems, each Portfolio
will attempt to use comparable ratings as standards for its
investments in debt securities in accordance with its investment
policies.
Foreign Securities
Cash Reserves Portfolio may invest in securities of foreign
branches of U.S. banks (Eurodollars), U.S. branches of foreign
banks (Yankee dollars), and foreign banks and their foreign
branches, such as negotiable certificates of deposit; securities
of foreign governments; and securities of foreign issuers, such as
commercial paper and corporate notes, bonds and debentures. Each
Bond Portfolio may invest up to 25% of total assets (taken at
market value at the time of investment) in securities of foreign
issuers that are not publicly traded in the United States
("foreign securities"). For purposes of these limits, foreign
securities do not include securities represented by American
Depositary Receipts ("ADRs"), securities denominated in U.S.
dollars, or securities guaranteed by U.S. persons. Investment in
foreign securities may involve a greater degree of risk (including
risks relating to exchange fluctuations, tax provisions, or
expropriation of assets) than does investment in securities of
domestic issuers.
The Portfolios may invest in both "sponsored" and
"unsponsored" ADRs. In a sponsored ADR, the issuer typically pays
some or all of the expenses of the depositary and agrees to
provide its regular shareholder communications to ADR holders. An
unsponsored ADR is created independently of the issuer of the
underlying security. The ADR holders generally pay the expenses
of the depositary and do not have an undertaking from the issuer
of the underlying security to furnish shareholder communications.
No Portfolio expects to invest as much as 5% of its total assets
in unsponsored ADRs.
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, the
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely,
if the dollar rises in value relative to the yen, the dollar value
of the yen-denominated stock will fall. (See discussion of
transaction hedging and portfolio hedging under Currency Exchange
Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions which are generally denominated in foreign currencies,
and utilization of forward foreign currency exchange contracts
involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements.
Although the Portfolios will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at
a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
The Portfolios' foreign currency exchange transactions are
limited to transaction and portfolio hedging involving either
specific transactions or portfolio positions, except to the extent
described below under Synthetic Foreign Positions. Transaction
hedging is the purchase or sale of forward contracts with respect
to specific receivables or payables of a Portfolio arising in
connection with the purchase and sale of its portfolio securities.
Portfolio hedging is the use of forward contracts with respect to
portfolio security positions denominated or quoted in a particular
foreign currency. Portfolio hedging allows the Portfolio to limit
or reduce its exposure in a foreign currency by entering into a
forward contract to sell such foreign currency (or another foreign
currency that acts as a proxy for that currency) at a future date
for a price payable in U.S. dollars so that the value of the
foreign-denominated portfolio securities can be approximately
matched by a foreign-denominated liability. A Portfolio may not
engage in portfolio hedging with respect to the currency of a
particular country to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in
its portfolio denominated or quoted in that particular currency,
except that a Portfolio may hedge all or part of its foreign
currency exposure through the use of a basket of currencies or a
proxy currency where such currencies or currency act as an
effective proxy for other currencies. In such a case, a Portfolio
may enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into
separate forward contracts for each currency held in a Portfolio.
No Portfolio may engage in "speculative" currency exchange
transactions.
At the maturity of a forward contract to deliver a particular
currency, a Portfolio may either sell the portfolio security
related to such contract and make delivery of the currency, or it
may retain the security and either acquire the currency on the
spot market or terminate its contractual obligation to deliver the
currency by purchasing an offsetting contract with the same
currency trader obligating it to purchase on the same maturity
date the same amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for a
Portfolio to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the
security is less than the amount of currency it is obligated to
deliver and if a decision is made to sell the security and make
delivery of the currency. Conversely, it may be necessary to sell
on the spot market some of the currency received upon the sale of
the portfolio security if its market value exceeds the amount of
currency the Portfolio is obligated to deliver.
If a Portfolio retains the portfolio security and engages in
an offsetting transaction, the Portfolio will incur a gain or a
loss to the extent that there has been movement in forward
contract prices. If a Portfolio engages in an offsetting
transaction, it may subsequently enter into a new forward contract
to sell the currency. Should forward prices decline during the
period between a Portfolio's entering into a forward contract for
the sale of a currency and the date it enters into an offsetting
contract for the purchase of the currency, it will realize a gain
to the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, a Portfolio will suffer a loss to
the extent the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell. A
default on the contract would deprive a Portfolio of unrealized
profits or force the Portfolio to cover its commitments for
purchase or sale of currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for a Portfolio to hedge against a devaluation that is so
generally anticipated that the Portfolio is not able to contract
to sell the currency at a price above the devaluation level it
anticipates. The cost to a Portfolio of engaging in currency
exchange transactions varies with such factors as the currency
involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually
conducted on a principal basis, no fees or commissions are
involved.
Synthetic Foreign Positions. The Portfolios may invest in
debt instruments denominated in foreign currencies. 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. The
results of a direct investment in a foreign currency and a
concurrent construction of a synthetic position in such foreign
currency, in terms of both income yield and gain or loss from
changes in currency exchange rates, in general should be similar,
but would not be identical because the components of the
alternative investments would not be identical.
The Portfolios may also construct a synthetic foreign
position by entering into a swap arrangement. A swap is a
contractual agreement between two parties to exchange cash flows-
at the time of the swap agreement and again at maturity, and, with
some swaps, at various intervals through the period of the
agreement. The use of swaps to construct a synthetic foreign
position would generally entail the swap of interest rates and
currencies. A currency swap is a contractual arrangement between
two parties to exchange principal amounts in different currencies
at a predetermined foreign exchange rate. An interest rate swap
is a contractual agreement between two parties to exchange
interest payments on identical principal amounts. An interest
rate swap may be between a floating and a fixed rate instrument, a
domestic and a foreign instrument, or any other type of cash flow
exchange. A currency swap generally has the same risk
characteristics as a forward currency contract, and all types of
swaps have counter-party risk. Depending on the facts and
circumstances, swaps may be considered illiquid. Illiquid
securities usually have greater investment risk and are subject to
greater price volatility. The net amount of the excess, if any,
of a Portfolio's obligations over which it is entitled to receive
with respect to an interest rate or currency swap will be accrued
daily and liquid assets (cash, U.S. Government securities, or
other "high grade" debt obligations) of the Portfolio having a
value at least equal to such accrued excess will be segregated on
the books of the Portfolio and held by the Custodian for the
duration of the swap.
The Portfolios may also construct a synthetic foreign
position by purchasing an instrument whose return is tied to the
return of the desired foreign position. An investment in these
"principal exchange rate linked securities" (often called PERLS)
can produce a similar return to a direct investment in a foreign
security.
Rule 144A Securities
Each Bond 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. 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 the Portfolio does not invest more than 10% of its
assets in illiquid securities. Investing in Rule 144A securities
could have the effect of increasing the amount of a Portfolio's
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
For information on the Bond Funds' portfolio turnover rates,
see Financial Highlights in their Prospectus. General portfolio
turnover information is also contained in the Prospectus under
Risks and Investment Considerations.
The portfolio turnover rates of the Bond Funds and Portfolios
have been greater than 100% in recent fiscal years because of
increased volatility in the financial markets and the Adviser's
techniques for reacting to changes in the markets to shift
exposures to certain sectors and to capture gains. The turnover
rate for a Bond Portfolio in the future may vary greatly from year
to year, and when portfolio changes are deemed appropriate due to
market or other conditions, such turnover rate may be greater than
might otherwise be anticipated. A high rate of portfolio turnover
may result in increased transaction expenses and the realization
of capital gains or losses. Distributions of any net realized
gains are subject to federal income tax. (See Financial
Highlights, Risks and Investment Considerations, and Distributions
and Income Taxes in the Prospectuses, and Additional Income Tax
Considerations in this Statement of Additional Information.)
Options on Securities and Indexes
Each Bond Portfolio may purchase and may sell both put
options and call options on debt or other securities or indexes in
standardized contracts traded on national securities exchanges,
boards of trade, or similar entities, or quoted on Nasdaq, and
agreements, sometimes called cash puts, that may accompany the
purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives
the purchaser (holder) of the option, in return for a premium, the
right to buy from (call) or sell to (put) the seller (writer) of
the option the security underlying the option (or the cash value
of the index) at a specified exercise price at any time during the
term of the option. The writer of an option on an individual
security has the obligation upon exercise of the option to deliver
the underlying security upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security.
Upon exercise, the writer of an option on an index is obligated to
pay the difference between the cash value of the index and the
exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect specified facets
of a particular financial or securities market, a specific group
of financial instruments or securities, or certain economic
indicators.)
A Bond Portfolio will write call options and put options only
if they are "covered." In the case of a call option on a
security, the option is "covered" if the Portfolio owns the
security underlying the call or has an absolute and immediate
right to acquire that security without additional cash
consideration (or, if additional cash consideration is required,
cash or cash equivalents in such amount are held in a segregated
account by its custodian) upon conversion or exchange of other
securities held in its portfolio.
If an option written by a Bond Portfolio expires, it realizes
a capital gain equal to the premium received at the time the
option was written. If an option purchased by a Portfolio
expires, it realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when the Portfolio desires.
A Portfolio will realize a capital gain from a closing
purchase transaction if the cost of the closing option is less
than the premium received from writing the option, or, if it is
more, the Portfolio will realize a capital loss. If the premium
received from a closing sale transaction is more than the premium
paid to purchase the option, the Portfolio will realize a capital
gain or, if it is less, it will realize a capital loss. The
principal factors affecting the market value of a put or a call
option include supply and demand, interest rates, the current
market price of the underlying security or index in relation to
the exercise price of the option, the volatility of the underlying
security or index, and the time remaining until the expiration
date.
A put or call option purchased by a Portfolio is an asset of
the Portfolio, valued initially at the premium paid for the
option. The premium received for an option written by a Portfolio
is recorded as a deferred credit. The value of an option
purchased or written is marked-to-market daily and is valued at
the closing price on the exchange on which it is traded or, if not
traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.
Risks Associated with Options on Securities and Indexes.
There are several risks associated with transactions in options on
securities and on indexes. For example, there are significant
differences between the securities markets and options markets
that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because
of market behavior or unexpected events.
There can be no assurance that a liquid market will exist
when a Portfolio seeks to close out an option position. If a
Portfolio were unable to close out an option that it had purchased
on a security, it would have to exercise the option in order to
realize any profit or the option would expire and become
worthless. If a Portfolio were unable to close out a covered call
option that it had written on a security, it would not be able to
sell the underlying security until the option expired. As the
writer of a covered call option, a Portfolio foregoes, during the
option's life, the opportunity to profit from increases in the
market value of the security covering the call option above the
sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased by a
Portfolio, it would not be able to close out the option. If
restrictions on exercise were imposed, the Portfolio might be
unable to exercise an option it has purchased.
Futures Contracts and Options on Futures Contracts
Each Bond Portfolio may use interest rate futures contracts
and index futures contracts. An interest rate or index futures
contract provides for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument or
the cash value of an index /3/ at a specified price and time. A
public market exists in futures contracts covering a number of
indexes as well as the following financial instruments: U.S.
Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-
month U.S. Treasury bills; 90-day commercial paper; bank
certificates of deposit; Eurodollar certificates of deposit; and
foreign currencies. It is expected that other futures contracts
will be developed and traded.
- ------------
/3/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made.
- ------------
The Bond Portfolios may purchase and write call and put
futures options. Futures options possess many of the same
characteristics as options on securities and indexes (discussed
above). A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price
at any time during the period of the option. Upon exercise of a
call option, the holder acquires a long position in the futures
contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true. A Portfolio
might, for example, use futures contracts to hedge against or gain
exposure to fluctuations in the general level of security prices,
anticipated changes in interest rates or currency fluctuations
that might adversely affect either the value of the Portfolio's
securities or the price of the securities that the Portfolio
intends to purchase. Although other techniques could be used to
reduce that Portfolio's exposure to security price, interest rate
and currency fluctuations, the Portfolio may be able to achieve
its exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
A Bond Portfolio will only enter into futures contracts and
futures options that are standardized and traded on an exchange,
board of trade, or similar entity, or quoted on an automated
quotation system.
The success of any futures transaction depends on accurate
predictions of changes in the level and direction of security
prices, interest rates, currency exchange rates and other factors.
Should those predictions be incorrect, the return might have been
better had the transaction not been attempted; however, in the
absence of the ability to use futures contracts, the Adviser might
have taken portfolio actions in anticipation of the same market
movements with similar investment results but, presumably, at
greater transaction costs.
When a purchase or sale of a futures contract is made by a
Portfolio, it is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is
set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is
in the nature of a performance bond or good faith deposit on the
futures contract that is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations
have been satisfied. A Portfolio expects to earn interest income
on its initial margin deposits. A futures contract held by a
Portfolio is valued daily at the official settlement price of the
exchange on which it is traded. Each day the Portfolio pays or
receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking-to-market." Variation margin paid or received by a
Portfolio does not represent a borrowing or loan by a Portfolio
but is instead settlement between the Portfolio and the broker of
the amount one would owe the other if the futures contract had
expired at the close of the previous trading day. In computing
daily net asset value, each Portfolio will mark-to-market its open
futures positions.
A Portfolio is also required to deposit and maintain margin
with respect to put and call options on futures contracts written
by it. Such margin deposits will vary depending on the nature of
the underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Portfolio.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying security
or index, and delivery month). If an offsetting purchase price is
less than the original sale price, the Portfolio realizes a
capital gain, or if it is more, it realizes a capital loss.
Conversely, if an offsetting sale price is more than the original
purchase price, the Portfolio realizes a capital gain, or if it is
less, it realizes a capital loss. The transaction costs must also
be included in these calculations.
Risks Associated with Futures
There are several risks associated with the use of futures
contracts and futures options as hedging techniques. A purchase
or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract. In trying to
increase or reduce market exposure, there can be no guarantee that
there will be a correlation between price movements in the futures
contract and in the portfolio exposure sought. In addition, there
are significant differences between the securities and futures
markets that could result in an imperfect correlation between the
markets, causing a given transaction not to achieve its
objectives. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand for
futures, futures options and debt securities, including technical
influences in futures trading and futures options and differences
between the financial instruments and the instruments underlying
the standard contracts available for trading in such respects as
interest rate levels, maturities, and creditworthiness of issuers.
A decision as to whether, when and how to hedge involves the
exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at
a time when a Bond Portfolio seeks to close out a futures or a
futures option position. The Portfolio would be exposed to
possible loss on the position during the interval of inability to
close and would continue to be required to meet margin
requirements until the position is closed. In addition, many of
the contracts discussed above are relatively new instruments
without a significant trading history. As a result, there can be
no assurance that an active secondary market will develop or
continue to exist.
Limitations on Options and Futures
If other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
each Bond Portfolio may also use those investment vehicles,
provided the Board of Trustees determines that their use is
consistent with the Portfolio's investment objective.
A Bond Portfolio will not enter into a futures contract or
purchase an option thereon if, immediately thereafter, the initial
margin deposits for futures contracts held by that Portfolio plus
premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," /4/ would
exceed 5% of the Portfolio's total assets.
- -----------
/4/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- -----------
When purchasing a futures contract or writing a put on a
futures contract, a Portfolio must maintain with its custodian (or
broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contract. When
writing a call option on a futures contract, the Portfolio
similarly will maintain with its custodian cash or cash
equivalents (including any margin) equal to the amount by which
such option is in-the-money until the option expires or is closed
out by the Portfolio.
A Portfolio may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent the Portfolio has
written call options on specific securities in its portfolio, the
value of those securities will be deducted from the current market
value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," each Bond Portfolio will use commodity futures or
commodity options contracts solely for bona fide hedging purposes
within the meaning and intent of Regulation 1.3(z), or, with
respect to positions in commodity futures and commodity options
contracts that do not come within the meaning and intent of
1.3(z), the aggregate initial margin and premiums required to
establish such positions will not exceed 5% of the fair market
value of the assets of a Portfolio, after taking into account
unrealized profits and unrealized losses on any such contracts it
has entered into [in the case of an option that is in-the-money at
the time of purchase, the in-the-money amount (as defined in
Section 190.01(x) of the Commission Regulations) may be excluded
in computing such 5%].
Taxation of Options and Futures
If a Bond Portfolio exercises a call or put option that it
holds, the premium paid for the option is added to the cost basis
of the security purchased (call) or deducted from the proceeds of
the security sold (put). For cash settlement options and futures
options exercised by a Portfolio, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by a Portfolio is exercised,
the premium is included in the proceeds of the sale of the
underlying security (call) or reduces the cost basis of the
security purchased (put). For cash settlement options and futures
options written by a Portfolio, the difference between the cash
paid at exercise and the premium received is a capital gain or
loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by a Portfolio was in-
the-money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If a
Portfolio delivers securities under a futures contract, the
Portfolio also realizes a capital gain or loss on those
securities.
For federal income tax purposes, a Portfolio generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on options,
futures and futures options positions ("year-end mark-to-market").
Generally, any gain or loss recognized with respect to such
positions (either by year-end mark-to-market or by actual closing
of the positions) is considered to be 60% long-term and 40% short-
term, without regard to the holding periods of the contracts.
However, in the case of positions classified as part of a "mixed
straddle," the recognition of losses on certain positions
(including options, futures and futures options positions, the
related securities and certain successor positions thereto) may be
deferred to a later taxable year. Sale of futures contracts or
writing of call options (or futures call options) or buying put
options (or futures put options) that are intended to hedge
against a change in the value of securities held by a Portfolio:
(1) will affect the holding period of the hedged securities; and
(2) may cause unrealized gain or loss on such securities to be
recognized upon entry into the hedge.
In order to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of gross
income for a taxable year must be derived from qualifying income;
i.e., dividends, interest, income derived from loans of
securities, and gains from the sale of securities or foreign
currencies or other income (including but not limited to gains
from options, futures, and forward contracts). Any net gain
realized from futures (or futures options) contracts will be
considered gain from the sale of securities and therefore be
qualifying income for purposes of the 90% requirement.
Each Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options and
futures transactions. Such distributions are combined with
distributions of capital gains realized on the Fund's other
investments and shareholders are advised of the nature of the
payments.
The Taxpayer Relief Act of 1997 (the "Act") imposed
constructive sale treatment for federal income tax purposes on
certain hedging strategies with respect to appreciated securities.
Under these rules, taxpayers will recognize gain, but not loss,
with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act)
or futures or "forward contracts" (as defined by the Act) with
respect to the same or substantially identical property, or if
they enter into such transactions and then acquire the same or
substantially identical property. These changes generally apply
to constructive sales after June 8, 1997. Furthermore, the
Secretary of the Treasury is authorized to promulgate regulations
that will treat as constructive sales certain transactions that
have substantially the same effect as short sales, offsetting
notional principal contracts, and futures or forward contracts to
deliver the same or substantially similar property.
INVESTMENT RESTRICTIONS
Each Fund and Portfolio operate under the following
investment restrictions. A Fund or Portfolio may not:
(1) invest in a security if, as a result of such investment,
more than 25% of its total assets (taken at market value at the
time of such investment) would be invested in the securities of
issuers in any particular industry, except that this restriction
does not apply to (i) U.S. Government Securities, [Cash Reserves
Fund and Cash Reserves Portfolio only] (ii) repurchase agreements,
or (iii) securities of issuers in the financial services industry,
and [Funds only] except that all or substantially all of the
assets of the Fund may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund;
(2) invest in a security if, with respect to 75% of its
assets, as a result of such investment, more than 5% of its total
assets (taken at market value at the time of such investment)
would be invested in the securities of any one issuer, except that
this restriction does not apply to U.S. Government Securities or
repurchase agreements for such securities and [Funds only] except
that all or substantially all of the assets of the Fund may be
invested in another registered investment company having the same
investment objective and substantially similar investment policies
as the Fund; /5/
- ------------------
/5/ Notwithstanding the foregoing, and in accordance with Rule 2a-
7 of the Investment Company Act of 1940 (the "Rule"), Cash
Reserves Portfolio will not, immediately after the acquisition of
any security (other than a Government Security or certain other
securities as permitted under the Rule), invest more than 5% of
its total assets in the securities of any one issuer; provided,
however, that it may invest up to 25% of its total assets in First
Tier Securities (as that term is defined in the Rule) of a single
issuer for a period of up to three business days after the
purchase thereof.
- ------------------
(3) invest in a security if, as a result of such investment,
it would hold more than 10% (taken at the time of such investment)
of the outstanding voting securities of any one issuer, [Funds
only] except that all or substantially all of the assets of the
Fund may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies as the Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate, or
interests therein);
(5) purchase or sell commodities or commodities contracts or
oil, gas or mineral programs, [Bond Funds and Bond Portfolios
only] except that it may enter into (i) futures and options on
futures and (ii) forward contracts;
(6) purchase securities on margin, except for use of short-
term credit necessary for clearance of purchases and sales of
portfolio securities, [Bond Funds and Bond Portfolios only] but it
may make margin deposits in connection with transactions in
options, futures, and options on futures;
(7) make loans, although it may (a) [Bond Funds and Bond
Portfolios only] lend portfolio securities and [all] participate
in an interfund lending program with other Stein Roe Funds and
Portfolios provided that no such loan may be made if, as a result,
the aggregate of such loans would exceed 33 1/3% of the value of
its total assets (taken at market value at the time of such
loans); (b) purchase money market instruments and enter into
repurchase agreements; and (c) acquire publicly distributed or
privately placed debt securities;
(8) borrow except that it may (a) borrow for nonleveraging,
temporary or emergency purposes, (b) engage in reverse repurchase
agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law, and [Bond Funds and Bond Portfolios only] (c)
enter into futures and options transactions; [all] it may borrow
from banks, other Stein Roe Funds and Portfolios, and other
persons to the extent permitted by applicable law;
(9) act as an underwriter of securities, except insofar as it
may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 on disposition of securities acquired
subject to legal or contractual restrictions on resale, [Funds
only] except that all or substantially all of the assets of the
Fund may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies as the Fund; or
(10) issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
The above restrictions are fundamental policies and may not
be changed without the approval of a "majority of the outstanding
voting securities," as previously defined herein. The policy on
the scope of transactions involving lending of portfolio
securities to broker-dealers and banks (as set forth herein under
Portfolio Investments and Strategies) is also a fundamental
policy.
Each Fund and Portfolio is also subject to the following
restrictions and policies that may be changed by the Board of
Trustees. None of the following restrictions shall prevent a Fund
from investing all or substantially all of its assets in another
investment company having the same investment objective and
substantially similar investment policies as the Fund. Unless
otherwise indicated, a Fund or Portfolio may not:
(A) invest for the purpose of exercising control or
management;
(B) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of its total assets (valued at time of purchase) in
the case of any one other investment company and 10% of such
assets (valued at time of purchase) in the case of all other
investment companies in the aggregate; any such purchases are to
be made in the open market where no profit to a sponsor or dealer
results from the purchase, other than the customary broker's
commission, except for securities acquired as part of a merger,
consolidation or acquisition of assets; /6/
- --------------
/6/ The Funds have been informed that the staff of the Securities
and Exchange Commission takes the position that the issuers of
certain CMOs and certain other collateralized assets are
investment companies and that subsidiaries of foreign banks may be
investment companies for purposes of Section 12(d)(1) of the
Investment Company Act of 1940, which limits the ability of one
investment company to invest in another investment company.
Accordingly, the Funds intend to operate within the applicable
limitations under Section 12(d)(1)(A) of that Act.
- --------------
(C) purchase portfolio securities from, or sell portfolio
securities to, any of the officers and directors or trustees of
the Trust or of its investment adviser;
(D) purchase shares of other open-end investment companies,
except in connection with a merger, consolidation, acquisition, or
reorganization;
(E) invest more than 5% of its net assets (valued at time of
investment) in warrants, nor more than 2% of its net assets in
warrants which are not listed on the New York or American Stock
Exchange;
(F) [Bond Funds and Bond Portfolios only] purchase a put or
call option if the aggregate premiums paid for all put and call
options exceed 20% of its net assets (less the amount by which any
such positions are in-the-money), excluding put and call options
purchased as closing transactions;
(G) [Bond Funds and Bond Portfolios only] write an option on
a security unless the option is issued by the Options Clearing
Corporation, an exchange, or similar entity;
(H) [Bond Funds and Bond Portfolios only] invest in limited
partnerships in real estate unless they are readily marketable;
(I) sell securities short unless (i) it owns or has the right
to obtain securities equivalent in kind and amount to those sold
short at no added cost or (ii) the securities sold are "when
issued" or "when distributed" securities which it expects to
receive in a recapitalization, reorganization, or other exchange
for securities it contemporaneously owns or has the right to
obtain [Bond Funds and Bond Portfolios only] and provided that
transactions in options, futures, and options on futures are not
treated as short sales;
(J) [Bond Funds and Bond Portfolios only] invest more than
15% of its total assets (taken at market value at the time of a
particular investment) in restricted securities, other than
securities eligible for resale pursuant to Rule 144A under the
Securities Act of 1933;
(K) invest more than 10% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities,/7/ including repurchase agreements maturing in more
than seven days.
- ------------
/7/ In the judgment of the Adviser, Private Placement Notes, which
are issued pursuant to Section 4(2) of the Securities Act of 1933,
generally are readily marketable even though they are subject to
certain legal restrictions on resale. As such, they are not
treated as being subject to the limitation on illiquid securities.
- ------------
ADDITIONAL INVESTMENT CONSIDERATIONS
The Adviser seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. In working to
build wealth for generations, it has been guided by three primary
objectives which it believes are the foundation of a successful
investment program. These objectives are preservation of capital,
limited volatility through managed risk, and consistent above-
average returns, as appropriate for the particular client or
managed account.
Because every investor's needs are different, Stein Roe
mutual funds are designed to accommodate different investment
objectives, risk tolerance levels, and time horizons. In
selecting a mutual fund, investors should ask the following
questions:
What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goals.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize your
investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks which
will vary depending on investment objective and security type.
However, mutual funds seek to reduce risk through professional
investment management and portfolio diversification.
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no guarantee
that they will be able to maintain a stable net asset value of
$1.00 per share, money market funds emphasize safety of principal
and liquidity, but tend to offer lower income potential than bond
funds. Bond funds tend to offer higher income potential than
money market funds but tend to have greater risk of principal and
yield volatility.
In addition, the Adviser believes that investment in a high
yield fund provides an opportunity to diversify an investment
portfolio because the economic factors that affect the performance
of high-yield, high-risk debt securities differ from those that
affect the performance of high-quality debt securities or equity
securities.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectuses
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information is
incorporated herein by reference. The Prospectuses disclose that
you may purchase (or redeem) shares through investment dealers,
banks, or other institutions. It is the responsibility of any
such institution to establish procedures insuring the prompt
transmission to the Trust of any such purchase order. The state
of Texas has asked that the Trust disclose in its Statement of
Additional Information, as a reminder to any such bank or
institution, that it must be registered as a dealer in Texas.
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 the prospectus, if shares are
purchased (or redeemed) directly from the Trust. Some
Intermediaries that maintain nominee accounts with the Funds for
their clients for whom they hold Fund shares charge an annual fee
of up to 0.35% of the average net assets held in such accounts for
accounting, servicing, and distribution services they provide with
respect to the underlying Fund shares. The Adviser and the Funds'
transfer agent share in the expense of these fees, and the Adviser
pays all sales and promotional expenses.
Each Fund's net asset value is determined on days on which
the New York Stock Exchange (the "NYSE") is open for trading. The
NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in January, the third Monday in
February, Good Friday, the last Monday in May, Independence Day,
Labor Day, Thanksgiving, and Christmas. If one of these holidays
falls on a Saturday or Sunday, the NYSE will be closed on the
preceding Friday or the following Monday, respectively. Net asset
value will not be determined on days when the NYSE is closed
unless, in the judgment of the Board of Trustees, net asset value
of a Fund should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central time.
The Trust reserves the right to suspend or postpone
redemptions of shares of any Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the Securities
and Exchange Commission, or the NYSE is closed for other than
customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c)
an emergency, as determined by the Securities and Exchange
Commission, exists, making disposal of portfolio securities or
valuation of net assets of such Fund not reasonably practicable.
Although Cash Reserves Fund does not currently charge a fee
to its shareholders for the use of the special Check-Writing
Redemption Privilege, as described under How to Redeem Shares in
its Prospectus, Cash Reserves Fund pays for the cost of printing
and mailing checks to its shareholders and pays charges of the
bank for payment of each check. The Trust reserves the right to
establish a direct charge to shareholders for use of the Privilege
and both the Trust and the bank reserve the right to terminate
this service.
The Trust intends to pay all redemptions in cash and is
obligated to redeem shares of a Fund solely in cash up to the
lesser of $250,000 or one percent of the net assets of that Fund
during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly
by a distribution in kind of securities. If redemptions were made
in kind, the redeeming shareholders might incur transaction costs
in selling the securities received in the redemptions.
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. The Agreement and Declaration of Trust also
authorizes the Trust to redeem shares under certain other
circumstances as may be specified by the Board of Trustees.
MANAGEMENT
The following table sets forth certain information with
respect to trustees and officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held Principal occupation(s)
Name with the Trust during past five years
- ------------------ ------------------------ -----------------------------------
<S> <C> <C>
William D. Andrews, 51 (4) Executive Vice-President Executive vice president of Stein Roe
& Farnham Incorporated (the
"Adviser")
Gary A. Anetsberger, 42(4) Senior Vice-President Chief financial officer and chief
administrative officer of the Mutual
Funds division of the Adviser; senior
vice president of the Adviser since
April 1996; vice president of the
Adviser prior thereto
William W. Boyd, 71 Trustee Chairman and director of
(2) (3)(4) Sterling Plumbing (manufacturer of
plumbing products)
Thomas W. Butch, 41 (1)(2) Trustee; President President of the Mutual Funds
division and director of the Adviser
since March 1998; senior vice
president of the Adviser from Sept.
1994 to March 1998; first vice
president, corporate communications,
of Mellon Bank Corporation prior
thereto
Kevin M. Carome, 42 Vice-President; General Counsel and (since Feb. 1995)
Assistant Secretary Vice President of Liberty Financial
Companies, Inc.; General Counsel and
Secretary of the Adviser since Jan.
1998
Lindsay Cook, 46 (1)(4) Trustee Executive vice president of Liberty
Financial Companies, Inc. (the
indirect parent of the Adviser) since
March 1997; senior vice president
prior thereto
Douglas A. Hacker,43(3)(4) Trustee Senior vice president and chief
financial officer of UAL, Inc.
(airline) since July 1994; senior
vice president - finance of UAL,
Inc. prior thereto
Loren A. Hansen, 49 (4) Executive Vice-President Chief investment officer/equity of
Colonial Management Associates, Inc.
since 1997; executive vice president
of the Adviser since Dec. 1995; vice
president of The Northern Trust
(bank) prior thereto
Janet Langford Kelly,40 Trustee Senior vice president, secretary and
(3)(4) general counsel of Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer) since
1995; partner, Sidley & Austin (law
firm) prior thereto
Michael T. Kennedy, 36 Vice-President Senior vice president of the Adviser
since Oct. 1994; vice president of
the Adviser prior thereto
Stephen F. Lockman, 37 Vice-President Senior vice president, portfolio
manager, and credit analyst of the
Adviser since 1994; portfolio manager
for Illinois State Board of
Investment prior thereto
Lynn C. Maddox, 57 Vice-President Senior vice president of the Adviser
Jane M. Naeseth, 48 Vice-President Senior vice president of the Adviser
Charles R. Nelson, 56 Trustee Van Voorhis Professor of Political
(3)(4) Economy of the University of
Washington
Nicolette D. Parrish,48(4) Vice-President; Senior legal assistant for the
Assistant Secretary Adviser
Sharon R. Robertson, 36(4) Controller Accounting manager for the Adviser's
Mutual Funds division
Janet B. Rysz, 43 (4) Assistant Secretary Senior legal assistant and assistant
secretary of the Adviser
Thomas C. Theobald, 61 Trustee Managing director, William Blair
(3)(4) Capital Partners (private equity
fund) since 1994; chief executive
officer and chairman of the Board of
Directors of Continental Bank
Corporation, 1987-1994
Scott E. Volk, 27 (4) Treasurer Financial reporting manager for the
Adviser's Mutual Funds division since
Oct. 1997; senior auditor with Ernst
& Young LLP from Sept. 1993 to April
1996 and from Oct. 1996 to Sept.
1997; financial analyst with John
Nuveen & Company Inc. from May 1996
to Sept. 1996
Heidi J. Walter, 31 (4) Vice-President; Vice president of the Adviser since
Secretary March 1998; senior legal counsel for
the Adviser since Feb. 1998; legal
counsel for the Adviser from March
1995 to Jan. 1998; associate with
Beeler Schad & Diamond, PC (law firm)
prior thereto
Hans P. Ziegler, 57 (4) Executive Vice-President Chief executive officer of the
Adviser since May 1994; president of
the Investment Counsel division of
the Adviser prior thereto
Margaret O. Zwick, 32 (4) Assistant Treasurer Project manager for the Adviser's
Mutual Funds division since April
1997; compliance manager, Aug. 1995
to April 1997; compliance accountant,
Jan. 1995 to July 1995; section
manager, Jan. 1994 to Jan. 1995;
supervisor prior thereto
<FN>
______________________
(1) Trustee who is an "interested person" of the Trust and of the
Adviser, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope and
results of the audit.
(4) This person holds the corresponding officer or trustee
position with SR&F Base Trust.
</TABLE>
Certain of the trustees and officers of the Trust and SR&F
Base Trust are trustees or officers of other investment companies
managed by the Adviser. Mr. Anetsberger, Mr. Butch, and Ms.
Walter are also officers of Liberty Funds Distributor, Inc., the
Funds' distributor. The address of Mr. Boyd is 2900 Golf Road,
Rolling Meadows, Illinois 60008; that of Mr. Cook is 600 Atlantic
Avenue, Boston, MA 02210; that of Mr. Hacker is P.O. Box 66100,
Chicago, IL 60666; that of Ms. Kelly is Three First National
Plaza, Chicago, Illinois 60602; that of Mr. Nelson is Department
of Economics, University of Washington, Seattle, Washington 98195;
that of Mr. Theobald is Suite 3300, 222 West Adams Street,
Chicago, IL 60606; and that of the officers is One South Wacker
Drive, Chicago, Illinois 60606.
Associated with the Adviser since 1977, Ms. Naeseth has been
portfolio manager of Cash Reserves Portfolio since its inception
in March 1998 and had managed Cash Reserves Fund since 1980. From
1973 to 1977, she was with the First Trust Company of Ohio. She
received her B.A. degree from the University of Illinois in 1972.
As of June 30, 1998, she was responsible for managing $752 million
in mutual fund net assets.
Officers and trustees affiliated with the Adviser serve
without any compensation from the Trust. In compensation for
their services to the Trust, trustees who are not "interested
persons" of the Trust or the Adviser are paid an annual retainer
plus an attendance fee for each meeting of the Board or standing
committee thereof attended. The Trust has no retirement or
pension plan. The following table sets forth compensation paid
during the fiscal year ended June 30, 1998 to each of the
trustees:
Compensation from the
Stein Roe Fund Complex*
-----------------------
Aggregate Compensation Total Average
Name of Trustee from the Trust Compensation Per Series
- ------------------- -------------------- ------------ ----------
Timothy K. Armour** -0- -0- -0-
Thomas W. Butch** -0- -0- -0-
Lindsay Cook -0- -0- -0-
Kenneth L. Block** $ 6,533 $ 49,000 $1,114
William W. Boyd 13,433 124,552 2,831
Douglas A. Hacker 12,433 120,198 2,732
Janet Langford Kelly 12,433 117,000 2,659
Francis W. Morley** 6,533 49,000 1,114
Charles R. Nelson 13,433 124,202 2,823
Thomas C. Theobald 12,433 120,198 2,732
_______________
*At June 30, 1998, the Stein Roe Fund Complex consisted of four
series of the Trust, one series of Stein Roe Trust, four series
of Stein Roe Municipal Trust, 11 series of Stein Roe Investment
Trust, 10 series of Stein Roe Advisor Trust, one series of Stein
Roe Institutional Trust, and 13 series of SR&F Base Trust.
**Messrs. Block and Morley retired as trustees on Dec. 31, 1997.
Mr. Armour resigned as a trustee and Mr. Butch was elected a
trustee on April 14, 1998.
FINANCIAL STATEMENTS
Please refer to the Funds' June 30, 1998 Financial Statements
(statements of assets and liabilities and schedules of investments
as of June 30, 1998 and the statements of operations, changes in
net assets, and notes thereto) and the reports of independent
auditors contained in the Funds' June 30, 1998 Annual Reports.
The Financial Statements and the reports of independent auditors
(but no other material from the Annual Reports) are incorporated
herein by reference. The Annual Reports may be obtained at no
charge by telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of September 30, 1998, the only persons known by the Trust
to own of record or "beneficially" 5% or more of outstanding
shares of any Fund within the definition of that term as contained
in Rule 13d-3 under the Securities Exchange Act of 1934 were as
follows:
Approximate % of
Outstanding
Name and Address Fund Shares Held
- ----------------------- ---------------------- ----------------
U.S. Bank National Cash Reserves Fund 21.17%
Association (1) Intermediate Bond Fund 22.37
410 N. Michigan Avenue Income Fund 21.28
Chicago, IL 60611 High Yield Fund 50.95
Charles Schwab & Co., Intermediate Bond Fund 29.37
Inc. (2) Income Fund 17.80
Special Custody Account High Yield Fund 14.71
for the Exclusive Benefit
of Customers
Attn: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104
The Northern Trust Co.(3) Income Fund 25.44
F/B/O Liberty Mutual
Daily Valuation Transitions
P.O. Box 92956
Chicago, IL 60675
Liberty Financial High Yield Fund 5.24
Companies, Inc.
600 Atlantic Avenue
Boston, MA 02210
Salomon Smith Barney, Intermediate Bond Fund 12.00
Inc. (2)
Book Entry Account
333 West 34th Street
7th Floor
Mutual Funds Department
New York, NY 10013
National Financial Income Fund 10.72
Service Corp. (2)
for the Exclusive Benefit
of Customers
Attn: Mutual Funds
P.O. Box 3908
Church Street Station
New York, NY 10008
_______________________
(1) Shares held as custodian.
(2) Shares held for accounts of customers.
(3) Northern Trust Company holds shares of record on behalf of the
Liberty Mutual Employees' Thrift-Incentive Plan.
The following table shows shares of the Funds held by the
categories of persons indicated as of September 30, 1998, and in
each case the approximate percentage of outstanding shares
represented:
Clients of the Adviser Trustees and
in their Client Accounts* Officers
------------------------ -------------------
Shares Held Percent Shares Held Percent
----------- ------- ----------- -------
Cash Reserves Fund 69,974,112 14.33% 232,366 **
Intermediate Bond Fund 8,078,239 15.93 75,622 **
Income Fund 9,058,304 21.74 146,681 **
High Yield Fund 545,103 17.70 472 **
______________
*The Adviser may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by the Adviser under Rule 13d-3. However, the
Adviser disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated provides administrative
services to each Fund and Portfolio and portfolio management
services to each Portfolio. The Adviser is a wholly owned
subsidiary of SteinRoe Services Inc. ("SSI"), the Funds' transfer
agent, which is a wholly owned subsidiary of Liberty Financial
Companies, Inc. ("Liberty Financial"), which is a majority owned
subsidiary of LFC Holdings, Inc., which is a wholly owned
subsidiary of Liberty Mutual Equity Corporation, which is a wholly
owned subsidiary of Liberty Mutual Insurance Company. Liberty
Mutual Insurance Company is a mutual insurance company,
principally in the property/casualty insurance field, organized
under the laws of Massachusetts in 1912.
The directors of the Adviser are Kenneth R. Leibler, C. Allen
Merritt, Jr., Thomas W. Butch, and Hans P. Ziegler. Mr. Leibler
is President and Chief Executive Officer of Liberty Financial; Mr.
Merritt is Chief Operating Officer of Liberty Financial; Mr. Butch
is President of the Adviser's Mutual Funds division; and Mr.
Ziegler is Chief Executive Officer of the Adviser. The business
address of Messrs. Leibler and Merritt is Federal Reserve Plaza,
Boston, Massachusetts 02210; and that of Messrs. Butch and Ziegler
is One South Wacker Drive, Chicago, Illinois 60606.
The Adviser and its predecessor have been providing
investment advisory services since 1932. The Adviser acts as
investment adviser to wealthy individuals, trustees, pension and
profit sharing plans, charitable organizations, and other
institutional investors. As of June 30, 1998, the Adviser managed
over $29.1 billion in assets: over $11.2 billion in equities and
over $17.9 billion in fixed income securities (including $1.7
billion in municipal securities). The $29.1 billion in managed
assets included over $9.3 billion held by open-end mutual funds
managed by the Adviser (approximately 14% of the mutual fund
assets were held by clients of the Adviser). These mutual funds
were owned by over 289,000 shareholders. The $9.3 billion in
mutual fund assets included over $748 million in over 42,000 IRA
accounts. In managing those assets, the Adviser utilizes a
proprietary computer-based information system that maintains and
regularly updates information for approximately 9,000 companies.
The Adviser also monitors over 1,400 issues via a proprietary
credit analysis system. At June 30, 1998, the Adviser employed 18
research analysts and 55 account managers. The average
investment-related experience of these individuals was 24 years.
Stein Roe Counselor [service mark] are professional
investment advisory services offered by the Adviser to Fund
shareholders. Each is designed to help shareholders construct
Fund investment portfolios to suit their individual needs. Based
on information shareholders provide about their financial goals
and objectives in response to a questionnaire, the Adviser's
investment professionals create customized portfolio
recommendations. Shareholders participating in Stein Roe
Counselor [service mark] are free to self direct their investments
while considering the Adviser's recommendations; shareholders
participating in Stein Roe Personal Counselor [service mark] enjoy
the added benefit of having the Adviser implement portfolio
recommendations automatically for a fee of 1% or less, depending
on the size of their portfolios. In addition to reviewing
shareholders' goals and objectives periodically and updating
portfolio recommendations to reflect any changes, the Adviser
provides shareholders participating in these programs with a
dedicated Counselor [service mark] representative. Other
distinctive services include specially designed account statements
with portfolio performance and transaction data, newsletters, and
regular investment, economic, and market updates. A $50,000
minimum investment is required to participate in either program.
Please refer to the descriptions of the Adviser, the
management and administrative agreements, fees, expense
limitations, and transfer agency services under Management and Fee
Table in the Prospectuses, which are incorporated herein by
reference. The table below shows gross fees paid and any expense
reimbursements by the Adviser during the past three fiscal years:
YEAR YEAR YEAR
TYPE OF ENDED ENDED ENDED
FUND PAYMENT 6/30/98 6/30/97 6/30/96
- ------------- ------------ ---------- -------- ---------
Cash Reserves
Fund Advisory fee $ - $ - $2,432,015
Management fee 821,225 1,207,715 -
Administrative fee 1,216,692 1,207,715 -
Cash Reserves
Portfolio Management fee 542,824 -
Intermediate
Bond Fund Advisory fee - - 1,533,498
Management fee 777,707 1,090,523 -
Administrative fee 587,310 465,614 -
Reimbursement - 54,108 157,406
Intermediate
Bond
Portfolio Management fee 595,616 - -
Income Fund Advisory fee - - 1,482,696
Management fee 1,169,260 1,630,122 -
Administrative fee 552,272 446,018 -
Reimbursement - 40,778 149,999
Income
Portfolio Management fee 862,176 - -
High Yield
Fund Administrative fee 44,923 9,385 -
Reimbursement 95,498 81,211 -
High Yield
Portfolio Management fee 307,472 52,997 -
The Adviser provides office space and executive and other
personnel to the Funds and bears any sales or promotional
expenses. Each Fund pays all expenses other than those paid by
the Adviser, including but not limited to printing and postage
charges, securities registration and custodian fees, and expenses
incidental to its organization.
The administrative agreement provides that the Adviser shall
reimburse each Fund to the extent that total annual expenses of
the Fund (including fees paid to the Adviser, but excluding taxes,
interest, brokers' commissions and other normal charges incident
to the purchase and sale of portfolio securities, and expenses of
litigation to the extent permitted under applicable state law)
exceed the applicable limits prescribed by any state in which
shares of such Fund are being offered for sale to the public;
however, such reimbursement for any fiscal year will not exceed
the amount of the fees paid by such Fund under that agreement for
such year. In addition, in the interest of further limiting the
Funds' expenses, the Adviser may voluntarily waive its fees and/or
absorb certain expenses for a Fund, as described in the
Prospectuses under Fee Table. Any such reimbursements will
enhance the yield of such Fund.
The management agreement provides that neither the Adviser
nor any of its directors, officers, stockholders (or partners of
stockholders), agents, or employees shall have any liability to
SR&F Base Trust or any shareholder for any error of judgment,
mistake of law or any loss arising out of any investment, or for
any other act or omission in the performance by the Adviser of its
duties under the agreement, except for liability resulting from
willful misfeasance, bad faith or gross negligence on the
Adviser's part in the performance of its duties or from reckless
disregard by the Adviser of the Adviser's obligations and duties
under that agreement.
Any expenses that are attributable solely to the
organization, operation, or business of a series of the Trust are
paid solely out of the assets of that series. Any expenses
incurred by the Trust that are not solely attributable to a
particular series are apportioned in such manner as the Adviser
determines is fair and appropriate, unless otherwise specified by
the Board of Trustees.
Bookkeeping and Accounting Agreement
Pursuant to a separate agreement with the Trust, the Adviser
receives a fee for performing certain bookkeeping and accounting
services. For these services, the Adviser receives an annual fee
of $25,000 per series plus .0025 of 1% of average net assets over
$50 million. During the fiscal years ended June 30, 1996, 1997
and 1998, the Adviser received aggregate fees of $173,384,
$116,135 and $128,363, respectively, from the Trust for services
performed under this agreement.
DISTRIBUTOR
Shares of the Funds are distributed by Liberty Funds
Distributor, Inc. ("Distributor"), One Financial Center, Boston,
MA 02111, under a Distribution Agreement. The Distributor is a
subsidiary of Colonial Management Associates, Inc., which is an
indirect subsidiary of Liberty Financial. The Distribution
Agreement continues in effect from year to year, provided such
continuance is approved annually (1) by a majority of the trustees
or by a majority of the outstanding voting securities of the
Trust, and (2) by a majority of the trustees who are not parties
to the Agreement or interested persons of any such party. The
Trust has agreed to pay all expenses in connection with
registration of its shares with the Securities and Exchange
Commission and auditing and filing fees in connection with
registration of its shares under the various state blue sky laws
and assumes the cost of preparation of prospectuses and other
expenses.
As agent, the Distributor offers shares of the Funds to
investors in states where the shares are qualified for sale, at
net asset value, without sales commissions or other sales load to
the investor. No sales commission or "12b-1" payment is paid by
any Fund. The Distributor offers the Funds' shares only on a
best-efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Trust,
as described under Management in each Prospectus. For performing
these services, SSI receives a fee based on an annual rate of 0.15
of 1% of average daily net assets from Cash Reserves Fund and 0.14
of 1% of average daily net assets from each Bond Fund. The Board
of Trustees believes the charges by SSI to the Funds are
comparable to those of other companies performing similar
services. (See Investment Advisory Services.) Under a separate
agreement, SSI also provides certain investor accounting services
to each Portfolio.
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Trust and SR&F Base Trust. It is responsible for holding all
securities and cash, receiving and paying for securities
purchased, delivering against payment securities sold, receiving
and collecting income from investments, making all payments
covering expenses, and performing other administrative duties, all
as directed by authorized persons. The Bank does not exercise any
supervisory function in such matters as purchase and sale of
portfolio securities, payment of dividends, or payment of
expenses.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.
Each Board of Trustees reviews, at least annually, whether it
is in the best interests of each Fund, each Portfolio, and their
shareholders to maintain assets in each custodial institution.
However, with respect to foreign sub-custodians, there can be no
assurance that a Fund, and the value of its shares, will not be
adversely affected by acts of foreign governments, financial or
operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians, or
application of foreign law to a Fund's foreign sub-custodial
arrangements. Accordingly, an investor should recognize that the
non-investment risks involved in holding assets abroad are greater
than those associated with investing in the United States.
The Funds and Portfolios may invest in obligations of the
Bank and may purchase or sell securities from or to the Bank.
INDEPENDENT AUDITORS
The independent auditors for the Funds and the Portfolios are
Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois
60606. The independent auditors audit and report on the annual
financial statements, review certain regulatory reports and the
federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to do
so by the Trust.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts. Purchases
and sales of portfolio securities are ordinarily transacted with
the issuer or with a primary market maker acting as principal or
agent for the securities on a net basis, with no brokerage
commission being paid by a Portfolio. Transactions placed through
dealers reflect the spread between the bid and asked prices.
Occasionally, a Portfolio may make purchases of underwritten
issues at prices that include underwriting discounts or selling
concessions.
The Adviser's overriding objective in selecting brokers and
dealers to effect portfolio transactions is to seek the best
combination of net price and execution. The best net price,
giving effect to brokerage commissions, if any, is an important
factor in this decision; however, a number of other judgmental
factors may also enter into the decision. These factors include
the Adviser's knowledge of negotiated commission rates currently
available and other current transaction costs; the nature of the
security being purchased or sold; the size of the transaction; the
desired timing of the transaction; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others
considered; the Adviser's knowledge of the financial condition of
the broker or dealer selected and such other brokers and dealers;
and the Adviser's knowledge of actual or apparent operation
problems of any broker or dealer. Recognizing the value of these
factors, the Adviser may cause a client to pay a brokerage
commission in excess of that which another broker may have charged
for effecting the same transaction.
The Adviser has established internal policies for the
guidance of its trading personnel, specifying minimum and maximum
commissions to be paid for various types and sizes of transactions
and effected for clients in those cases where the Adviser has
discretion to select the broker or dealer by which the transaction
is to be executed. Transactions which vary from the guidelines
are subject to periodic supervisory review. These guidelines are
reviewed and periodically adjusted, and the general level of
brokerage commissions paid is periodically reviewed by the
Adviser. Evaluations of the reasonableness of brokerage
commissions, based on the factors described in the preceding
paragraph, are made by the Adviser's trading personnel while
effecting portfolio transactions. The general level of brokerage
commissions paid is reviewed by the Adviser, and reports are made
annually to the Board of Trustees.
Where more than one broker or dealer is believed to be
capable of providing a combination of best net price and execution
with respect to a particular portfolio transaction, the Adviser
often selects a broker or dealer that has furnished it with
investment research products or services such as: economic,
industry or company research reports or investment
recommendations; subscriptions to financial publications or
research data compilations; compilations of securities prices,
earnings, dividends, and similar data; computerized data bases;
quotation equipment and services; research or analytical computer
software and services; or services of economic and other
consultants. Such selections are not made pursuant to any
agreement or understanding with any of the brokers or dealers.
However, the Adviser does in some instances request a broker to
provide a specific research or brokerage product or service which
may be proprietary to the broker or produced by a third party and
made available by the broker and, in such instances, the broker in
agreeing to provide the research or brokerage product or service
frequently will indicate to the Adviser a specific or minimum
amount of commissions which it expects to receive by reason of its
provision of the product or service. The Adviser does not agree
with any broker to direct such specific or minimum amounts of
commissions; however, the Adviser does maintain an internal
procedure to identify those brokers who provide it with research
products or services and the value of such products or services,
and the Adviser endeavors to direct sufficient commissions on
client transactions (including commissions on transactions in
fixed income securities effected on an agency basis and, in the
case of transactions for certain types of clients, dealer selling
concessions on new issues of securities) to ensure the continued
receipt of research products or services the Adviser believes are
useful.
In a few instances, the Adviser receives from a broker a
product or service which is used by the Adviser both for
investment research and for administrative, marketing, or other
non-research or brokerage purposes. In such an instance, the
Adviser makes a good faith effort to determine the relative
proportion of its use of such product or service which is for
investment research or brokerage, and that portion of the cost of
obtaining such product or service may be defrayed through
brokerage commissions generated by client transactions, while the
remaining portion of the costs of obtaining the product or service
is paid by the Adviser in cash. The Adviser may also receive
research in connection with selling concessions and designations
in fixed income offerings.
The Board has reviewed the legal developments pertaining to
and the practicability of attempting to recapture underwriting
discounts or selling concessions when portfolio securities are
purchased in underwritten offerings. The Board has been advised
by counsel that recapture by a mutual fund currently is not
permitted under the Rules of the Association of the National
Association of Securities Dealers ("NASD"). Therefore, except
with respect to purchases by Income Portfolio of municipal
securities which are not subject to NASD Rules, the Portfolios
will not attempt to recapture underwriting discounts or selling
concessions. If Income Portfolio were to purchase municipal
securities, it would attempt to recapture selling concessions
included in prices paid by Income Portfolio in underwritten
offerings; however, the Adviser would not be able to negotiate
discounts from the fixed offering price for those issuers for
which there is a strong demand, and will not allow the failure to
obtain a discount to prejudice its ability to purchase an issue
for Income Portfolio.
The following table shows commissions paid on futures
transactions during the past three fiscal years. No Fund or
Portfolio paid commissions on any other transactions.
Intermediate Intermediate
Bond Fund Bond Portfolio
------------ --------------
Total brokerage commissions paid during
year ended 6/30/98 $2,160 $8,957
Number of futures contracts 225 980
Total brokerage commissions paid during
year ended 6/30/97 - -
Total brokerage commissions paid during
year ended 6/30/96 - -
The Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian as
a soliciting dealer in connection with any tender offer for
portfolio securities. The custodian will credit any such fees
received against its custodial fees.
During the last fiscal year, certain Portfolios held
securities issued by one or more of their regular broker-dealers
or the parent of such broker-dealers that derive more than 15% of
gross revenue from securities-related activities. Such holdings
were as follows at June 30, 1998:
Value of
Securities Held
Portfolio Broker-Dealer (in thousands)
- ----------------- ------------------------------ ---------------
Intermediate Bond
Portfolio Associates Corporation of North
America $18,445
Merrill Lynch, Pierce, Fenner &
Smith 12,883
Lehman Brothers, Inc. 7,197
Salomon Smith Barney 2,048
Income Portfolio Associates Corporation of North
America 11,260
Lehman Brothers, Inc. 6,227
Goldman Sachs & Company 6,056
Merrill Lynch, Pierce, Fenner
& Smith 3,156
High Yield
Portfolio Associates Corporation of North
America 2,085
Cash Reserves
Portfolio Lehman Brothers, Inc. 30,000
Associates Corporation of North
America 12,992
ADDITIONAL INCOME TAX CONSIDERATIONS
Each Fund and Portfolio intends to comply with the special
provisions of the Internal Revenue Code that relieve it of federal
income tax to the extent of its net investment income and capital
gains currently distributed to shareholders.
Because capital gains distributions reduce net asset value,
if a shareholder purchases shares shortly before a record date, he
will, in effect, receive a return of a portion of his investment
in such distribution. The distribution would nonetheless be
taxable to him, even if the net asset value of shares were reduced
below his cost. However, for federal income tax purposes the
shareholder's original cost would continue as his tax basis.
Each Fund expects that none of its dividends will qualify for
the deduction for dividends received by corporate shareholders.
ADDITIONAL INFORMATION ON THE DETERMINATION OF NET
ASSET VALUE - CASH RESERVES FUND
Please refer to Net Asset Value in the Prospectus, which is
incorporated herein by reference. Cash Reserves Fund values its
portfolio by the "amortized cost method" by which it attempts to
maintain its net asset value at $1.00 per share. This involves
valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the
market value of the instrument. Although this method provides
certainty in valuation, it may result in periods during which
value as determined by amortized cost is higher or lower than the
price Cash Reserves Fund would receive if it sold the instrument.
Other assets are valued at a fair value determined in good faith
by the Board of Trustees.
In connection with the use of amortized cost and the
maintenance of a per share net asset value of $1.00, Income Trust
has agreed, with respect to Cash Reserves Fund: (i) to seek to
maintain a dollar-weighted average portfolio maturity appropriate
to its objective of maintaining relative stability of principal
and not in excess of 90 days; (ii) not to purchase a portfolio
instrument with a remaining maturity of greater than thirteen
months; and (iii) to limit its purchase of portfolio instruments
to those instruments that are denominated in U.S. dollars which
the Board of Trustees determines present minimal credit risks and
that are of eligible quality as determined by any major rating
service as defined under SEC Rule 2a-7 or, in the case of any
instrument that is not rated, of comparable quality as determined
by the Board.
Cash Reserves Fund has also agreed to establish procedures
reasonably designed to stabilize its price per share as computed
for the purpose of sales and redemptions at $1.00. Such
procedures include review of the portfolio holdings by the Board
of Trustees, at such intervals as it deems appropriate, to
determine whether the net asset values calculated by using
available market quotations or market equivalents deviate from
$1.00 per share based on amortized cost. Calculations are made to
compare the value of its investments valued at amortized cost with
market value. Market values are obtained by using actual
quotations provided by market makers, estimates of market value,
values from yield data obtained from reputable sources for the
instruments, values obtained from the Adviser's matrix, or values
obtained from an independent pricing service. Any such service
might value investments based on methods which include
consideration of: yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. The service may also
employ electronic data processing techniques, a matrix system or
both to determine valuations.
In connection with Cash Reserves Fund's use of the amortized
cost method of portfolio valuation to maintain its net asset value
at $1.00 per share, it might incur or anticipate an unusual
expense, loss, depreciation, gain or appreciation that would
affect its net asset value per share or income for a particular
period. The extent of any deviation between net asset value based
upon available market quotations or market equivalents and $1.00
per share based on amortized cost will be examined by the Board of
Trustees as it deems appropriate. If such deviation exceeds 1/2
of 1%, the Board of Trustees will promptly consider what action,
if any, should be initiated. In the event the Board of Trustees
determines that a deviation exists that may result in material
dilution or other unfair results to investors or existing
shareholders, it will take such action as it considers appropriate
to eliminate or reduce to the extent reasonably practicable such
dilution or unfair results. Actions which the Board might take
include: selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio
maturity; increasing, reducing, or suspending dividends or
distributions from capital or capital gains; or redeeming shares
in kind. The Board might also establish a net asset value per
share by using market values, as a result of which the net asset
value might deviate from $1.00 per share.
The above policies relating to the determination of net asset
value also apply to Cash Reserves Portfolio.
INVESTMENT PERFORMANCE
Cash Reserves Fund may quote a "Current Yield" or "Effective
Yield" or both from time to time. The Current Yield is an
annualized yield based on the actual total return for a seven-day
period. The Effective Yield is an annualized yield based on a
daily compounding of the Current Yield. These yields are each
computed by first determining the "Net Change in Account Value"
for a hypothetical account having a share balance of one share at
the beginning of a seven-day period ("Beginning Account Value"),
excluding capital changes. The Net Change in Account Value will
always equal the total dividends declared with respect to the
account, assuming a constant net asset value of $1.00.
The yields are then computed as follows:
Net Change in Account Value 365
--------------------------- ----
Current Yield = Beginning Account Value x 7
[1 + Net Change in Account Value]365/7
--------------------------------------
Effective Yield = Beginning Account Value - 1
For example, the yields of Cash Reserves for the seven-day
period ended June 30, 1998, were:
$.000947397 365
----------- ---
Current Yield = $1.00 x 7 = 4.94%
[1+$.000947397]35/7
-------------------
Effective Yield = $1.00 - 1 = 5.06%
The average dollar-weighted portfolio maturity of Cash
Reserves Fund for the seven days ended June 30, 1998, was 23 days.
In addition to fluctuations reflecting changes in net income
of Cash Reserves Fund resulting from changes in income earned on
its portfolio securities and in its expenses, yield also would be
affected if Cash Reserves Fund were to restrict or supplement its
dividends in order to maintain its net asset value at $1.00. (See
Net Asset Value in the Prospectus and Additional Information on
the Determination of Net Asset Value herein.) Portfolio changes
resulting from net purchases or net redemptions of Fund shares may
affect yield. Accordingly, the yield of Cash Reserves Fund may
vary from day to day and the yield stated for a particular past
period is not a representation as to its future yield. The yield
of Cash Reserves Fund is not assured, and its principal is not
insured; however, it will attempt to maintain its net asset value
per share at $1.00.
Comparison of the yield of Cash Reserves Fund with those of
alternative investments (such as savings accounts, various types
of bank deposits, and other money market funds) should be made
with consideration of differences between Cash Reserves Fund and
the alternative investments, differences in the periods and
methods used in the calculation of the yields being compared, and
the impact of income taxes on alternative investments.
_____________________
A Bond Fund may quote yield figures from time to time. The
"Yield" is computed by dividing the net investment income per
share earned during a 30-day period (using the average number of
shares entitled to receive dividends) by the net asset value per
share on the last day of the period. The Yield formula provides
for semiannual compounding which assumes that net investment
income is earned and reinvested at a constant rate and annualized
at the end of a six-month period.
6
The Yield formula is as follows: YIELD = 2[((a-b/cd) +1) -1].
Where: a = dividends and interest earned during the period
(For this purpose, the Fund will recalculate the
yield to maturity based on market value of each
portfolio security on each business day on which net
asset value is calculated.)
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the ending net asset value of the Fund for the
period.
For example, the Yields of the Bond Funds for the 30-day
period ended June 30, 1998, were:
Intermediate Bond Fund = 6.20%
Income Fund = 6.60%
High Yield Fund = 8.24%
_____________________
Each Fund may quote total return figures from time to time.
A "Total Return" on a per share basis is the amount of dividends
received per share plus or minus the change in the net asset value
per share for a period. A "Total Return Percentage" may be
calculated by dividing the value of a share at the end of a period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one. For a
given period, an "Average Annual Total Return" may be computed by
finding the average annual compounded rate that would equate a
hypothetical initial amount invested of $1,000 to the ending
redeemable value.
n
Average Annual Total Return is computed as follows: ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion thereof).
For example, for a $1,000 investment in a Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at June 30, 1998 were:
TOTAL RETURN AVERAGE ANNUAL
TOTAL RETURN PERCENTAGE TOTAL RETURN
------------ ------------- --------------
Cash Reserves Fund
1 year $1,051 5.09% 5.09%
5 years 1,250 24.99 4.56
10 years 1,686 68.55 5.36
Intermediate Bond Fund
1 year 1,095 9.51 9.51
5 years 1,388 38.77 6.77
10 years 2,262 126.23 8.51
Income Fund
1 year 1,087 8.72 8.72
5 years 1,420 42.03 7.27
10 years 2,335 133.54 8.85
High Yield Fund
1 year 1,144 14.38 14.38
Life of Fund* 1,268 26.82 15.38
_______
*Since commencement of operations on Nov. 1, 1996.
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of future
results. The performance of a Fund is a result of conditions in
the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful
in reviewing a Fund's performance and in providing some basis for
comparison with other investment alternatives, it should not be
used for comparison with other investments using different
reinvestment assumptions or time periods.
A Fund may note its mention in newspapers, magazines, or
other media from time to time. However, the Funds assume no
responsibility for the accuracy of such data. Newspapers and
magazines that might mention the Funds include, but are not
limited to, the following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Atlantic Monthly
Associated Press
Barron's
Bloomberg
Boston Globe
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Investment Advisor
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Marketing Alert
Gourmet
Individual Investor
Investment Dealers' Digest
Investment News
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Money on Line
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsday
Newsweek
New York Daily News
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
Reuters
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Street.com
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
In advertising and sales literature, a Fund may compare its
yield and performance with that of other mutual funds, indexes or
averages of other mutual funds, indexes of related financial
assets or data, and other competing investment and deposit
products available from or through other financial institutions.
The composition of these indexes or averages differs from that of
the Funds. Comparison of a Fund to an alternative investment
should be made with consideration of differences in features and
expected performance. All of the indexes and averages noted below
will be obtained from the indicated sources or reporting services,
which the Funds believe to be generally accurate.
The Funds may compare their performance to the Consumer Price
Index (All Urban), a widely-recognized measure of inflation.
A Fund's performance may be compared to the following as
indicated below:
Benchmark Fund(s)
- -------------------------------- ----------------------------
CS First Boston High Yield Index High Yield Fund
Donoghue's Money Fund Averages(tm)
-Aggressive Cash Reserves Fund
Donoghue's Money Fund Averages(tm)
-All Taxable Cash Reserves Fund
Donoghue's Money Fund Averages(tm)
-Prime Cash Reserves Fund
Donoghue's Money Fund Averages(tm)
-Prime and Eurodollar Cash Reserves Fund
Donoghue's Money Fund Averages(tm)
-Prime, Eurodollar, and
Yankeedollar Cash Reserves Fund
Donoghue's Money Fund Averages(tm)
-Taxable (Includes the previous
four categories) Cash Reserves Fund
Lehman Aggregate Index Intermediate Bond Fund
Lehman Government/Corporate Index Intermediate Bond Fund
Lehman High Yield Bond Index High Yield Fund
Lehman High Yield Corporate Bond
Index High Yield Fund
Lehman Intermediate Corporate
Bond Index Income Fund
Lehman Intermediate Government/
Corporate Index Intermediate Bond Fund
Lipper All Long-Term Fixed Income
Funds Average Intermediate Bond Fund,
Income Fund
Lipper Corporate Bond Funds (A
Rated) Average Intermediate Bond Fund
Lipper Corporate Bond Funds (BBB
Rated) Average Income Fund
Lipper Intermediate-Term (5-10
Year) Investment Grade Debt
Funds Average Intermediate Bond Fund
Lipper Long-Term Taxable Bond
Funds Average Intermediate Bond Fund,
Income Fund
Lipper Money Market Instrument
Funds Average Cash Reserves Fund
Lipper Short-Term Income Fund
Average Cash Reserves Fund
Merrill Lynch Corporate and
Government Master Index Intermediate Bond Fund,
Income Fund
Merrill Lynch High-Yield Master
Index Income Fund, High Yield Fund
Morningstar All Long-Term Fixed
Income Funds Average Intermediate Bond Fund,
Income Fund
Morningstar Corporate Bond
(General) Average Income Fund, High Yield Fund
Morningstar Corporate Bond (High
Quality) Average Intermediate Bond Fund
Morningstar Long-Term Taxable
Bond Funds Average Intermediate Bond Fund,
Income Fund
Salomon Brothers Broad
Investment Grade Bond Index Intermediate Bond Fund,
Income Fund
Salomon Brothers Extended High
Yield Market Index High Yield Fund
Salomon Brothers High Yield
Market Index High Yield Fund
The Lipper and Morningstar averages are unweighted averages
of total return performance of mutual funds as classified,
calculated, and published by these independent services that
monitor the performance of mutual funds. The Funds may also use
comparative performance as computed in a ranking by these services
or category averages and rankings provided by another independent
service. Should these services reclassify a Fund to a different
category or develop (and place a Fund into) a new category, that
Fund may compare its performance or rank against other funds in
the newly-assigned category (or the average of such category) as
published by the service.
The Merrill Lynch High-Yield Master Index measures the total
return performance of corporate debt issues rated less than
investment grade but not in default. The Merrill Lynch Corporate
and Government Master Index measures total return performance of a
broad range of U.S. Treasury, federal agency, and corporate debt
securities, but excluding mortgage-backed securities. The Salomon
Brothers Broad Investment Grade Bond Index measures the market-
weighted total return of a wide range of debt securities,
including U.S. Treasury/agency securities, investment-grade
corporate bonds, and mortgage pass-through securities.
Cash Reserves Fund may compare its after-tax yield (computed
by multiplying the yield by one minus the highest marginal federal
individual tax rate) to the average yield for the tax-free
categories of the aforementioned services.
Investors may desire to compare the performance and features
of Cash Reserves Fund to those of various bank products. Cash
Reserves Fund may compare its yield to the average rates of bank
and thrift institution money market deposit accounts, Super N.O.W.
accounts, and certificates of deposit. The rates published weekly
by the BANK RATE MONITOR(c), a North Palm Beach (Florida)
financial reporting service, in its BANK RATE MONITOR(c) National
Index are averages of the personal account rates offered on the
Wednesday prior to the date of publication by one hundred leading
banks and thrift institutions in the top ten Consolidated Standard
Metropolitan Statistical Areas. Account minimums range upward
from $2,500 in each institution and compounding methods vary.
Super N.O.W. accounts generally offer unlimited checking, while
money market deposit accounts generally restrict the number of
checks that may be written. If more than one rate is offered, the
lowest rate is used. Rates are subject to change at any time
specified by the institution. Bank account deposits may be
insured. Shareholder accounts in Cash Reserves Fund are not
insured. Bank passbook savings accounts compete with money market
mutual fund products with respect to certain liquidity features
but may not offer all of the features available from a money
market mutual fund, such as check writing. Bank passbook savings
accounts normally offer a fixed rate of interest while the yield
of Cash Reserves Fund fluctuates. Bank checking accounts normally
do not pay interest but compete with money market mutual funds
with respect to certain liquidity features (e.g., the ability to
write checks against the account). Bank certificates of deposit
may offer fixed or variable rates for a set term. (Normally, a
variety of terms are available.) Withdrawal of these deposits
prior to maturity will normally be subject to a penalty. In
contrast, shares of Cash Reserves Fund are redeemable at the next
determined net asset value (normally, $1.00 per share) after a
request is received, without charge.
In advertising and sales literature, a Fund may also cite its
rating, recognition, or other mention by Morningstar or any other
entity. Morningstar's rating system is based on risk-adjusted
total return performance and is expressed in a star-rating format.
The risk-adjusted number is computed by subtracting a fund's risk
score (which is a function of its monthly returns less the 3-month
T-bill return) from its load-adjusted total return score. This
numerical score is then translated into rating categories, with
the top 10% labeled five star, the next 22.5% labeled four star,
the next 35% labeled three star, the next 22.5% labeled two star,
and the bottom 10% one star. A high rating reflects either above-
average returns or below-average risk, or both.
Of course, past performance is not indicative of future
results.
____________________
To illustrate the historical returns on various types of
financial assets, the Funds may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment
firm. Ibbotson constructs (or obtains) very long-term (since
1926) total return data (including, for example, total return
indexes, total return percentages, average annual total returns
and standard deviations of such returns) for the following asset
types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
____________________
A Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such example
is reflected in the chart below, which shows the effect of tax
deferral on a hypothetical investment. This chart assumes that an
investor invested $2,000 a year on Jan. 1, for any specified
period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 3%, 5%, 7%, or 9%
compounded annually, and that the investor withdrew the entire
amount at the end of the period. (A tax rate of 39.6% is applied
annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
<TABLE>
<CAPTION>
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
Interest
Rate 3% 5% 7% 9% 3% 5% 7% 9%
- --------------------------------------------------------------------------------
Com-
pound-
ing
Years Tax-Deferred Investment Taxable Investment
- ---- ------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30 $82,955 $108,031 $145,856 $203,239 $80,217 $98,343 $121,466 $151,057
25 65,164 80,337 101,553 131,327 63,678 75,318 89,528 106,909
20 49,273 57,781 68,829 83,204 48,560 55,476 63,563 73,028
15 35,022 39,250 44,361 50,540 34,739 38,377 42,455 47,025
10 22,184 23,874 25,779 27,925 22,106 23,642 25,294 27,069
5 10,565 10,969 11,393 11,840 10,557 10,943 11,342 11,754
1 2,036 2,060 2,085 2,109 2,036 2,060 2,085 2,109
</TABLE>
Average Life Calculations. From time to time, a Fund may
quote an average life figure for its portfolio. Average life is
the weighted average period over which the Adviser expects the
principal to be paid, and differs from stated maturity in that it
estimates the effect of expected principal prepayments and call
provisions. With respect to GNMA securities and other mortgage-
backed securities, average life is likely to be substantially less
than the stated maturity of the mortgages in the underlying pools.
With respect to obligations with call provisions, average life is
typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an average life equal to their
stated maturity.
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average cost
per share. Like any investment strategy, dollar cost averaging
can't guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
From time to time, a Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[service mark] and Stein Roe Personal Counselor [service mark]
programs and asset allocation and other investment strategies.
APPENDIX-RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion
as to the credit quality of the security being rated. However,
the ratings are general and are not absolute standards of quality
or guarantees as to the creditworthiness of an issuer.
Consequently, the Adviser believes that the quality of debt
securities should be continuously reviewed and that individual
analysts give different weightings to the various factors involved
in credit analysis. A rating is not a recommendation to purchase,
sell or hold a security because it does not take into account
market value or suitability for a particular investor. When a
security has received a rating from more than one service, each
rating should be evaluated independently. Ratings are based on
current information furnished by the issuer or obtained by the
rating services from other sources that they consider reliable.
Ratings may be changed, suspended or withdrawn as a result of
changes in or unavailability of such information, or for other
reasons.
The following is a description of the characteristics of
ratings used by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P").
CORPORATE BOND RATINGS
Ratings By Moody's
Aaa. Bonds rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or an exceptionally stable margin and
principal is secure. Although the various protective elements are
likely to change, such changes as can be visualized are more
unlikely to impair the fundamentally strong position of such
bonds.
Aa. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa. Bonds rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
Ratings By S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only
in small degree.
A. Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than for debt in higher rated categories.
BB, B, CCC, CC, and C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no
interest is being paid.
D. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears. The D rating is also
used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories. Foreign debt is rated on the same basis
as domestic debt measuring the creditworthiness of the issuer;
ratings of foreign debt do not take into account currency exchange
and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility
or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or
interest return is indexed to equities, commodities, or
currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
COMMERCIAL PAPER RATINGS
Ratings By Moody's
Moody's employs the following three designations, all judged
to be investment grade, to indicate the relative repayment
capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or
entities, Moody's, in assigning ratings to such issuers, evaluates
the financial strength of the indicated affiliated corporations,
commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating
assessment.
Ratings By S&P
A brief description of the applicable rating symbols and
their meaning follows:
A. Issues assigned this highest rating are regarded as
having the greatest capacity for timely payment. Issues in this
category are further refined with the designations 1, 2, and 3 to
indicate the relative degree of safety.
A-1. This designation indicates that the degree of safety
regarding timely payment is very strong. Those issues determined
to possess overwhelming safety characteristics will be denoted
with a plus (+) sign designation.
____________
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) 1. Financial statements included in Part A of this Amendment
to the Registration Statement: Financial Highlights.
2. Financial statements included in Part B of this
Amendment: The following financial statements are
incorporated by reference to Registrant's June 30, 1998
annual reports: Investments as of June 30, 1998 of SR&F
Cash Reserves Portfolio, SR&F Intermediate Bond
Portfolio, SR&F Income Portfolio and SR&F High Yield
Portfolio; and statements of assets and liabilities as of
June 30, 1998, statements of operations for the period
ended June 30, 1998, statements of changes in net assets
for each of the two years in the period ended June 30,
1998, notes thereto and report of independent auditors of
Stein Roe Cash Reserves Fund, SR&F Cash Reserves
Portfolio, Stein Roe Intermediate Bond Fund, SR&F
Intermediate Bond Portfolio, Stein Roe Income Fund, SR&F
Income Portfolio, Stein Roe High Yield Fund, and SR&F
High Yield Portfolio.
(b) Exhibits: [Note: As used herein, the term "PEA" refers to a
post-effective amendment to the Registration Statement of the
Registrant on Form N-1A under the Securities Act of 1933, No.
33-02633.]
1. (a) Agreement and Declaration of Trust as amended through
10/25/94. (Exhibit 1 to PEA #27.)*
(b) Amendment to Agreement and Declaration of Trust dated
11/1/95. (Exhibit 1(b) to PEA #28.)*
2. (a) By-Laws of Registrant as amended through 2/3/93.
(Exhibit 2 to PEA #29.)*
(b) Amendment to By-Laws dated 2/4/98.
3. None.
4. None. Registrant no longer issues share certificates.
5. None.
6. Underwriting agreement between the Stein Roe Funds and
Liberty Funds Distributor, Inc. dated 1/1/98.
7. None.
8. Custodian contract between Registrant and State Street
Bank and Trust Company dated 2/24/86 as amended through
5/8/95. (Exhibit 8 to PEA #27).*
9. (a) Transfer agency agreement dated 8/1/95 between
Registrant and SteinRoe Services Inc. as amended
through 11/1/96. (Exhibit 9(a) to PEA #30.)*
(b) Accounting and Bookkeeping Agreement between
Registrant and the Adviser as amended through November
1, 1996. (Exhibit 9(b) to PEA #30.)*
(c) Administrative Agreement between Registrant and the
Adviser as amended through November 1, 1996. (Exhibit
9(c) to PEA #30.)*
(d) Sub-transfer agent agreement between SteinRoe Services
Inc. and Colonial Investors Service Center, Inc. as
amended through April 30, 1998.
10. (a) Opinions and consents of Ropes & Gray. (Exhibit 10(a)
to PEA #29.)*
(b) Opinions and consents of Bell, Boyd & Lloyd with
respect to the series SteinRoe High-Yield Bonds (now
named Stein Roe Income Fund), SteinRoe Cash Reserves,
and SteinRoe Managed Bonds (now named Stein Roe
Intermediate Bond Fund). (Exhibit 10(b) to PEA #29.)*
(c) Opinion and consent of Bell, Boyd & Lloyd with respect
to the series Stein Roe High Yield Fund. (Exhibit
10(c) to PEA #30.)*
11. (a) Consent of Ernst & Young LLP, independent auditors.
(b) Consent of Morningstar, Inc. (Exhibit 11(b) to PEA
#29.)*
12. None.
.
13. Inapplicable.
14. (a) Stein Roe Funds Individual Retirement Account Plan.
(Exhibit 14(a) to PEA #33.)*
(b) Stein Roe & Farnham Prototype Paired Defined
Contribution Plan. (Exhibit 14(b) to PEA #33.)*
15. None.
16. (a) Schedules for computation of yield and total return of
SteinRoe High-Yield Bonds (now named Stein Roe Income
Fund), SteinRoe Managed Bonds (now named Stein Roe
Intermediate Bond Fund), and Stein Roe Cash Reserves.
(Exhibit 16 to PEA #29.)*
(b) Schedule for computation of yield and total return of
Stein Roe High Yield Fund. (Exhibit 16(b) to PEA
#33.)*
17. Financial Data Schedules:
(a) Income Fund.
(b) Intermediate Bond Fund.
(c) Cash Reserves Fund.
(d) High Yield Fund.
18. Inapplicable.
19. (Miscellaneous.)
(a) Fund Application.
(b) Automatic Redemption Services Application. (Exhibit
19(b) to PEA #29.)*
________
*Incorporated by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
The Registrant does not consider that it is directly or indirectly
controlling, controlled by, or under common control with other
persons within the meaning of this Item. See "Investment Advisory
Services," "Management," and "Transfer Agent" in the Statement of
Additional Information, each of which is incorporated herein by
reference.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record Holders
Title of Series as of July 31, 1998
- -------------------------------- ------------------------
Stein Roe Cash Reserves Fund......................16,493
Stein Roe Income Fund............................. 4,562
Stein Roe Intermediate Bond Fund.................. 6,132
Stein Roe High Yield Fund ........................ 1,876
ITEM 27. INDEMNIFICATION.
Article Tenth of the Agreement and Declaration of Trust of
Registrant (Exhibit 1), which Article is incorporated herein by
reference, provides that Registrant shall provide indemnification
of its trustees and officers (including each person who serves or
has served at Registrant's request as a director, officer, or
trustee of another organization in which Registrant has any
interest as a shareholder, creditor or otherwise) ("Covered
Persons") under specified circumstances.
Section 17(h) of the Investment Company Act of 1940 ("1940 Act")
provides that neither the Agreement and Declaration of Trust nor
the By-Laws of Registrant, nor any other instrument pursuant to
which Registrant is organized or administered, shall contain any
provision which protects or purports to protect any trustee or
officer of Registrant against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. In
accordance with Section 17(h) of the 1940 Act, Article Tenth shall
not protect any person against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Unless otherwise permitted under the 1940 Act,
(i) Article Tenth does not protect any person against any
liability to Registrant or to its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office;
(ii) in the absence of a final decision on the merits by a court
or other body before whom a proceeding was brought that a Covered
Person was not liable by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office, no indemnification is permitted under
Article Tenth unless a determination that such person was not so
liable is made on behalf of Registrant by (a) the vote of a
majority of the trustees who are neither "interested persons" of
Registrant, as defined in Section 2(a)(19) of the 1940 Act, nor
parties to the proceeding ("disinterested, non-party trustees"),
or (b) an independent legal counsel as expressed in a written
opinion; and
(iii) Registrant will not advance attorneys' fees or other
expenses incurred by a Covered Person in connection with a civil
or criminal action, suit or proceeding unless Registrant receives
an undertaking by or on behalf of the Covered Person to repay the
advance (unless it is ultimately determined that he is entitled to
indemnification) and (a) the Covered Person provides security for
his undertaking, or (b) Registrant is insured against losses
arising by reason of any lawful advances, or (c) a majority of the
disinterested, non-party trustees of Registrant or an independent
legal counsel as expressed in a written opinion, determine, based
on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the
Covered Person ultimately will be found entitled to
indemnification.
Any approval of indemnification pursuant to Article Tenth does not
prevent the recovery from any Covered Person of any amount paid to
such Covered Person in accordance with Article Tenth as
indemnification if such Covered Person is subsequently adjudicated
by a court of competent jurisdiction not to have acted in good
faith in the reasonable belief that such Covered Person's action
was in, or not opposed to, the best interests of Registrant or to
have been liable to Registrant or its shareholders by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such Covered
Person's office.
Article Tenth also provides that its indemnification provisions
are not exclusive.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers, and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by Registrant of expenses incurred or paid by a trustee, officer,
or controlling person of Registrant in the successful defense of
any action, suit, or proceeding) is asserted by such trustee,
officer, or controlling person in connection with the securities
being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Registrant, its trustees and officers, its investment adviser, the
other investment companies advised by the adviser, and persons
affiliated with them are insured against certain expenses in
connection with the defense of actions, suits, or proceedings, and
certain liabilities that might be imposed as a result of such
actions, suits, or proceedings. Registrant will not pay any
portion of the premiums for coverage under such insurance that
would (1) protect any trustee or officer against any liability to
Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office or (2) protect its investment adviser or
principal underwriter, if any, against any liability to Registrant
or its shareholders to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of its duties, or by reason of its
reckless disregard of its duties and obligations under its
contract or agreement with the Registrant; for this purpose the
Registrant will rely on an allocation of premiums determined by
the insurance company.
Pursuant to the indemnification agreement among the Registrant,
its transfer agent and its investment adviser, the Registrant,
its trustees, officers and employees, its transfer agent
and the transfer agent's directors, officers and employees
are indemnified by Registrant's investment adviser against any and
all losses, liabilities, damages, claims and expenses arising out
of any act or omission of the Registrant or its transfer agent
performed in conformity with a request of the investment adviser
that the transfer agent and the Registrant deviate from their
normal procedures in connection with the issue, redemption or
transfer of shares for a client of the investment adviser.
Registrant, its trustees, officers, employees and representatives
and each person, if any, who controls the Registrant within the
meaning of Section 15 of the Securities Act of 1933 are
indemnified by the distributor of Registrant's shares (the
"distributor"), pursuant to the terms of the distribution
agreement, which governs the distribution of Registrant's shares,
against any and all losses, liabilities, damages, claims and
expenses arising out of the acquisition of any shares of the
Registrant by any person which (i) may be based upon any wrongful
act by the distributor or any of the distributor's directors,
officers, employees or representatives or (ii) may be based upon
any untrue or alleged untrue statement of a material fact
contained in a registration statement, prospectus, statement of
additional information, shareholder report or other information
covering shares of the Registrant filed or made public by the
Registrant or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
therein not misleading if such statement or omission was made in
reliance upon information furnished to the Registrant by the
distributor in writing. In no case does the distributor's
indemnity indemnify an indemnified party against any liability to
which such indemnified party would otherwise be subject by reason
of willful misfeasance, bad faith, or negligence in the
performance of its or his duties or by reason of its or his
reckless disregard of its or his obligations and duties under the
distribution agreement.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The Adviser is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), which in turn is a wholly owned subsidiary of Liberty
Financial Companies, Inc., which a majority owned subsidiary of
LFC Holdings, Inc., which is a wholly owned subsidiary of Liberty
Mutual Equity Corporation, which is a wholly owned subsidiary of
Liberty Mutual Insurance Company. The Adviser acts as investment
adviser to individuals, trustees, pension and profit-sharing
plans, charitable organizations, and other investors. In addition
to Registrant, it also acts as investment adviser to other
investment companies having different investment policies.
For a two-year business history of officers and directors of the
Adviser, please refer to the Form ADV of Stein Roe & Farnham
Incorporated and to the section of the statement of additional
information (part B) entitled "Investment Advisory Services."
Certain directors and officers of the Adviser also serve and have
during the past two years served in various capacities as
officers, directors, or trustees of SSI and of the Registrant,
and other investment companies managed by the Adviser. (The
listed entities are located at One South Wacker Drive, Chicago,
Illinois 60606, except for SteinRoe Variable Investment Trust and
Liberty Variable Investment Trust, which are located at Federal
Reserve Plaza, Boston, MA 02210 and LFC Utilities Trust, which is
located at One Financial Center, Boston, MA 02111.) A list of
such capacities is given below.
POSITION FORMERLY
HELD WITHIN
CURRENT POSITION PAST TWO YEARS
------------------- --------------
STEINROE SERVICES INC.
Gary A. Anetsberger Vice President
Kenneth J. Kozanda Vice President; Treasurer
Kenneth R. Leibler Director
C. Allen Merritt, Jr. Director; Vice President
Heidi J. Walter Vice President; Secretary
Hans P. Ziegler Director; President; Chairman
SR&F BASE TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
Thomas W. Butch President; Trustee Executive V-P
Kevin M. Carome Vice-President; Asst. Secy.
Loren A. Hansen Executive Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE INCOME TRUST; STEIN ROE INSTITUTIONAL TRUST; AND
STEIN ROE TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
Thomas W. Butch President; Trustee Exec. V-P; V-P
Kevin M. Carome Vice-President; Asst. Secy.
Loren A. Hansen Executive Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Steven P. Luetger Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE INVESTMENT TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
David P. Brady Vice-President
Thomas W. Butch President; Trustee Exec. V-P; V-P
Daniel K. Cantor Vice-President
Kevin M. Carome Vice-President; Asst. Secy.
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
David P. Harris Vice-President
Harvey B. Hirschhorn Vice-President
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Arthur J. McQueen Vice-President
M. Gerard Sandel Vice-President
Gloria J. Santella Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE ADVISOR TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
David P. Brady Vice-President
Thomas W. Butch President; Trustee Exec. V-P; V-P
Daniel K. Cantor Vice-President
Kevin M. Carome Vice-President; Asst. Secy.
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
David P. Harris Vice-President
Harvey B. Hirschhorn Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Arthur J. McQueen Vice-President
M. Gerard Sandel Vice-President
Gloria J. Santella Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE MUNICIPAL TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
Thomas W. Butch President; Trustee Exec. V-P; V-P
Kevin M. Carome Vice-President; Asst. Secy.
Joanne T. Costopoulos Vice-President
Loren A. Hansen Executive Vice-President
Lynn C. Maddox Vice-President
Veronica M. Wallace Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEINROE VARIABLE INVESTMENT TRUST
Gary A. Anetsberger Treasurer
Kevin M. Carome Assistant Secretary
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
William M. Wadden IV Vice President
LFC UTILITIES TRUST
Gary A. Anetsberger Vice President
Ophelia L. Barsketis Vice President
Deborah A. Jansen Vice President
LIBERTY VARIABLE INVESTMENT TRUST
Ophelia L. Barsketis Vice President
Deborah A. Jansen Vice President
Kevin M. Carome Vice President
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior Vice-President
Thomas W. Butch President; Manager
Kevin M. Carome Vice-President; Assistant Secretary
Loren A. Hansen Executive Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE FLOATING RATE INCOME TRUST; STEIN ROE INSTITUTIONAL
FLOATING RATE INCOME TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior Vice-President
Thomas W. Butch President; Trustee
Kevin M. Carome Vice-President; Assistant Secretary
Brian W. Good Vice-President
James R. Fellows Vice-President
Loren A. Hansen Executive Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
ITEM 29. PRINCIPAL UNDERWRITERS.
Registrant's principal underwriter, Liberty Funds Distributor,
Inc., a subsidiary of Colonial Management Associates, Inc., also
acts in the same capacity to Colonial Trust I, Colonial Trust II,
Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial
Trust VI, Colonial Trust VII, Stein Roe Advisor Trust, Stein Roe
Investment Trust, Stein Roe Municipal Trust, Stein Roe
Institutional Trust and Stein Roe Trust; and sponsor for Colony
Growth Plans (public offering of which was discontinued on June
14, 197l). The table below lists each director or officer of
Liberty Funds Distributor, Inc.
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- -------------------- --------------------- ---------------
Anderson, Judith Vice President None
Anetsberger, Gary A. Senior Vice President Senior V-P
Babbitt, Debra VP & Compliance Officer None
Ballou, Rich Vice President None
Balzano, Christine R. Vice President None
Bartlett, John Managing Director None
Blumenfeld, Alex Vice President None
Brown, Beth Vice President None
Burtman, Tracy Vice President None
Butch, Thomas W. Senior Vice President Pres., Trustee
Campbell, Patrick Vice President None
Chrzanowski, Daniel Vice President None
Claiborne, Douglas Vice President None
Clapp, Elizabeth A. Senior Vice President None
Conlin, Nancy L. Director, Clerk None
Davey, Cynthia Sr. Vice President None
Desilets, Marian Vice President None
Devaney, James Vice President None
DiMaio, Steve Vice President None
Downey, Christopher Vice President None
Emerson, Kim P. Vice President None
Erickson, Cynthia G. Senior Vice President None
Evans, C. Frazier Managing Director None
Feldman, David Senior Vice President None
Fifield, Robert Vice President None
Gauger, Richard Vice President None
Gerokoulis, Stephen A. Senior Vice President None
Gibson, Stephen E. Director, Chairman of Board None
Goldberg, Matthew Vice President None
Geunard, Brian Vice President None
Harrington, Tom Sr. Vice President None
Harris, Carla L. Vice President None
Hodgkins, Joseph Sr. Vice President None
Hussey, Robert Senior Vice President None
Iudice, Jr., Philip Treasurer and CFO None
Jones, Cynthia Vice President None
Jones, Jonathan Vice President None
Karagiannis, Marilyn Managing Director None
Kelley, Terry M. Vice President None
Kelson, David W. Senior Vice President None
Libutti, Chris Vice President None
McCombe, Gregory Senior Vice President None
McKenzie, Mary Vice President None
Menchin, Catherine Vice President None
Miller, Anthony Vice President None
Moberly, Ann R. Senior Vice President None
Morner, Patrick Vice President None
Morse, Jonathan Vice President None
O'Shea, Kevin Managing Director None
Piken, Keith Vice President None
Pollard, Brian S. Vice President None
Predmore, Tracy Vice President None
Quirk, Frank Vice President None
Reed, Christopher B. Senior Vice President None
Riegel, Joyce B. Vice President None
Robb, Douglas Vice President None
Sandberg, Travis Vice President None
Scarlott, Rebecca Vice President None
Schulman, David Vice President None
Scoon, Davey Director None
Scott, Michael W. Senior Vice President None
Sideropoulos, Lou Vice President None
Smith, Darren Vice President None
Studer, Eric Vice President None
Sutton, R. Andrew Vice President None
Tambone, James Chief Executive Officer None
Tasiopoulos, Lou President None
Tuttle, Brian Vice President None
Van Etten, Keith Vice President None
Villanova, Paul Vice President None
Wallace, John Vice President None
Walter, Heidi J. Vice President V-P & Secy.
Wess, Valerie Vice President None
Young, Deborah Vice President None
- ---------
* The address of Ms. Harris, Ms. Riegel, Ms. Walter, and Messrs.
Anetsberger, Butch and Pollard is One South Wacker Drive, Chicago,
IL 60606. The address of each other director and officer is One
Financial Center, Boston, MA 02111.
Item 30. Location of Accounts and Records.
Registrant maintains the records required to be maintained by it
under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment
Company Act of 1940 at its principal executive offices at One
South Wacker Drive, Chicago, Illinois 60606. Certain records,
including records relating to Registrant's shareholders and the
physical possession of its securities, may be maintained pursuant
to Rule 31a-3 at the main office of Registrant's transfer agent or
custodian.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
If requested to do so by the holders of at least 10% of the
Trust's outstanding shares, the Trust will call a special
meeting for the purpose of voting upon the question of removal
of a trustee or trustees and will assist in the communications
with other shareholders as if the Trust were subject to Section
16(c) of the Investment Company Act of 1940.
Since the information called for by Item 5A for the Funds (other
than Stein Roe Cash Reserves Fund, to which this item does not
relate) is contained in the latest annual report to shareholders,
Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the latest annual report to
shareholders of the such Funds upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it
meets all of the requirements for effectiveness of this
registration statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago and State of Illinois on
the 29th day of October, 1998.
STEIN ROE INCOME TRUST
By THOMAS W. BUTCH
Thomas W. Butch
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated:
Signature* Title Date
- ------------------------ --------------------- --------------
THOMAS W. BUTCH President and Trustee Oct. 29, 1998
Thomas W. Butch
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice-President Oct. 29, 1998
Gary A. Anetsberger
Principal Financial Officer
SHARON R. ROBERTSON Controller Oct. 29,1998
Sharon R. Robertson
Principal Accounting Officer
WILLIAM W. BOYD Trustee Oct. 29, 1998
William W. Boyd
LINDSAY COOK Trustee Oct. 29, 1998
Lindsay Cook
DOUGLAS A. HACKER Trustee Oct. 29, 1998
Douglas A. Hacker
JANET LANGFORD KELLY Trustee Oct. 29, 1998
Janet Langford Kelly
CHARLES R. NELSON Trustee Oct. 29, 1998
Charles R. Nelson
THOMAS C. THEOBALD Trustee Oct. 29, 1998
Thomas C. Theobald
*This Registration Statement has also been signed by the above
persons in their capacities as trustees and officers of SR&F Base
Trust.
<PAGE>
STEIN ROE INCOME TRUST
INDEX TO EXHIBITS FILED WITH THIS AMENDMENT
Exhibit
Number Description
- ------- -------------
2(b) Amendment to By-Laws
6 Underwriting Agreement
9(d) Sub-Transfer Agent Agreement
11(a) Consent of Ernst & Young LLP
17 Financial Data Schedules:
(a) Stein Roe Income Fund
(b) Stein Roe Intermediate Bond Fund
(c) Stein Roe Cash Reserves Fund
(d) Stein Roe High Yield Fund
19(a) Funds Application
<PAGE>
Exhibit 2(b)
CERTIFICATE
I, Nicolette D. Parrish, hereby certify that I am the
duly elected and acting Assistant Secretary of Stein Roe Income
Trust (the "Trust") and that the following is a true and
correct copy of a certain resolution duly adopted by
the Board of Trustees of the Trust at a meeting held in
accordance with the By-Laws on February 4, 1998, and that
such resolution is still in full force and effect:
RESOLVED, that Section 2.01 of the By-Laws is
amended and restated as follows:
Section 2.01. Number and Term of Office. The
Board of Trustees shall initially consist of the
initial sole Trustee, which number may be increased
or subsequently decreased by a resolution of a
majority of the entire Board of Trustees, provided
that the number of Trustees shall not be less than
one nor more than twenty-one. Each Trustee (whenever
selected) shall hold office until the next meeting of
shareholders called for the purposes of electing
Trustees and until his successor is elected and
qualified or until his earlier death, resignation, or
removal. Each Trustee shall retire on December 31 of
the year during which the Trustee becomes age 74.
The initial Trustee shall be the person designated in
the Declaration of Trust.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seals of said Trust this 5th day of February, 1998.
NICOLETTE D. PARRISH
Assistant Secretary
(SEAL)
<PAGE>
EXHIBIT (e)(1)
UNDERWRITING AGREEMENT BETWEEN
STEIN ROE INCOME TRUST
STEIN ROE INVESTMENT TRUST
STEIN ROE MUNICIPAL TRUST
STEIN ROE TRUST
STEIN ROE INSTITUTIONAL TRUST
AND LIBERTY FINANCIAL INVESTMENTS, INC.
THIS UNDERWRITING AGREEMENT ("Agreement"), made as of
the 1st day of January 1998 by and between Stein Roe Income
Trust, Stein Roe Investment Trust, Stein Roe Municipal
Trust, Stein Roe Trust and Stein Roe Institutional Trust,
each a business trust organized and existing under the laws
of the Commonwealth of Massachusetts (hereinafter
collectively referred to as the "Fund"), and Liberty
Financial Investments, Inc., a corporation organized and
existing under the laws of the State of Delaware
(hereinafter call the "Distributor").
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end
management investment company registered under the
Investment Company Act of 1940, as amended ("ICA-40"); and
WHEREAS, the Distributor is registered as a broker-
dealer under the Securities Exchange Act of 1934, as amended
("SEA-34") and, the laws of each state (including the
District of Columbia and Puerto Rico) in which it engages in
business to the extent such law requires, and is a member of
the National Association of Securities Dealers ("NASD")
(such registrations and membership are referred to
collectively as the "Registrations"); and
WHEREAS, the Fund desires the Distributor to act as the
distributor in the public offering of its shares of
beneficial interest (hereinafter called "Shares");
WHEREAS, the Fund shall pay all charges of its
transfer, shareholder recordkeeping, dividend disbursing and
redemption agents, if any; all expenses of notices, proxy
solicitation material and reports to shareholders; all
expenses of preparation and printing of annual or more
frequent revisions of the Fund's Prospectus and Statement of
Additional Information and of supplying copies thereof to
shareholders; all expenses of registering and maintaining
the registration of the Fund under ICA-40 and of the Fund's
Shares under the Securities Act of 1933, as amended ("SA-
33"); all expenses of qualifying and maintaining
qualification of such Fund and of the Fund's Shares for sale
under securities laws of various states or other
jurisdictions and of registration and qualification of the
Fund under all laws applicable to the Fund or its business
activities;
WHEREAS, Stein Roe & Farnham Incorporated, investment
adviser to the Funds, shall pay all expenses incurred in the
sale and promotion of the Fund;
NOW, THEREFORE, in consideration of the premises and
the mutual promises hereinafter set forth, the parties
hereto agree as follows:
1. Appointment. The Fund appoints Distributor to act
as principal underwriter (as such term is defined in
Sections 2(a)(29) of ICA-40) of its Shares.
2. Delivery of Fund Documents. The Fund has furnished
Distributor with properly certified or authenticated copies
of each of the following in effect on the date hereof and
shall furnish Distributor from time to time properly
certified or authenticated copies of all amendments or
supplements thereto:
(a) Agreement and Declaration of Trust;
(b) By-Laws;
(c) Resolutions of the Board of Trustees of the Fund
(hereinafter referred to as the "Board") selecting
Distributor as distributor and approving this form
of agreement and authorizing its execution.
The Fund shall furnish Distributor promptly with copies
of any registration statements filed by it with the
Securities and Exchange Commission ("SEC") under SA-33 or
ICA-40, together with any financial statements and exhibits
included therein, and all amendments or supplements thereto
hereafter filed.
The Fund also shall furnish Distributor such other
certificates or documents which Distributor may from time to
time, in its discretion, reasonably deem necessary or
appropriate in the proper performance of its duties.
3. Solicitation of Orders for Purchase of Shares.
(a) Subject to the provisions of Paragraphs 4, 5 and 7
hereof, and to such minimum purchase requirements as may
from time to time be indicated in the Fund's Prospectus,
Distributor is authorized to solicit, as agent on behalf of
the Fund, unconditional orders for purchases of the Fund's
Shares authorized for issuance and registered under SA-33,
provided that:
(1) Distributor shall act solely as a disclosed agent
on behalf of and for the account of the Fund;
(2) In all cases except for orders transmitted through
the FundSERV/NSCC system, the Fund or its transfer
agent shall receive directly from investors all
payments for the purchase of the Fund's Shares and
also shall pay directly to shareholders amounts
due to them for the redemption or repurchase of
all the Fund's Shares with Distributor having no
rights or duties to accept such payment or to
effect such redemptions or repurchases;
(3) The Distributor shall receive directly from
financial intermediaries which trade through the
FundSERV/NSCC system all payments for the purchase
of the Fund's Shares and shall also cause to be
paid directly to such intermediaries amounts due
to them for the redemption or repurchase of all
the Fund's Shares. The Distributor shall be
acting as the Fund's agent in accepting payment
for the orders and not be acting in a principal
capacity.
(4) Distributor shall confirm all orders received for
purchase of the Fund's Shares which confirmation
shall clearly state (i) that Distributor is acting
as agent of the Fund in the transaction (ii) that
all certificates for redemption, remittances, and
registration instructions should be sent directly
to the Fund, and (iii) the Fund's mailing address;
(5) Distributor shall have no liability for payment
for purchases of the Fund's Shares it sells as
agent; and
(5) Each order to purchase Shares of the Fund received
by Distributor shall be subject to acceptance by
an officer of the Fund in Chicago and entry of the
order on the Fund's records or shareholder
accounts and is not binding until so accepted and
entered.
The purchase price to the public of the Fund's Shares
shall be the public offering price as defined in Paragraph 6
hereof.
(b) In consideration of the rights granted to the
Distributor under this Agreement, Distributor will use its
best efforts (but only in states in which Distributor may
lawfully do so) to solicit from investors unconditional
orders to purchase Shares of the Fund. The Fund shall make
available to the Distributor without cost to the Distributor
such number of copies of the Fund's currently effective
Prospectus and Statement of Additional Information and
copies of all information, financial statements and other
papers which the Distributor may reasonably request for use
in connection with the distribution of Shares.
3.A. Selling Agreements. Distributor is authorized,
as agent on behalf of each Fund, to enter into agreements
with other broker-dealers providing for the solicitation of
unconditional orders for purchases of Fund's Shares
authorized for issuance and registered under SA-33. All
such agreements shall be either in the form of agreement
attached hereto or in such other form as may be approved by
the officers of the Fund ("Selling Agreement"). All
solicitations made by other broker-dealers pursuant to a
Selling Agreement shall be subject to the same terms of this
Agreement which apply to solicitations made by Distributor.
4. Solicitation of Orders to Purchase Shares by Fund.
The rights granted to the Distributor shall be non-exclusive
in that the Fund reserves the right to solicit purchases
from, and sell its Shares to, investors. Further, the Fund
reserves the right to issue Shares in connection with the
merger or consolidation of any other investment company,
trust or personal holding company with the Fund, or the
Fund's acquisition, by the purchase or otherwise, of all or
substantially all of the assets of an investment company,
trust or personal holding company, or substantially all of
the outstanding shares or interests of any such entity. Any
right granted to Distributor to solicit purchases of Shares
will not apply to Shares that may be offered by the Fund to
shareholders by virtue of their being shareholders of the
Fund.
5. Shares Covered by this Agreement. This Agreement
relates to the solicitation of orders to purchase Shares
that are duly authorized and registered and available for
sale by the Fund, including redeemed or repurchased Shares
if and to the extent that they may be legally sold and if,
but only if, the Fund authorizes the Distributor to sell
them.
6. Public Offering Price. All solicitations by the
Distributor pursuant to this Agreement shall be for orders
to purchase Shares of the Fund at the public offering price.
The public offering price for each accepted subscription for
the Fund's Shares will be the net asset value per share next
determined by the Fund after it accepts such subscription.
The net asset value per share shall be determined in the
manner provided in the Fund's Agreement and Declaration of
Trust as now in effect or as they may be amended, and as
reflected in the Fund's then current Prospectus and
Statement of Additional Information.
7. Suspension of Sales. If and whenever the
determination of the Fund's net asset value is suspended and
until such suspension is terminated, no further orders for
Shares shall be accepted by the Fund except such
unconditional orders placed with the Fund and accepted by it
before the suspension. In addition, the Fund reserves the
right to suspend sales of Shares if, in the judgement of the
Board of the Fund, it is in the best interest of the Fund to
do so, such suspension to continue for such period as may be
determined by the Board of the Fund; and in that event, (i)
at the direction of the Fund, Distributor shall suspend its
solicitation of orders to purchase Shares of the Fund until
otherwise instructed by the Fund and (ii) no orders to
purchase Shares shall be accepted by the Fund while such
suspension remains in effect unless otherwise directed by
its Board.
8. Authorized Representations. No Fund is authorized
by the Distributor to give on behalf of the Distributor any
information or to make any representations other than the
information and representations contained in the Fund's
registration statement filed with the SEC under SA-33 and/or
ICA-40 as it may be amended from time to time.
Distributor is not authorized by the Fund to give on
behalf of the Fund any information or to make any
representations in connection with the sale of Shares other
than the information and representations contained in the
Fund's registration statement filed with the SEC under SA-33
and/or ICA-40, covering Shares, as such registration
statement or the Fund's prospectus may be amended or
supplemented from time to time, or contained in shareholder
reports or other material that may be prepared by or on
behalf of the Fund or approved by the Fund for the
Distributor's use. No person other than Distributor is
authorized to act as principal underwriter (as such term is
defined in ICA-40, as amended) for the Funds.
9. Registration of Additional Shares. The Fund hereby
agrees to register either (i) an indefinite number of Shares
pursuant to Rule 24f-2 under ICA-40, or (ii) a definite
number of Shares as the Fund shall deem advisable pursuant
to Rule 24e-2 under ICA-40, as amended. The Fund will, in
cooperation with the Distributor, take such action as may be
necessary from time to time to qualify the Shares (so
registered or otherwise qualified for sale under SA-33), in
any state mutually agreeable to the Distributor and the
Fund, and to maintain such qualification; provided, however,
that nothing herein shall be deemed to prevent the Fund from
registering its shares without approval of the Distributor
in any state it deems appropriate.
10. Conformity With Law. Distributor agrees that in
soliciting orders to purchase Shares it shall duly conform
in all respects with applicable federal and state laws and
the rules and regulations of the NASD. Distributor will use
its best efforts to maintain its Registrations in good
standing during the term of this Agreement and will promptly
notify the Fund and Stein Roe & Farnham Incorporated in the
event of the suspension or termination of any of the
Registrations.
11. Independent Contractor. Distributor shall be an
independent contractor and neither the Distributor, nor any
of its officers, directors, employees, or representatives is
or shall be an employee of the Fund in the performance of
Distributor's duties hereunder. Distributor shall be
responsible for its own conduct and the employment, control,
and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents and
employees and agrees to pay all employee taxes thereunder.
12. Indemnification. Distributor agrees to indemnify
and hold harmless the Fund and each of the members of its
Board and its officers, employees and representatives and
each person, if any, who controls the Fund within the
meaning of Section 15 of SA-33 against any and all losses,
liabilities, damages, claims and expenses (including the
reasonable costs of investigating or defending any alleged
loss, liability, damage, claim or expense and reasonable
legal counsel fees incurred in connection therewith) to
which the Fund or such of the members of its Board and of
its officers, employees, representatives, or controlling
person or persons may become subject under SA-33, under any
other statute, at common law, or otherwise, arising out of
the acquisition of any Shares of the Fund by any person
which (i) may be based upon any wrongful act by Distributor
or any of Distributor's directors, officers, employees or
representatives, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact
contained in a registration statement, Prospectus, Statement
of Additional Information, shareholder report or other
information covering Shares of the Fund filed or made public
by the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading if such statement
or omission was made in reliance upon information furnished
to the Fund by Distributor in writing. In no case (i) is
Distributor's indemnity in favor of the Fund, or any person
indemnified, to be deemed to protect the Fund or such
indemnified person against any liability to which the Fund
or such person would otherwise be subject by reason of
willful misfeasance, bad faith, or negligence in the
performance of its or his duties or by reason of its or his
reckless disregard of its or his obligations and duties
under this Agreement or (ii) is Distributor to be liable
under its indemnity agreement contained in this paragraph
with respect to any claim made against the Fund or any
person indemnified unless the Fund or such person, as the
case may be, shall have notified Distributor in writing of
the claim within a reasonable time after the summons, or
other first written notification, giving information of the
nature of the claim served upon the Fund or upon such person
(or after the Fund or such person shall have received notice
of such service on any designated agent). However, failure
to notify Distributor of any such claim shall not relieve
Distributor from any liability which Distributor may have to
the Fund or any person against whom such action is brought
otherwise than on account of Distributor's indemnity
agreement contained in this Paragraph.
Distributor shall be entitled to participate, at its
own expense, in the defense, or, if Distributor so elects,
to assume the defense of any suit brought to enforce any
such claim but, if Distributor elects to assume the defense,
such defense shall be conducted by legal counsel chosen by
Distributor and satisfactory to the persons indemnified who
are defendants in the suit. In the event that Distributor
elects to assume the defense of any such suit and retain
such legal counsel, persons indemnified who are defendants
in the suit shall bear the fees and expenses of any
additional legal counsel retained by them. If Distributor
does not elect to assume the defense of any such suit,
Distributor will reimburse persons indemnified who are
defendants in such suit for the reasonable fees of any legal
counsel retained by them in such litigation.
The Fund agrees to indemnify and hold harmless
Distributor and each of its directors, officers, employees,
and representatives and each person, if any, who controls
Distributor within the meaning of Section 15 of SA-33
against any and all losses, liabilities, damages, claims or
expenses (including the damage, claim or expense and
reasonable legal counsel fees incurred in connection
therewith) to which Distributor or such of its directors,
officers, employees, representatives or controlling person
or persons may become subject under SA-33, under any other
statute, at common law, or otherwise arising out of the
acquisition of any Shares by any person which (i) may be
based upon any wrongful act by the Fund or any of the
members of the Fund's Board, or the Fund's officers,
employees or representatives other than Distributor, or (ii)
may be based upon any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, Prospectus, Statement of Additional Information,
shareholder report or other information covering Shares
filed or made public by the Fund or any amendment thereof or
supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading
unless such statement or omission was made in reliance upon
information furnished by Distributor to the Fund. In no
case (i) is the Fund's indemnity in favor of the Distributor
or any person indemnified to be deemed to protect the
Distributor or such indemnified person against any liability
to which Distributor or such indemnified person would
otherwise be subject by reason of willful misfeasance, bad
faith, or negligence in the performance of its or his duties
or by reason of its or his reckless disregard of its or his
obligations and duties under this Agreement, or (ii) is the
Fund to be liable under its indemnity agreement contained in
this Paragraph with respect to any claim made against
Distributor or any person indemnified unless Distributor, or
such person, as the case may be, shall have notified the
Fund in writing of the claim within a reasonable time after
the summons, or other first written notification, giving
information of the nature of the claim served upon
Distributor or upon such person (or after Distributor or
such person shall have received notice of such service on
any designated agent). However, failure to notify a Fund of
any such claim shall not relieve the Fund from any liability
which the Fund may have to Distributor or any person against
whom such action is brought otherwise than on account of the
Fund's indemnity agreement contained in this Paragraph.
The Fund shall be entitled to participate, at its own
expense, in the defense or, if the Fund so elects, to assume
the defense of any suit brought to enforce such claim but,
if the Fund elects to assume the defense, such defense shall
be conducted by legal counsel chosen by the Fund and
satisfactory to the persons indemnified who are defendants
in the suit. In the event that the Fund elects to assume
the defense of any such suit and retain such legal counsel,
the persons indemnified who are defendants in the suit shall
bear the fees and expenses of any additional legal counsel
retained by them. If the Fund does not elect to assume the
defense of any such suit, the Fund will reimburse the
persons indemnified who are defendants in such suit for the
reasonable fees and expenses of any legal counsel retained
by them in such litigation.
13. Duration and Termination of this Agreement. With
respect to the Fund and the Distributor, this Agreement
shall become effective upon its execution ("Effective Date")
and unless terminated as provided herein, shall remain in
effect through June 30, 1998, and from year to year
thereafter, but only so long as such continuance is
specifically approved at least annually (a) by a vote of
majority of the members of the Board of the Fund who are not
interested persons of the Distributor or of the Fund, voting
in person at a meeting called for the purpose of voting on
such approval, and (b) by the vote of either the Board of
the Fund or a majority of the outstanding shares of the
Fund. This Agreement may be terminated by and between an
individual Fund and Distributor at any time, without the
payment of any penalty (a) on 60 days' written notice, by
the Board of the Fund or by a vote of a majority of the
outstanding Shares of the Fund, or by Distributor, or (b)
immediately, on written notice by the Board of the Fund, in
the event of termination or suspension of any of the
Registrations. This Agreement will automatically terminate
in the event of its assignment. In interpreting the
provisions of this Paragraph 13, the definitions contained
in Section 2(a) of ICA-40 (particularly the definitions of
"interested person", "assignment", and "majority of the
outstanding shares") shall be applied.
14. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged, or terminated
orally, but only by an instrument in writing signed by each
party against which enforcement of the change, waiver,
discharge, or termination is sought. If the Fund should at
any time deem it necessary or advisable in the best
interests of the Fund that any amendment of this Agreement
be made in order to comply with the recommendations or
requirements of the SEC or any other governmental authority
or to obtain any advantage under state or Federal tax laws
and notifies Distributor of the form of such amendment, and
the reasons therefor, and if Distributor should decline to
assent to such amendment, the Fund may terminate this
Agreement forthwith. If Distributor should at any time
request that a change be made in the Fund's Agreement and
Declaration of Trust or By-Laws or in its methods of doing
business, in order to comply with any requirements of
Federal law or regulations of the SEC, or of a national
securities association of which Distributor is or may be a
member, relating to the sale of Shares, and the Fund should
not make such necessary changes within a reasonable time,
Distributor may terminate this Agreement forthwith.
15. Liability. It is understood and expressly
stipulated that neither the shareholders of the Fund nor the
members of the Board of the Fund shall be personally liable
hereunder. The obligations of the Fund are not personally
binding upon, nor shall resort to the private property of,
any of the members of the Board of the Fund, nor of the
shareholders, officers, employees or agents of the Fund, but
only the Fund's property shall be bound. A copy of the
Declaration of Trust and of each amendment thereto has been
filed by the Trust with the Secretary of State of The
Commonwealth of Massachusetts and with the Clerk of the City
of Boston, as well as any other governmental office where
such filing may from time to time be required.
16. Miscellaneous. The captions in this Agreement are
included for convenience or reference only, and in no way
define or limit any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
17. Notice. Any notice required or permitted to be
given by a party to this Agreement or to any other party
hereunder shall be deemed sufficient if delivered in person
or sent by registered or certified mail, postage prepaid,
addressed by the party giving notice to each such other
party at the address provided below or to the last address
furnished by each such other party to the party giving
notice.
If to the Fund: One South Wacker Drive
Chicago, Illinois 60606
Attn: Secretary
If to Distributor: One Financial Center
Boston, Massachusetts 02111
Attn: Secretary
If to Stein Roe & Farnham
Incorporated: One South Wacker Drive
Chicago, Illinois 60606
Attn: Secretary
LIBERTY FINANCIAL INVESTMENTS, INC.
By: TIMOTHY K. ARMOUR
ATTEST:
MARJORIE M. PLUSKOTA
Assistant Clerk
STEIN ROE INCOME TRUST
STEIN ROE INVESTMENT TRUST
STEIN ROE MUNICIPAL TRUST
STEIN ROE TRUST
STEIN ROE INSTITUTIONAL TRUST
By: HANS P. ZIEGLER
ATTEST:
NICOLETTE D. PARRISH
Asst. Secretary
ACKNOWLEDGED BY: STEIN ROE & FARNHAM INCORPORATED
By: HANS P. ZIEGLER
Chief Executive Officer
ATTEST:
NICOLETTE D. PARRISH
Asst. Secretary
<PAGE>
Revised Exhibit A to Underwriting Agreement
Between Stein Roe Investment Trust, Stein Roe Income Trust,
Stein Roe Municipal Trust, Stein Roe Trust and Stein Roe
Institutional Trust and
Liberty Financial Investments, Inc.
STEIN ROE INCOME TRUST STEIN ROE INVESTMENT TRUST
Stein Roe Income Fund Stein Roe Growth & Income Fund
Stein Roe High Yield Fund Stein Roe International Fund
Stein Roe Intermediate Bond Stein Roe Young Investor Fund
Fund Stein Roe Special Venture Fund
Stein Roe Cash Reserves Fund Stein Roe Balanced Fund
Stein Roe Growth Stock Fund
Stein Roe Capital
Opportunities Fund
STEIN ROE MUNICIPAL TRUST Stein Roe Special Fund
Stein Roe Managed Municipals Stein Roe Emerging Markets
Fund Fund
Stein Roe Municipal Money Stein Roe Growth
Market Fund Opportunities Fund
Stein Roe High Yield Municipals
Fund
Stein Roe Intermediate
Municipals Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
<PAGE>
Date _____________
LIBERTY FINANCIAL INVESTMENTS, INC.
STEIN ROE ____ FUND
SELLING AGREEMENT
Dear Sirs:
As the principal underwriter of Stein Roe ____ Fund
(the "Fund"), a series of Stein Roe _____ Trust (the
"Trust"), a Massachusetts business trust registered under
the Investment Company Act of 1940 as an open-end investment
company, we invite you as agent for your customer to
participate in the distribution of shares of beneficial
interest in the Fund ("Shares"), subject to the following
terms and conditions:
1. We hereby grant to you the right to make Shares
available to, and to solicit orders to purchase Shares by,
the public, subject to applicable federal and state law, the
Agreement and Declaration of Trust and By-laws of the Trust,
and the current Prospectus and Statement of Additional
Information relating to the Fund attached hereto (the
"Prospectus"). You will forward to us or to the Trust's
transfer agent, as we may direct from time to time, all
orders for the purchase of Shares obtained by you, subject
to such terms and conditions as to the form of payment,
minimum initial and subsequent purchase and otherwise, and
in accordance with such procedures and directions, as we may
specify from time to time. All orders are subject to
acceptance by an authorized officer of the Trust in Chicago
and the Trust reserves the right in its sole discretion to
reject any order. Share purchases are not binding on the
Trust until accepted and entered on the books of the Fund.
No Share purchase shall be effective until payment is
received by the Trust in the form of Federal funds. If a
Share purchase by check is cancelled because the check does
not clear, you will be responsible for any loss to the Fund
or to us resulting therefrom.
2. The public offering price of the Shares shall be
the net asset value per share of the outstanding Shares
determined in accordance with the then current Prospectus.
No sales charge shall apply.
3. As used in this Agreement, the term "Registration
Statement" with regard to the Fund shall mean the
Registration Statement most recently filed by the Trust with
the Securities and Exchange Commission and effective under
the Securities Act of 1933, as such Registration Statement
is amended by any amendments thereto at the time in effect,
and the terms "prospectus" and "statement of additional
information" with regard to the Fund shall mean the form of
prospectus and statement of additional information relating
to the Fund as attached hereto filed by the Trust as part of
the Registration Statement, as such form of prospectus and
statement of additional information may be amended or
supplemented from time to time.
4. You hereby represent that you are and will remain
during the term of this Agreement duly registered as a
broker-dealer under the Securities Exchange Act of 1934 and
under the securities laws of each state where your
activities require such registration, and that you are and
will remain during the term of this Agreement a member in
good standing of the National Association of Securities
Dealers, Inc. ("NASD"). In the conduct of your activities
hereunder, you will abide by all applicable rules and
regulations of the NASD, including, without limitation, Rule
26 of the Rules of Fair Practice of the NASD as in effect
form time to time, and all applicable federal and state
securities laws, including without limitation, the
prospectus delivery requirements of the Securities Act of
1933.
5. This Agreement is subject to the right of the Trust
at any time to withdraw all offerings of the Shares by
written notice to us at our principal office. You
acknowledge that the Trust will not issue certificates
representing Shares.
6. Your obligations under this Agreement are not to be
deemed exclusive, and you shall be free to render similar
services to others so long as your services hereunder are
not impaired thereby.
7. You will sell Shares only to residents of states or
other jurisdictions where we have notified you that the
Shares have been registered or qualified for sale to the
public or are exempt from such qualification or
registration. Neither we nor the Trust will have any
obligation to register or qualify the Shares in any
particular jurisdiction. We shall not be liable or
responsible for the issue, form validity, enforceability or
value of the Shares or for any matter in connection
therewith, except lack of good faith on our part, and no
obligation not expressly assumed by us in this Agreement
shall be implied therefrom. Nothing herein contained,
however, shall be deemed to be a condition, stipulation or
provision binding any person acquiring any Shares to waive
compliance with any provision of the Securities Act of 1933,
or to relieve the parties hereto from any liability arising
thereunder.
8. You are not authorized to make any representations
concerning the Fund, the Trust or the Shares except those
contained in the then current prospectus and statement of
additional information relating to the Fund, or printed
information issued by the Trust or by us as information
supplemental to such prospectus and statement of additional
information. We will supply you with a reasonable number of
copies of the then current prospectus and statement of
additional information of the Fund, and reasonable
quantities of any supplemental sales literature, sales
bulletins, and additional information as may be issued by us
or the Trust. You will not use any advertising or sales
material relating to the Fund other than materials supplied
by the Trust or us, unless such other material is approved
in writing by us in advance of such use.
9. You will not have any authority to act as agent for
the Trust, for us or for any other dealer. All transactions
between you and us contemplated by this Agreement shall be
as agents.
10. Either party to this Agreement may terminate this
Agreement by giving written notice to the other. Such
notice shall be deemed to have been given on the date on
which it is either delivered personally to the other party,
is mailed postpaid or delivered by telecopier to the other
party at its address listed below. This Agreement may be
amended by us at any time, and your placing of an order
after the effective date of any such amendment shall
constitute your acceptance thereof.
Liberty Financial Investments, Inc. Dealer
One Financial Center ________________
Boston, Massachusetts 02211 ________________
Attention: ________________ ________________
Telecopier: _______________
with copy to:
Stein Roe _____ Trust
One South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
Telecopier: ________
11. This Agreement constitutes the entire agreement
between you and us relating to the subject matter hereof and
supersedes all prior or written agreements between us. This
Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts and shall be binding upon
both parties hereto when signed by us and accepted by you in
the space provided below.
Very truly yours,
LIBERTY FINANCIAL INVESTMENTS, INC.
BY: ____________________
The undersigned hereby accepts your invitation to
participate in the distribution of Shares and agrees to each
of the terms and conditions set forth in this letter.
___________________________
Dealer
Date: ____________________ By: _______________________
(Signature of Officer)
Pay Office of Dealer:
__________________________ ___________________________
Street Address (Print Name of Officer)
__________________________
City/State/Zip
__________________________
Telephone Number
<PAGE>
EXHIBIT (h)(4)
SUB-TRANSFER AGENT AGREEMENT
Agreement dated as of July 3, 1996, between SteinRoe
Services Inc. ("SSI"), a Massachusetts corporation, for
itself and on behalf SteinRoe Municipal Trust, SteinRoe
Income Trust and SteinRoe Investment Trust, each a
Massachusetts business trust (all referred to herein as the
"Trust") comprised of the series of portfolios listed in
Schedule A (as the same may from time to time be amended to
add or to delete one or more series, all referred to herein
as the "Fund"), and Colonial Investors Service Center, Inc.
("CISC"), a Massachusetts corporation.
WHEREAS, the Trust has appointed SSI as Transfer Agent,
Registrar and Dividend Disbursing Agent for the Fund, a
registered investment company, pursuant to Restated Agency
Agreement dated August 1, 1995 ("Transfer Agent Agreement");
WHEREAS, SSI is a registered transfer agent duly
authorized to appoint CISC as its agent for purposes of
performing certain transfer agency, registration and dividend
disbursement services in respect of the Trust;
WHEREAS, CISC desires to accept such appointment and to
perform such services upon the terms and subject to the
conditions set forth herein; and
WHEREAS, Stein Roe & Farnham, Inc. ("SRF") is the
investment adviser to the Fund and Liberty Securities
Corporation is the principal underwriter of its shares.
NOW THEREFORE, in consideration of the mutual promises
and covenants set forth herein, the parties hereto agree as
follows:
1. Appointment. SSI hereby appoints CISC to act as its
agent in respect of the purchase, redemption and transfer of
Fund shares and dividend disbursing services in connection
with such shares other than with respect to Fund shares (a)
held under Stein Roe Counselor [service mark] for which SSI
shall perform such services and (b) held in omnibus accounts
with respect to which such services are performed by third
party financial institutions as described in the Fund's
Prospectus from time to time. CISC accepts such appointments
and will perform the duties and functions described herein in
the manner hereinafter set forth. In respect of its duties
and obligations pursuant to this Agreement, CISC will act as
agent of SSI and not as agent of the Trust nor the Fund.
CISC agrees to provide the necessary facilities,
equipment and personnel to perform its duties and obligations
hereunder in accordance with the practice of transfer agents
of investment companies registered with the Securities and
Exchange Commission and in compliance with all laws
applicable to mutual fund transfer agents and the Fund.
<PAGE> 2
CISC agrees that it shall perform usual and ordinary
services as transfer agent, registrar and dividend disbursing
agent, which are necessary and appropriate for investment
companies registered with the Securities and Exchange
Commission, except as otherwise specifically excluded herein,
including but not limited to: receiving and processing
payments for purchases of Fund shares, opening shareholder
accounts, receiving and processing requests for liquidation
of Fund shares , transferring and canceling stock
certificates, maintaining all shareholder accounts, preparing
annual shareholder meetings lists, corresponding with
shareholders regarding transaction rejections, providing
order room services to brokers, withholding taxes on
accounts, disbursing income dividends and capital gains
distributions, preparing and filing U.S. Treasury Department
Form 1099 for shareholders, preparing and mailing
confirmation forms to shareholders for all purchases and
liquidations of Fund shares and other confirmable
transactions in shareholder accounts, recording reinvestment
of dividends and distributions in Fund shares, and causing
liquidation of shares and disbursements to be made to
withdrawal plan holders. The services to be performed by
CISC under this Agreement may be set forth in a procedures
manual and other documents as mutually agreed to by CISC and
SSI. Specifically excluded from the services to be provided
by CISC are the following: mailing proxy materials,
receiving and tabulating proxies, mailing shareholder reports
and prospectuses, account research, shareholder
correspondence and telephone services regarding general
inquiries, information requests and all other matters except
transaction rejections, all of which SRS agrees to continue
to perform directly on behalf of the Trust and the Fund.
2. Fees and Charges. SSI will pay CISC for the services
provided hereunder in accordance with and in the manner set
forth in Schedule B to this Agreement.
3. Representations and Warranties of CISC. CISC
represents and warrants to SSI that:
(a) It is a corporation duly organized and existing in
good standing under the laws of the Commonwealth of
Massachusetts;
(b) It is duly qualified to carry on its business in the
Commonwealth of Massachusetts;
(c) It is empowered under applicable state and federal
laws and by its Articles of Organization and By-Laws
to enter into and perform the services contemplated
by this Agreement and it is in compliance and shall
continue during the term of this Agreement to be in
compliance with all such applicable laws;
(d) All requisite corporate proceedings have been taken
to authorize it to enter into and perform this
Agreement;
(e) It has and shall continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement; and
<PAGE> 3
(f) It has filed a Registration Statement on SEC Form TA-
1 and will file timely an amendment to same
respecting this Sub-Transfer Agent Agreement with the
Securities and Exchange Commission, it is duly
registered as a transfer agent as provided in Section
17Ac of the Securities and Exchange Act of 1934, and
it will remain so registered and will comply with all
state and federal laws and regulations relating to
transfer agents throughout the term of this
Agreement.
4. Representations and Warranties of SSI. SSI
represents and warrants to CISC that:
(a) It is a corporation duly organized and existing in
good standing under the laws of the Commonwealth of
Massachusetts;
(b) It is duly qualified to carry on its business in the
State of Illinois;
(c) It is empowered under applicable state and federal
laws and by its Articles of Organization and By-Laws
to enter into and perform the services contemplated
in this Agreement and in the Transfer Agent Agreement
and it is in compliance and shall continue during the
term of this Agreement to be in compliance with the
Transfer Agent Agreement and all such applicable
laws;
(d) All requisite corporate proceedings have been taken
to authorize it to enter into and perform this
Agreement;
(e) It has and shall continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement and the Transfer Agent Agreement; and
(f) It has filed a Registration Statement on SEC Form TA-
1 and will file timely an amendment to same
respecting this Sub-Transfer Agent Agreement with the
Securities and Exchange Commission; it is duly
registered as a Transfer Agent as provided in Section
17Ac of the Securities Exchange Act of 1934; and it
will remain so registered and comply with all state
and federal laws and regulations relating to transfer
agents throughout the term of this Agreement.
5. Representations and Warranties of the Trust. The
Trust represents and warrants to CISC that:
(a) It is a business trust duly organized and existing
and in good standing under the laws of the State of
Massachusetts;
(b) The Fund is an open-end diversified management
investment company registered under the Investment
Company Act of 1940;
<PAGE> 4
(c) Registration statements under the Securities Act of
1933 and applicable state laws are currently
effective and will remain effective at all times with
respect to all shares of the Fund being offered for
sale;
(d) The Trust is empowered under applicable laws and
regulations and by its Agreement and Declaration of
Trust and By-Laws to enter into and perform this
Agreement; and
(e) All requisite proceedings and actions have been
taken to authorize it to enter into and perform this
Agreement.
6. Copies of Documents. SSI promptly from time to time
will furnish CISC with copies of the following Trust and Fund
documents and all amendments or supplements thereto: the
Agreement and Declaration of Trust ; the By-Laws; and the
Registration Statement under Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended,
together with any other information reasonably requested by
CISC. The Prospectus and Statement of Additional Information
contained in such Registration Statement, as from time to
time amended and supplemented, are herein collectively
referred to as the "Fund's Prospectus."
On or before the date of effectiveness of this
Agreement, or as soon thereafter as is reasonably
practicable, and from time-to-time thereafter, SSI will
furnish CISC with certified copies of the resolutions of the
Trustees of the Trust authorizing this Agreement and
designating authorized persons to give instructions to CISC;
if applicable, a specimen of the certificate for shares of
the Fund in the form approved by the Trustees of the Trust,
with a certificate of the Secretary of the Trust as to such
approval; and certificates as to any change in any officer,
director, or authorized person of the SSI and the Trust.
7. Share Certificates. The Fund has resolved that all
of the Fund's shares shall hereafter be issued in
uncertificated form. Thus, CISC shall not be responsible for
the issuance of certificates representing shares in the Fund.
However, CISC shall maintain a record of each certificate
previously issued and outstanding, the number of shares
represented thereby, and the holder of record of such shares.
8. Lost or Destroyed Certificates. In case of the
alleged loss or destruction of any share certificate, no new
certificate shall be issued in lieu thereof, unless there
shall first be furnished to CISC an affidavit of loss or non-
receipt by the holder of shares with respect to which a
certificate has been lost or destroyed, supported by an
appropriate bond paid for by the shareholder which is
satisfactory to CISC and issued by a surety company
satisfactory to CISC. CISC shall place and maintain stop
transfer instructions on all lost certificates as to which it
receives notice.
9. Receipt of Funds for Investment. CISC will maintain
one or more accounts with The First National Bank of Boston
("Bank"),in the name of SSI into which
<PAGE> 5
it will deposit funds payable to CISC or SSI as agent for, or
otherwise identified as being for the account of, the Trust
or the Fund.
10. Shareholder Accounts. Upon receipt of any funds
referred to in paragraph 9, CISC will compute the number of
shares purchased by the shareholder according to the net
asset value of Fund shares determined in accordance with
applicable federal laws and regulations and as described in
the Prospectus of the Fund and:
(a) In the case of a new shareholder, open and maintain
an open account for such shareholder in the name or
names set forth in the subscription application form;
(b) Send to the shareholder a confirmation indicating the
amount of full and fractional shares purchased (in
the case of fractional shares, rounded to three
decimal places) and the price per share;
(c) In the case of a request to establish a plan or
program being offered by the Fund's Prospectus, open
and maintain such plan or program for the shareholder
in accordance with the terms thereof; and
(d) Perform such other services and initiate and maintain
such other books and records as are customarily
undertaken by transfer agents in maintaining
shareholder accounts for registered investment
company investors;
all subject to requirements set forth in the Fund's
Prospectus with respect to rejection of orders.
For closed accounts, CISC will maintain account records
through June of the calendar year following the year in which
the account is closed, or such other period of time as CISC
and SSI shall mutually agree in writing from time to time.
11. Unpaid Checks; Accounts Assigned for Collection.
If any check or other order for payment of money on the
account of any shareholder or new investor is returned unpaid
for any reason, CISC will:
(a) Give prompt notification to SRS of such non-payment
by facsimile sent prior to 9 a.m. E.S.T.; and
(b) Upon SSI's written instruction, received by facsimile
delivery not later than 11 a.m. E.S.T., authorize
payment of such order notwithstanding insufficient
shareholder account funds, on the condition that SSI
shall indemnify CISC and payor bank in respect of
such payment.
12. Dividends and Distributions. SSI will promptly
notify CISC of the declaration of any dividend or
distribution with respect to Fund shares, the amount of
<PAGE> 6
such dividend or distribution, the date each such dividend or
distribution shall be paid, and the record date for
determination of shareholders entitled to receive such
dividend or distribution. As dividend disbursing agent, CISC
will, on or before the payment date of any such dividend or
distribution, notify the Trust's custodian of the estimated
amount of cash required to pay such dividend or distribution,
and the Trust agrees that on or before the mailing date of
such dividend or distribution it will instruct its custodian
to make available to CISC sufficient funds in the dividend
and distribution account maintained by CISC with the Bank.
As dividend disbursing agent, CISC will prepare and
distribute to shareholders any funds to which they are
entitled by reason of any dividend or distribution and, in
the case of shareholders entitled to receive additional
shares by reason of any such dividend or distribution, CISC
will make appropriate credits to their accounts and cause to
be prepared and mailed to shareholders confirmation
statements and, of such additional shares. CISC will maintain
all records necessary to reflect the crediting of dividends
and distributions which are reinvested in shares of the Fund.
13. Redemptions. CISC will receive and process for
redemption in accordance with the Fund's Prospectus, share
certificates and requests for redemption of shares as
follows:
(a) If such certificate or request complies with
standards for redemption, CISC will, in accordance
with the Fund's current Prospectus, pay to the
shareholder from funds deposited by the Fund from
time to time in the redemption account maintained by
CISC with the Bank, the appropriate redemption price
as set forth in the Fund's Prospectus; and
(b) If such certificate or request does not comply with
the standards for redemption, CISC will promptly
notify the shareholder and shall effect the
redemption at the price in effect at the time of
receipt of documents complying with the standard.
14. Transfer and Exchanges. CISC will review and
process transfers of shares of the Fund and to the extent, if
any, permitted in the Prospectus of the Fund, exchanges
between series of the Trust received by CISC. If shares to
be transferred are represented by outstanding certificates,
CISC will, upon surrender to it of the certificates in proper
form for transfer, credit the same to the transferee on its
books. If shares are to be exchanged for shares of another
Fund, CISC will process such exchange in the same manner as a
redemption and sale of shares, in accordance with the Fund's
Prospectus may in its.
15. Plans. CISC will process such plans or programs
for investing in shares, and such systematic withdrawal
plans, as are provided for in the Fund's Prospectus.
16. Tax Returns and Reports. CISC will prepare and
file tax returns and reports with the Internal Revenue
Service and any other federal, state or local governmental
agency which may require such filings, including state
abandoned
<PAGE> 7
property laws, and conduct appropriate communications
relating thereto, and, if required, mail to shareholders such
forms for reporting dividends and distributions paid by the
Fund as are required by applicable laws, rules and
regulations, and CISC will withhold such sums as are required
to be withheld under applicable Federal and state income tax
laws, rules and regulations. CISC will periodically provide
SSI with reports showing dividends and distributions paid and
any amounts withheld. CISC will also make reasonable attempt
to obtain such tax withholding information from shareholders
as is required to be obtained on behalf of the Trust under
applicable federal or state laws.
17. Record Keeping. CISC will maintain records, which
at all times will be the property of the Trust and available
for inspection by SSI, showing for each shareholder's account
the following information and such other information as CISC
and SSI shall mutually agree in writing from time to time:
(a) Name, address, and United States taxpayer
identification or Social Security number, if provided
(or amounts withheld with respect to dividends and
distributions on shares if a taxpayer identification
or Social Security number is not provided);
(b) Number of shares held for which certificates have not
been issued and for which certificates have been
issued;
(c) Historical information regarding the account of each
shareholder, including dividends and distributions
paid, if any, gross proceeds of sales transactions,
and the date and price for transactions on a
shareholder's account;
(d) Any stop or restraining order placed against a
shareholder's account of which SSI has notified CISI;
(e) Information with respect to withholdings of taxes as
required under applicable Federal and state laws and
regulations;
(f) Any capital gain or dividend reinvestment order and
plan application relating to the current maintenance
of a shareholder's account; and
(g) Any instructions as to record addresses and any
correspondence or instructions relating to the
current maintenance of a shareholder's account.
SSI hereby agrees that CISC shall have no liability or
obligation with respect to the accuracy or completeness of
shareholder account information received by CISC on or about
the Operational Date.
<PAGE> 8
By mutual agreement of CISC and SSI, CISC shall
administer a program whereby reasonable attempt is made to
identify current address information from shareholders whose
mail from the Trust is returned.
CISC shall maintain at its expense those records
necessary to carry out its duties under this Agreement. In
addition, CISC shall maintain at its expense for periods
prescribed by law all records which the Fund or CISC is
required to keep and maintain pursuant to any applicable
statute, rule or regulation, including without limitation
Rule 31(a)-1 under the Investment Company Act of 1940,
relating to the maintenance of records in connection with the
services to be provided hereunder. Upon mutual agreement of
CISC and SSI, CISC shall also maintain other records
requested from time to time by SSI, at SSI's expense.
At the end of the period in which records must be
retained by law, such records and documents will either be
provided to the Trust or destroyed in accordance with prior
written authorization from the Trust.
18. Retirement Plan Services. CISC shall provide sub-
accounting services for retirement plan shareholders
representing group relationships with special recordkeeping
needs.
19. Other Information Furnished. CISC will furnish to
SSI such other information, including shareholder lists and
statistical information as may be agreed upon from time to
time between CISC and SSI. CISC shall notify SSI and the
Trust of any request or demand to inspect the share records
of the Fund, and will not permit or refuse such inspection
until receipt of written instructions from the Trust as to
such permission or refusal unless required by law.
CISC shall provide to the Trust any results of studies
and evaluations of systems of internal accounting controls
performed for the purpose of meeting the requirements of
Regulation 240.17Ad-13(a) of the Securities Exchange Act of
1934.
20. Shareholder Inquiries. CISC will not respond to
written correspondence from fund shareholders or others
relating to the Fund other than those regarding transaction
rejections and clarification of transaction instructions, but
shall forward all such correspondence to SSI.
21. Communications to Shareholders and Meetings. CISC
will determine all shareholders entitled to receive, and will
cause to be addressed and mailed, all communications by the
Fund to its shareholders, including quarterly and annual
reports, proxy material for meetings, and periodic
communications. CISC will cause to be received, examined and
tabulated return proxy cards for meetings of shareholders and
certify the vote to the Trust Fund.
22. Other Services by CISC. CISC shall provide SSI,
with the following additional services:
<PAGE> 9
(a) All CTRAN, CIMAGE, Price Waterhouse Blue Sky 2, and
Pegashares functionality and enhancements (on a
remote basis) as they now exist and as they are
developed and made available to CISC clients;
(b) Initial programs and report enhancements to the CTRAN
System which are necessary to accommodate the Fund as
a no-load fund group;
(c) Development, systems training, technical support,
implementation, and maintenance of special programs
and systems to enhance overall shareholder servicing
capability;
(d) Product and system training for personnel of
institutional servicing agents.
23. Insurance. CISC will not reduce or allow to lapse
any of its insurance coverages from time to time in effect,
including but not limited to errors and omissions, fidelity
bond and electronic data processing coverage, without the
prior written consent of SSI. Attached as Schedule D to this
Agreement is a list of the insurance coverage which CISC has
in effect as of the date of execution of this Agreement and,
if different, will have in effect on the Operational Date.
24. Duty of Care and Indemnification. CISC will at all
times use reasonable care, due diligence and act in good
faith in performing its duties hereunder. CISC will not be
liable or responsible for delays or errors by reason of
circumstances beyond its control, including without
limitation acts of civil or military authority, national or
state emergencies, labor difficulties, fire, mechanical
breakdown, flood or catastrophe, acts of God, insurrection,
war, riots or failure of transportation, communication or
power supply.
CISC may rely on certifications of those individuals
designated as authorized persons to give instructions to CISC
as to proceedings or facts in connection with any action
taken by the shareholders of the Fund or Trustees of the
Trust, and upon instructions not inconsistent with this
Agreement from individuals who have been so authorized. Upon
receiving authorization from an individual designated as an
authorized person to give instructions to CISC, CISC may
apply to counsel for the Trust, or counsel for SSI or the
Fund's investment adviser, at the Fund's expense, for advice.
With respect to any action reasonably taken on the basis of
such certifications or instructions or in accordance with the
advice of counsel of the Trust, or counsel for SSI or the
Fund's investment adviser, the Fund will indemnify and hold
harmless CSC from any and all losses, claims, damages,
liabilities and expenses (including reasonable counsel fees
and expenses).
SSI will indemnify CISC against and hold CISC harmless
from any and all losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) in
respect of any claim, demand, action or suit not resulting
from CISC's bad faith, negligence, lack of due diligence or
willful misconduct and arising out of, or in connection with
its duties under this Agreement.
<PAGE> 10
CISC shall indemnify SSI against and hold SSI harmless
from any and all losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) in
respect to any claim, demand, action or suit resulting from
CISC's bad faith, negligence, lack of due diligence or
willful misconduct, and arising out of, or in connection
with, its duties under this Agreement. For purposes of this
Sub-Transfer Agent Agreement, "lack of due diligence" shall
mean the processing by CISC of a Fund share transaction in
accordance with a practice that is not substantially in
compliance with (1) a transaction processing practice of SSI
approved by Fund Trustees, (2) insurance coverages, or (3)
generally accepted industry practices of mutual fund agents.
CISC shall also be indemnified and held harmless by SSI
against any loss, claim, damage, liability and expenses
(including reasonable counsel fees and expenses) by reason of
any act done by it in good faith with due diligence and in
reasonable reliance upon any instrument or certificate for
shares reasonably believed by it (a) to be genuine and (b) to
be signed, countersigned or executed by any person or persons
authorized to sign, countersign, or execute such instrument
or certificate.
In addition, SSI will indemnify and hold CISC harmless
against any loss, claim, damage, liability and expense
(including reasonable counsel fees and expenses) in respect
of any claim, demand, action or suit as a result of the
negligence of the Fund, Trust SRF or SSI, or as a result of
CISC's acting upon any instructions reasonably believed by
CISC to have been executed or orally communicated by a duly
authorized officer or employee of the Fund, Trust SRF or SSI,
or as a result of acting in reliance upon written or oral
advice reasonably believed by CISC to have been given by
counsel for the Fund, Trust SRF or SSI.
In any case in which a party to this Agreement may be
asked to indemnify or hold harmless the other party hereto,
the party seeking indemnification shall advise the other
party of all pertinent facts concerning the situation giving
rise to the claim or potential claim for indemnification, and
each party shall use reasonable care to identify and notify
the other promptly concerning any situation which presents or
appears likely to present a claim for indemnification.
Prior to admitting to or agreeing to settle any claim subject
to this Section, each party shall give the other reasonable
opportunity to defend against said claim in either party's
name.
25. Employees. CISC and SSI are separately
responsible for the employment, control and conduct of their
respective agents and employees and for injury to such agents
or employees or to others caused by such agents or employees.
CISC and SSI severally assume full responsibility for their
respective agents and employees under applicable statues and
agree to pay all employer taxes thereunder. The conduct of
their respective agents and employees shall be included in
any reference to the conduct of CISC or SSI for all purposes
hereunder.
26. Termination and Amendment. This Agreement shall
continue in effect for eighteen (18) months from the
Operational Date, and will automatically be
<PAGE> 11
renewed for successive one year terms thereafter. After
eighteen (18) months from the Operational Date the Agreement
may be terminated at any time by not less than one hundred
eighty (180) days written notice. Upon termination hereof,
SSI shall pay CISC such compensation as may be due to CISC as
of the date of such termination for services rendered and
expenses incurred, as described in Schedule B. This
Agreement may be modified or amended from time to time by
mutual agreement between SSI and CISC.
27. Successors. In the event that in connection with
termination of this Agreement a successor to any of CISC's
duties or responsibilities hereunder is designated by SSI by
written notice to CISC, CISC shall promptly at the expense of
SSI, transfer to such successor, or if no successor is
designated, transfer to the Trust, a certificate list of the
shareholders of the Fund (with name, address and taxpayer
identification or Social Security number), a historical
record of the account of each shareholder and the status
thereof, all other relevant books, records, correspondence
and other data established or maintained by CISC under this
Agreement in machine readable form and will cooperate in the
transfer of such duties and responsibilities, and in the
establishment of books, records and other data by such
successor. CISC shall be entitled to reimbursement of its
reasonable out-of-pocket expenses in respect of assistance
provided in accordance with the preceding sentence.
28. Miscellaneous. This Agreement shall be construed
in accordance with and governed by the laws of The
Commonwealth of Massachusetts.
The captions in this Agreement are included for
convenience of reference only and in no way define or limit
any of the provisions of this Agreement or otherwise affect
their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which
shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
CISC shall keep confidential all records and information
provided to CISC by the Trust, SSI, SRF, and prior, present
or prospective shareholders of the Fund, except, after notice
to SSI , to the extent disclosures are required by this
Agreement, by the Fund's registration statement, or by a
reasonable request or a valid subpoena or warrant issued by a
court, state or federal agency or other governmental
authority.
Neither CISC nor SSI may use each other's name in any
written material without written consent of such other party,
provided , however, that such consent shall not unreasonably
withheld. CISC and SSI hereby consent to all uses of their
respective names which refer in accurate terms to appointment
and duties under this Agreement or which are required by any
governmental or regulatory authority including required
filings. SSI, SRF, the Trust and the Fund consent to use of
their respective names and logos by CISC for shareholder
correspondence and statements
This Agreement shall be binding upon and shall inure to
the benefit of SSI and CISC and their respective successors
and assigns. Neither SSI nor CISC shall assign this
<PAGE> 12
Agreement nor its rights and obligations under this Agreement
without the express written consent of the other party.
This Agreement may be amended only in writing by mutual
agreement of the parties.
Any notice and other instrument in writing authorized or
required by this Agreement t be given to SSI or CISC shall
sufficiently be given if addressed to that party and mailed
or delivered to it as its office set for the below or at such
other place as it may from time to time designate in writing.
SSI, the Trust and the Fund:
SteinRoe Services Inc.
One South Wacker Drive
Suite 3300
Chicago, Illinois 60606
Attn: Jilaine Hummel Bauer, Esq.
CISC:
Colonial Investors Service Center, Inc.
One Financial Center
Boston, Massachusetts 02111
Attn: Mary McKenzie; with a separate copy to
Attn: Nancy L. Conlin, Esq., Legal Department
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and sealed as of the date first
above written.
STEINROE SERVICES INC.
By: TIMOTHY K. ARMOUR
Name:
Title: Vice President
COLONIAL INVESTORS SERVICE CENTER, INC.
By: D.S. SCOON
Name: Davey S. Scoon
Title: President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
STEIN ROE INCOME TRUST
STEIN ROE INVESTMENT TRUST
STEIN ROE MUNICIPAL TRUST
By: TIMOTHY K. ARMOUR
Name: Timothy K. Armour
Title: President
<PAGE>
SCHEDULE A
Stein Roe Mutual Funds (the "Fund"), consists of the
following series of portfolios:
Stein Roe Investment Trust
- --------------------------
Stein Roe Growth & Income Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Balanced Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Income Trust
- ----------------------
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Municipal Trust
- -------------------------
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Municipal Money Market Fund
Stein Roe Managed Municipals Fund
<PAGE>
SCHEDULE B
This Schedule B is attached to and is part of a certain
Sub-Transfer Agent Agreement ("Agreement") dated July 3, 1996
between SteinRoe Services Inc. ("SSI") and Colonial Investors
Center, Inc. ("CISC").
A. SSI will pay CISC for services rendered under the
Agreement and in accordance with a negotiated allocation of
revenues and reimbursement of costs as follows:
1. As of the Operational Date, CISC and SSI shall agree upon
a fixed monthly per account fee to be paid under the
Agreement, which shall be in an amount equal to 1/12 (a) the
estimated total, determined on an annualized basis, of (1)
all incremental costs incurred by CISC in connection with the
sub-transfer agency relationship, plus (2) 1/2 the net
economic benefit derived by Liberty Financial Companies, the
parent company of both CISC and SSI, as a result of the sub-
transfer agency relationship, (b) divided by the number of
shareholder accounts to be serviced by CISC pursuant to the
Agreement as of the Operational Date.
2. For the first eighteen (18) months of the Agreement, SSI
shall pay CISC, monthly in arrears, commencing with the first
day of August, 1996, and on the first day of each month
thereafter, the greater of (a) the product of the fixed per
account fee determined as provided in paragraph 1. above
multiplied by the number of shareholder accounts serviced by
CISC pursuant to the Agreement as of the end of the preceding
month, and (b) 1/12 the annualized estimated total costs and
benefit determined pursuant to (a) of paragraph 1. above.
All estimates under this paragraph shall be determined no
later than September 30, 1996. The annual fee for the first
eighteen months shall not be less than $1.4 million.
3. Commencing January 1, 1998, and during each calendar year
thereafter, SSI shall pay CISC a fee equal to CISC's budgeted
annual per account expense of providing services pursuant to
the Agreement. Said fee shall be paid monthly in arrears, on
the first day of each month, in an amount equal to the
product of 1/12 the budgeted annual per account fee
multiplied by the number of shareholder accounts serviced by
CISC pursuant to the Agreement as of the end of the preceding
month. All budgeted numbers under this paragraph shall be
determined no later than November 30 each year.
B. The Fund shall be credited each month with balance
credits earned on all Fund cash balances.
Upon thirty (30) days' notice to SSI, CISC may increase
the fees it charges to the extent the cost to CISC of
providing services increases (i) because of changes in the
Fund's Prospectus, or (ii) on account of any change after the
date hereof in law or regulations governing performance of
obligations hereunder.
Fees for any additional services not provided herein, ad
hoc reports or special programming requirements to be
provided by CISC shall be agreed upon by SSI and CISC at such
time as CISC agrees to provide any such services.
In addition to paying CISC fees as described herein, SSI
agrees to reimburse CISC for any and all out-of-pocket
expenses and charges in performing services under the
Agreement (other than charges for normal data processing
services and related software, equipment and facilities)
including, but not limited to, mailing service, postage,
printing of shareholder statements, the cost of any and all
forms of the Trust and other materials used in communicating
with shareholders of the Trust, the cost of any equipment or
service used for communicating with the Trust's custodian
bank or other agent of the Trust, and all costs of telephone
communication with or on behalf of shareholders allocated in
a manner mutually acceptable to CISC and SSI.
<PAGE>
SCHEDULE C
SRS and CSC hereby agree that the date on which the
complete services began ("Operational Date") under the Sub-
Transfer Agent Agreement between them dated July 3, 1996, is:
July , 1996
STEINROE SERVICES INC.
By:________________________________________
Name:
Title: Vice President
COLONIAL INVESTORS SERVICE CENTER, INC.
By:________________________________________
Name:
Title:
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of January 1, 1997, and
effective that date unless otherwise indicated below, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust and Stein Roe Investment Trust
(collectively the "Trust") and Colonial Investors Service
Center, Inc. ("CISC") to add Stein Roe Advisor Trust
(effective February 14, 1997), Stein Roe Institutional Trust
(effective January 2, 1997) and Stein Roe Trust (effective
February 14, 1997), comprised of the Series listed on
Schedule A, as amended, and assenting parties to the
contract and to add new series of the existing Trusts. The
amended Schedule A is as follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
STEIN ROE ADVISOR TRUST
Stein Roe Advisor Balanced Fund
Stein Roe Advisor Growth & Income Fund
Stein Roe Advisor Growth Stock Fund
Stein Roe Advisor International Fund
Stein Roe Advisor Special Fund
Stein Roe Advisor Special Venture Fund
Stein Roe Advisor Young Investor Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date
first above written.
SteinRoe Services Inc.
By: HEIDI J. WALTER
Name: Heidi J. Walter
Title: Vice President
Colonial Investors Service Center, Inc.
By: MARY DILLON MCKENZIE
Name: Mary Dillon McKenzie
Title: Senior Vice President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: JILAINE HUMMEL BAUER
Name: Jilaine Hummel Bauer
Title: Executive Vice President and Secretary
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of June 30, 1997, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust, Stein Roe Investment Trust,
Stein Roe Advisor Trust, Stein Roe Trust and Stein Roe
Institutional Trust (collectively the "Trust") and Colonial
Investors Service Center, Inc. ("CISC") to add additional
series of the existing Trusts. The amended Schedule A is as
follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Reserves Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe Municipal Money Market Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
Stein Roe Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
STEIN ROE ADVISOR TRUST
Stein Roe Advisor Balanced Fund
Stein Roe Advisor Growth & Income Fund
Stein Roe Advisor Growth Stock Fund
Stein Roe Advisor International Fund
Stein Roe Advisor Special Fund
Stein Roe Advisor Special Venture Fund
Stein Roe Advisor Young Investor Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date
first above written.
SteinRoe Services Inc.
By: HEIDI J. WALTER
Name: Heidi J. Walter
Title: Vice President
Colonial Investors Service Center, Inc.
By: JOHN W. BYRNE
Name: John W. Byrne
Title: Vice President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: HEIDI J. WALTER
Name: Heidi J. Walter
Title: Vice President
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of October 15, 1997, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust, Stein Roe Investment Trust,
Stein Roe Advisor Trust, Stein Roe Trust and Stein Roe
Institutional Trust (collectively the "Trust") and Colonial
Investors Service Center, Inc. ("CISC") to remove Stein Roe
Advisor Trust as a party to this agreement. The amended
Schedule A is as follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Reserves Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe Municipal Money Market Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
Stein Roe Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date
first above written.
SteinRoe Services Inc.
By: HANS P. ZIEGLER
Name:
Title:
Colonial Investors Service Center, Inc.
By: MARY D. MCKENZIE
Name: Mary D. McKenzie
Title: President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: HANS P. ZIEGLER
Name:
Title:
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of October 17, 1997, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust, Stein Roe Investment Trust,
Stein Roe Trust and Stein Roe Institutional Trust
(collectively the "Trust") and Colonial Investors Service
Center, Inc. ("CISC") to remove two series of Income Trust
from Schedule A. The amended Schedule A is as follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
Stein Roe Cash Reserves Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe Municipal Money Market Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
Stein Roe Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date
first above written.
SteinRoe Services Inc.
By: ANNE E. MARCEL
Name: Anne E. Marcel
Title: Vice President
Colonial Investors Service Center, Inc.
By: MARY D. MCKENZIE
Name: Mary D. McKenzie
Title: President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: THOMAS W. BUTCH
Name: Thomas W. Butch
Title: Vice President
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of April 30, 1998, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust, Stein Roe Investment Trust,
Stein Roe Trust and Stein Roe Institutional Trust
(collectively the "Trust") and Colonial Investors Service
Center, Inc. ("CISC") to add one series of Investment Trust
to Schedule A. The amended Schedule A is as follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
Stein Roe Cash Reserves Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe Municipal Money Market Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
Stein Roe Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
Stein Roe Large Company Focus Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date
first above written.
SteinRoe Services Inc.
By: HANS P. ZIEGLER
Name:
Title:
Colonial Investors Service Center, Inc.
By: MARY D. MCKENZIE
Name: Mary D. McKenzie
Title: President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: HANS P. ZIEGLER
Name:
Title:
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions
"Financial Highlights" and "Independent Auditors" and to the
incorporation by reference of our reports dated August 7, 1998
with respect to Stein Roe Cash Reserves Fund and SR&F Cash
Reserves Portfolio, and August 14, 1998 with respect to Stein Roe
Intermediate Bond Fund, SR&F Intermediate Bond Portfolio, Stein
Roe Income Fund, SR&F Income Portfolio, Stein Roe High Yield Fund
and SR&F High Yield Portfolio in the Registration Statement (Form
N-1A) and related Statement of Additional Information of Stein Roe
Income Trust, filed with the Securities and Exchange Commission in
this Post-Effective Amendment No. 38 to the Registration Statement
under the Securities Act of 1933 (Registration No. 33-02633) and
in this Amendment No. 39 to the Registration Statement under the
Investment Company Act of l940 (Registration No. 811-4552).
ERNST & YOUNG LLP
Chicago, Illinois
October 21, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STEIN ROE INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 449,041
<RECEIVABLES> 490
<ASSETS-OTHER> 70
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 449,601
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,198
<TOTAL-LIABILITIES> 1,198
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 443,648
<SHARES-COMMON-STOCK> 44,703
<SHARES-COMMON-PRIOR> 37,965
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (850)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,605
<NET-ASSETS> 448,403
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,532
<OTHER-INCOME> 0
<EXPENSES-NET> 3,486
<NET-INVESTMENT-INCOME> 29,046
<REALIZED-GAINS-CURRENT> 5,548
<APPREC-INCREASE-CURRENT> 67
<NET-CHANGE-FROM-OPS> 34,061
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 29,046
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,110
<NUMBER-OF-SHARES-REDEEMED> 10,526
<SHARES-REINVESTED> 2,154
<NET-CHANGE-IN-ASSETS> 73,131
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (6,398)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,169
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,486
<AVERAGE-NET-ASSETS> 421,818
<PER-SHARE-NAV-BEGIN> 9.88
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> 0.15
<PER-SHARE-DIVIDEND> 0.69
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.03
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> STEIN ROE INTERMEDIATE BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 438,091
<RECEIVABLES> 474
<ASSETS-OTHER> 77
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 438,592
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,136
<TOTAL-LIABILITIES> 1,136
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 438,396
<SHARES-COMMON-STOCK> 48,755
<SHARES-COMMON-PRIOR> 37,610
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,968)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,028
<NET-ASSETS> 437,456
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 28,327
<OTHER-INCOME> 0
<EXPENSES-NET> 2,829
<NET-INVESTMENT-INCOME> 25,498
<REALIZED-GAINS-CURRENT> 6,530
<APPREC-INCREASE-CURRENT> 3,808
<NET-CHANGE-FROM-OPS> 34,836
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 25,498
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,854
<NUMBER-OF-SHARES-REDEEMED> 10,792
<SHARES-REINVESTED> 2,083
<NET-CHANGE-IN-ASSETS> 108,672
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (14,498)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 778
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,829
<AVERAGE-NET-ASSETS> 391,540
<PER-SHARE-NAV-BEGIN> 8.74
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> 0.58
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.97
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> STEIN ROE CASH RESERVES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 482,615
<RECEIVABLES> 13,806
<ASSETS-OTHER> 126
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 496,547
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,593
<TOTAL-LIABILITIES> 2,593
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 493,818
<SHARES-COMMON-STOCK> 493,871
<SHARES-COMMON-PRIOR> 452,275
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 136
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 493,954
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 27,911
<OTHER-INCOME> 0
<EXPENSES-NET> 3,647
<NET-INVESTMENT-INCOME> 24,264
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 24,264
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 24,264
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 914,335
<NUMBER-OF-SHARES-REDEEMED> 893,924
<SHARES-REINVESTED> 21,185
<NET-CHANGE-IN-ASSETS> 41,596
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 136
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 821
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,647
<AVERAGE-NET-ASSETS> 487,529
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> STEIN ROE HIGH YIELD FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 41,567
<RECEIVABLES> 15
<ASSETS-OTHER> 30
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,612
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 141
<TOTAL-LIABILITIES> 141
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,179
<SHARES-COMMON-STOCK> 3,772
<SHARES-COMMON-PRIOR> 1,279
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,156
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 136
<NET-ASSETS> 41,471
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,634
<OTHER-INCOME> 0
<EXPENSES-NET> 300
<NET-INVESTMENT-INCOME> 2,334
<REALIZED-GAINS-CURRENT> 1,361
<APPREC-INCREASE-CURRENT> (131)
<NET-CHANGE-FROM-OPS> 3,564
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,334
<DISTRIBUTIONS-OF-GAINS> 424
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,593
<NUMBER-OF-SHARES-REDEEMED> 1,224
<SHARES-REINVESTED> 124
<NET-CHANGE-IN-ASSETS> 27,989
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 219
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 396
<AVERAGE-NET-ASSETS> 29,949
<PER-SHARE-NAV-BEGIN> 10.54
<PER-SHARE-NII> 0.85
<PER-SHARE-GAIN-APPREC> 0.61
<PER-SHARE-DIVIDEND> 0.85
<PER-SHARE-DISTRIBUTIONS> 0.15
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.00
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT (p)
Please do not remove label For office use only ________
[Logo] Stein Roe Mutual Funds
Building Wealth for Generations [service mark]
MUTUAL FUND APPLICATION
Mail to:
STEIN ROE MUTUAL FUNDS
P.O. Box 8900
Boston, MA 02205-8900
This application is for:
[ ] New account
[ ] Change to current account (see Section 13)
_________________________
Account number
- -------------------------------------------------------------------------
If you have questions, please call us toll-free.
Monday - Friday--7 a.m. to 8 p.m. (CST)
Saturday & Sunday--8 a.m. to 2 p.m. (CST)
800-338-2550
http://www.steinroe.com
Liberty Securities Corporation, Distributor
Member SIPC
Stein Roe Mutual Funds, P.O. Box 8900, Boston, MA 02205-8900 800-338-2550
- -------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
Please check one of the boxes below to indicate the type of account
and complete the related information.
[ ] INDIVIDUAL OR [ ] JOINT* ACCOUNT
______________________________________________
Owner's name (First, middle initial, last)
_______________________________________________
Joint owner's name (First, middle initial, last)
____________________________________________________________________
Owner's Social Security number Joint owner's Social Security number
__________________________________________________________
Owner's citizenship Joint owner's citizenship
*Joint tenants with right of survivorship, unless indicated otherwise.
[ ] UNIFORM GIFTS (TRANSFERS) TO MINORS ACCOUNT (UGMA/UTMA)
_________________________________________ as custodian for:
Name of one custodian only
_________________________________________ under the
Name of one minor only
__________________ Uniform Gifts (Transfers) to Minors Act.
State of residence
_____________________________________________________
Minor's Social Security number Minor's birthdate
[ ] ORGANIZATION OR OTHER ACCOUNT
Please complete and return the Certificate of Authorization on the
last page of the prospectus.
_______________________________________________
Name of corporation, partnership, estate, etc.
_________________________________________
Tax identification number
[ ] TRUST OR RETIREMENT ACCOUNT
For a Stein Roe IRA, please call us for a separate application.
_________________________________________
Name of trustee(s)
_________________________________________
_________________________________________
Name of trust
____________________________________________________
Date of trust Trust's tax identification number
_________________________________________
Trust beneficiary(ies)
_________________________________________
Trust beneficiary(ies)
2. ADDRESS
_________________________________________
Street Address or P.O. box
_________________________________________
_________________________________________
City State Zip code
_________________________________________
Daytime telephone Evening Telephone
[ ] CONSOLIDATED QUARTERLY STATEMENTS
Check the box above if you would like to link your new Stein Roe account
to an existing Stein Roe account--even if the existing account is
registered to another member in your household. Linking your accounts
allows us to consolidate your Stein Roe accounts on one quarterly
statement. Please provide the existing Stein Roe account number below.
Statements will be sent to the address on the existing account.
________________________________________________
Existing account number
3. FUND SELECTION
Fill in the amount you would like to invest in each of the funds below.
The initial minimum is $2,500; for custodial accounts (UGMAs), the
minimum is $1,000. When an Automatic Investment Plan in Section 6 is
established, Stein Roe reduces the minimum initial investment to $1,000
for each new account ($500 for UGMAs and $100 for Young Investor Fund).
If you do not specify a fund, your investment will be in Stein Roe Cash
Reserves Fund, a money market fund.
MONEY MARKET FUNDS
Cash Reserves Fund (036) $_____
TAX-EXEMPT FUNDS
Municipal Money Market Fund (030) _____
Intermediate Municipals Fund (008)_____
Managed Municipals Fund (037) _____
High-Yield Municipals Fund (028) _____
BOND FUNDS
Intermediate Bond Fund (035) _____
Income Fund (009) _____
High Yield Fund (015) _____
GROWTH AND INCOME FUNDS
Balanced Fund (031) _____
Growth & Income Fund (011) _____
GROWTH FUNDS
Growth Stock Fund (032) CLOSED*
Young Investor Fund (014) _____
Special Fund (034) _____
Growth Opportunities Fund (020) _____
Special Venture Fund (016) _____
Capital Opportunities (033) _____
International Fund (012) _____
Emerging Markets Fund (018)** _____
*This Fund is closed to new investors. You must be a current shareholder
in any Stein Roe Fund to open an additional account in your name. To
verify your status as a current shareholder, please provide account
number with new investment amount below.
______________________________________________________________________
Current Stein Roe Fund account number New Growth Stock Fund
investment amount
**To discourage short-term trading, there is a 1 percent redemption fee
imposed on the sale of shares held for less than 90 days.
4. INVESTMENT METHOD
Check one box below. (Money orders and cashier's checks not accepted.)
[ ] BY CHECK: Payable to Stein Roe Mutual Funds
[ ] BY EXCHANGE FROM:
Your account must be registered identically to invest by exchange.
______________________________
Fund name
___________________________ ____________________________
Account number Number of shares or $ amount
[ ] BY WIRE: Call us for instructions at 800-338-2550
5. TELEPHONE AND ONLINE REDEMPTION OPTIONS
A. Telephone/Online Redemption Options. You can redeem shares by
telephone or online two ways: with Telephone/Online Redemption, a check
is mailed to your address of record; with Telephone/Online Exchange,
redemption proceeds are used to purchase shares in another Stein Roe
Fund. Most shareholders prefer these conveniences. They apply unless
you check the boxes below.
I DO NOT WANT:
[ ] Telephone Redemption [ ] Online Redemption
[ ] Telephone Exchange [ ] Online Exchange
B. ACH Redemption Option. Check either or both boxes if you wish to be
able to redeem shares at any time by telephone or online and have the
proceeds sent to your bank account designated in Section 8. ($50
minimum; $100,000 maximum.)
[ ] ACH Telephone Redemption
[ ] ACH Online Redemption
C. Telephone Redemption by Wire. Check the box below if you wish to
redeem shares at any time and wire the proceeds to your bank account
designated in Section 8. ($1,000 minimum for all funds; $100,000 maximum
for all funds except money market funds.) [ ]
If you decide to add these options at a later date, you will be required
to obtain a signature guarantee.
6. AUTOMATIC INVESTMENT PLAN
Please allow 3 weeks to establish this option.
[ ] A. Regular Investments. This option allows you to make scheduled
investments into your accounts(s) directly from your bank account
by electronic transfer. When this option is established, Stein
Roe reduces the minimum initial investment to $1,000 for each new
account ($500 for UGMAs and $100 for Young Investor Fund).
Please remember to include a check for the appropriate minimum
and also complete Section 8.
_________________________________________________________________________
Fund name Account number or ("new") Amount (minimum $50 monthly)
_________________________________________________________________________
Fund name Account number or ("new") Amount (minimum $50 monthly)
I authorize Stein Roe Mutual Funds to draw on my bank account to purchase
shares for the account(s) listed above. Check one period below to
indicate the frequency of your automatic investments.
[ ] Monthly [ ] Quarterly [ ] Every 6 months [ ] Annually
Check one box below to indicate which day of the month your investment
should be made:
[ ] 5th or [ ] 20th day of the month
Please begin: [ ] Immediately or [ ] _______ (specify month)
[ ] B. Special Investments. You can also make subsequent purchases by
telephone or online and pay for them by electronic transfer from
your bank account on request. Check the box above for this
option, which saves you the trouble and expense of arranging for a
wire transfer or writing a check. Please also complete Section 8.
($50 minimum; $100,000 maximum).
7. DISTRIBUTION OPTIONS
We will automatically reinvest all distributions for you. If you want
this option, you do not need to fill out this section. Please check
below only if you prefer that your distributions be: invested in
shares of another Stein Roe Fund with the same account registration (a
$1,000 minimum applies to the account in which you are investing);
deposited into your bank account; or sent by check to your registered
address.
Dividends Capital Gains
(check one or both)
[ ] A. Distribution Purchase [ ] [ ]
Invest into _______________ __________________________
Fund name Account number (or "new")
from: _____________________ ___________________________
Fund name Account number (or "new")
[ ] B. Automatic deposit direct to your bank [ ] [ ]
account. Please also complete Section 8.
[ ] C. Send check to registered address [ ] [ ]
8. BANK INFORMATION
Complete this section if you have selected options from Sections 5B, 5C,
6A, 6B, or 7B. You must use the same bank account for these options.
[ ] checking [ ] savings
________________________________________________________________
Name of bank
________________________________________________________________
Street address of bank
________________________________________________________________
City State Zip code
________________________________________________________________
Name(s) on bank account
______________________________ ________________________________
Bank account number ACH Routing number (see diagram below)
Attach voided check here.
- ------------------------------------------------------
Joe Investor 0000
123 Main Street ______ 19__
Anytown, USA 12345
Pay to the
order of ________________________________ $_________
______________________________________________ Dollars
Anytown Bank USA
Memo ____________ ______________________________
1 000 000000 00 0000000000
- ------------------------------------------------------
ACH ROUTING NUMBER YOUR ACCOUNT NUMBER
A unique nine-digit number Unique to your account at
that allows for the electronic your financial institution
transfer of funds and identi-
fies your financial institution
within the Automatic Clearing
House Network.
9. AUTOMATIC EXCHANGE PLAN
With this option you can authorize Stein Roe to regularly exchange shares
from one existing Stein Roe Fund account to another with the same account
registration. A $1,000 minimum applies to each new account.
________________________________________________________________
Redeem shares from (Fund name) Account number
________________________________________________________________
Amount ($50 minimum)
________________________________________________________________
Purchase shares from (Fund name) Account number
Check one box below to indicate frequency of exchange and fill in
dates between the 1st and 28th of the month:
[ ] Twice monthly on the ___ and ___ beginning ______ (Specify month)
[ ] Monthly on the ______ beginning __________ (Specify month)
[ ] Quarterly on the ______ of _______________ (List four months)
[ ] Twice yearly on the _____ of _____________ (List two months)
[ ] Annually on the _____ of _________________ (Specify month)
10. MONEY MARKET FUND OPTIONS
[ ] FREE CHECK WRITING
Available for Cash Reserves Fund and Municipal Money Market Fund only.
Check the above box and complete the signature card below if you wish
to write checks ($50 minimum) on your money market fund account
Please also complete Section 12.
PLEASE DO NOT DETACH
- ---------------------------------------------------------------------
Bank of Boston Check Writing Signature Card (for money market funds only)
Select Fund:[ ] Cash Reserves Fund [ ] Municipal Money Market Fund
Account name(s) as registered: ____________________________
By signing this card, I authorize Bank of Boston to honor any check drawn
by me on an account with the bank and to redeem and pay to bank shares in
my Fund account having a redemption price equal to the amount of such
check. I agree to be subject to the rules governing the Check Writing
Redemption option as in effect from time to time.
Signature (sign as you will on checks) Signature guarantee*
_____________________________________ ________________________________
_____________________________________ ________________________________
Number of signatures on each check*: __________
*Required if you are adding these options to an existing account; or if
you are requesting check writing for a Trust, Corporation or other
Organization account, guarantee required for any person signing these
cards who has not signed in Section 12. Otherwise a signature guarantee
is not required.
If left blank, only one signature is required for joint tenant accounts,
but all signatures are required for all other types of accounts.
For office use only: Account no. _________________ Date: ______________
You are subject to Fund and bank rules pertaining to checking
accounts under the privilege as in effect from time to time. For a
joint tenancy account with rights of survivorship, each owner appoints
each other owner as attorney-in-fact with power to authorize redemptions
on his behalf by signing checks under the privilege unless the reverse
side indicates all owners must sign checks.
You agree to hold Fund and its transfer agent free from any liability
resulting from payment of any forged, altered, lost or stolen check
unless you notify Fund and bank of such misappropriation no later than 14
days after the earliest of the date on which you (a) discover the
misappropriation or (b) receive a copy of the check cancelled by bank. A
copy of a cancelled check paid during a calendar month is deemed
received 6 days after posting in the U.S. mail to your registered address
with Fund unless you notify Fund of non-receipt by certified mail within
20 days after the close of such month.
You agree to hold Fund and its transfer agent free from any liability for
any other check misappropriated by the same wrongdoer and paid from
proceeds of a redemption made in good faith on or after the date you
notify Fund of the first misappropriated check.
- -----------------------------------------------------------------------
11. TERMS AND CONDITIONS OF SERVICES
Please read carefully before signing in Section 12. By electing an
automatic service, you agree to the following terms and conditions and
those stated in the Fund prospectus as in effect from time to time.
*By signing this application, you agree that any privilege you elect may
be restricted or terminated at any time without notice to you. Your
termination of a privilege will be effective no later than five business
days after the Fund(s) or its transfer agent receives 1) your request;
2) notice and proof of your death, or if a trust, termination thereof;
or 3) the closing of an affected Fund or bank account.
*All privileges except Automatic Dividend Deposit, Dividend Purchase
Option, Automatic Investment Plan, Money Market Fund Check Writing,
Automatic Exchange, Automatic Redemption Plan and Telephone Redemption
by Wire will be transferred automatically to any new account you open in
any other Fund offering the privileges into which a telephone or written
exchange is made.
*You authorize the Fund(s) and its transfer agent to initiate any and
all credit or debit entries (and reversals thereof) to effect electronic
transfers under any privilege and redeem shares of any Fund(s) you own
equal to the amount of any loss incurred by any of them in effecting any
electronic transfer and retain the proceeds.
*To discourage short-term trading, there is a 1 percent redemption fee
imposed on the sale of Emerging Markets Fund shares held for less than
90 days.
12. SIGNATURE(S)
By signing this form, I certify that:
*I have received the current Fund prospectus and have read the Terms and
Conditions of Services in Section 11 and agree to be bound by their
terms as governed by Illinois law. I have full authority and legal
capacity to purchase Fund shares and establish and use any related
privileges.
*By signing below, I certify under penalties or perjury that:
-All information and certifications on this application are true and
correct, including the Social Security or other tax identification
number (TIN) in Section 1.
-If I have not provided a TIN, I have not been issued a number but have
applied (or will apply) for one and understand that if I do not
provide the Fund(s) a TIN within 60 days, the Fund(s) will withhold
31 percent from all my dividend, capital gain and redemption payments
until I provide one.
-Check one of the following only if applicable:
[ ] The IRS has informed me I am subject to backup withholding as a
result of a failure to report all interest or dividend income.
[ ] I am a trust or organization that qualifies for the IRS backup
withholding exemption.
*Unless I have declined the Telephone Redemption, Telephone Exchange,
Online Redemption and Online Exchange privileges in Section 5A, I have
authorized the Fund and its agents to act upon instructions received by
telephone to redeem my shares of the Fund or to exchange them for shares
of another Stein Roe Fund, and I agree that, subject to the Funds
employing reasonable procedures to confirm that such telephone or online
instructions are genuine, neither the Fund, nor any of its agents will
be liable for any loss, injury, damage, or expense as a result of acting
upon, and will not be responsible for the authenticity of, any telephone
instructions, and will hold the Fund and its agents harmless from any
loss, claims or liability arising from its or their compliance with
these instructions. Accordingly, I understand that I will bear any
risk of loss resulting from unauthorized instructions.
*THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
Sign below exactly as your name(s) appears in Section 1.
x________________________________________________________________
Signature Date
________________________________________________________________
Title (if owner is an organization)
x________________________________________________________________
joint owner's signature Date
________________________________________________________________
Title (if owner is an organization)
13. SIGNATURE GUARANTEE (IF REQUIRED)
A signature guarantee is not required if you are establishing a new
account. For existing accounts, a signature guarantee is required if
you are adding or making changes to options listed in Sections 5, 6, 7B,
8 or 10. We are unable to accept notarizations.
Signature(s) guaranteed by:
________________________________________________________________
Name of institution
________________________________________________________________
Name of authorized officer
________________________________________________________________
Signature of authorized officer
Guarantor's stamp:
APP10/97
