-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, FvdfgxYueenxw2k+4eInfZAeqYJBL+vwTl9O/X+2aCy8m6EnZEHfz32cocsFyXMc oQpsA8N6aJVMohfyOpHnVg== 0000773757-95-000005.txt : 19950608 0000773757-95-000005.hdr.sgml : 19950608 ACCESSION NUMBER: 0000773757-95-000005 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19950607 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEINROE MUNICIPAL TRUST CENTRAL INDEX KEY: 0000773757 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-99356 FILM NUMBER: 95545642 FILING VALUES: FORM TYPE: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-04367 FILM NUMBER: 95545638 BUSINESS ADDRESS: STREET 1: 300 W ADAMS ST STREET 2: 11TH FLOOR CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3123685612 MAIL ADDRESS: STREET 1: 300 WEST ADAMS STREET 2: 11TH FLOOR CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: STEINROE INTERMEDIATE MUNICIPALS INC DATE OF NAME CHANGE: 19880114 485APOS 1 1933 Act Registration No. 2-99356 1940 Act File No. 811-4367 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Post-Effective Amendment No. 18 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 19 [X] STEINROE MUNICIPAL TRUST P. O. Box 804058, Chicago, Illinois 60680 Telephone Number: 1-800-338-2550 Jilaine Hummel Bauer Cameron S. Avery Executive Vice-President and Secretary Bell, Boyd & Lloyd SteinRoe Municipal Trust Three First National Plaza One South Wacker Drive 70 W. Madison Street, Chicago, Illinois 60606 Suite 3200 Chicago, Illinois 60602 (Agents for Service) It is proposed that this filing will become effective (check appropriate box): [ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [XX] on August 7, 1995 pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of rule 485 Registrant has elected to register pursuant to Rule 24f-2 an indefinite number of shares of beneficial interest of the following series: SteinRoe Intermediate Municipals, SteinRoe Municipal Money Market Fund, SteinRoe Managed Municipals, and SteinRoe High-Yield Municipals. The Rule 24f-2 Notice for the fiscal year ended June 30, 1994 was filed on August 22, 1994. Amending Parts A, B and C and filing exhibits. STEINROE MUNICIPAL TRUST CROSS REFERENCE SHEET Item No. Caption Part A 1 Front cover 2 Fee Table; Summary 3 (a) Financial Highlights (b) Inapplicable (c) Investment Return (d) Financial Highlights 4 Organization and Description of Shares; The Funds; How the Funds Invest; Portfolio Investments and Strategies; Restrictions on the Funds' Investments; Investment Considerations and Risks; Summary--Investment Risks 5 (a) Management of the Funds--Trustees and Investment Adviser (b) Management of the Funds--Trustees and Investment Adviser, Fees and Expenses (c) Management of the Funds--Portfolio Managers (d) Inapplicable (e) Management of the Funds--Transfer Agent (f) Management of the Funds--Fees and Expenses; Financial Highlights (g) Inapplicable 5A Inapplicable 6 (a) Organization and Description of Shares; see statement of additional information: General Information and History (b) Inapplicable (c) Organization and Description of Shares (d) Organization and Description of Shares (e) Summary; back cover (f) Shareholder Services; Distributions and Income Taxes (g) Distributions and Income Taxes 7 How to Purchase Shares (a) Management of the Funds--Distributor (b) How to Purchase Shares--Purchase Price and Effective Date; Net Asset Value (c) Inapplicable (d) How to Purchase Shares (e) Inapplicable (f) Inapplicable 8 (a) How to Redeem Shares; Shareholder Services (b) How to Purchase Shares--Purchases Through Third Parties (c) How to Redeem Shares--General Redemption Policies (d) How to Redeem Shares--Special Redemption Privileges, General Redemption Policies 9 Inapplicable Part B 10 Cover page 11 Table of Contents 12 General Information and History 13 Investment Policies; Portfolio Investments and Strategies; Investment Restrictions; Options and Futures 14 Management 15(a) Inapplicable (b) Principal Shareholders (c) Principal Shareholders 16(a) Investment Advisory Services; Management; see prospectus: Management of the Funds (b) Investment Advisory Services (c) Inapplicable (d) Inapplicable (e) Inapplicable (f) Inapplicable (g) Inapplicable (h) Custodian; Independent Auditors (i) Transfer Agent; see prospectus: Management of the Funds 17(a) Portfolio Transactions (b) Inapplicable (c) Portfolio Transactions (d) Portfolio Transactions (e) Inapplicable 18 General Information and History 19(a) Purchases and Redemptions; see prospectus: How to Purchase Shares, How to Redeem Shares, Shareholder Services (b) Purchases and Redemptions; Additional Information on Net Asset Value of Municipal Money; see prospectus: Net Asset Value (c) Purchases and Redemptions 20 Additional Income Tax Considerations; Options and Futures-- 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 1 MUNICIPAL MONEY FUND seeks maximum current income exempt from Federal income tax. The Fund seeks to achieve its objective by investing all of its net investable assets in shares of SR&F Municipal Money Market Portfolio, a portfolio of SR&F Base Trust that has the same investment objective and substantially the same investment restrictions as the Fund. The Portfolio attempts to maintain relative stability of principal and liquidity by investing principally in a diversified portfolio of short-term Municipal Securities. (See Organization and Description of Shares--Special Considerations Regarding Master Fund/Feeder Fund Structure.) INTERMEDIATE MUNICIPALS seeks a high current yield exempt from Federal income tax, consistent with the preservation of capital. It invests primarily in a diversified portfolio of intermediate-term Municipal Securities. MANAGED MUNICIPALS seeks a high level of current income exempt from Federal income tax, consistent with the preservation of capital. It invests primarily in a diversified portfolio of long-term Municipal Securities. HIGH-YIELD MUNICIPALS seeks a high current yield exempt from Federal income tax. It invests principally in a diversified portfolio of long- term medium- or lower-quality Municipal Securities, which may involve greater risk. (See How the Funds Invest--High-Yield Municipals.) 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 STEINROE MUNICIPAL TRUST AND THE PORTFOLIO IS A SERIES OF SR&F BASE TRUST. Each trust is a diversified open-end management investment company. This prospectus contains information you should know before investing in the Funds. Please read it carefully and retain it for future reference. Municipal Money Fund is a 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. A Statement of Additional Information dated August 7, 1995, containing more detailed information, has been filed with the Securities and Exchange Commission and (together with any supplements thereto) is incorporated herein by reference. The Statement of Additional Information and the most recent financial statements may be obtained without charge by writing to the Secretary at the address shown on the back cover or by calling 1-800-338-2550. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is August 7, 1995. 2 TABLE OF CONTENTS Page Summary.........................2 Fee Table ......................6 Financial Highlights............8 The Funds .....................13 How the Funds Invest...........14 Municipal Money Fund........14 Intermediate Municipals ....16 Managed Municipals .........17 High-Yield Municipals.......17 Portfolio Investments and Strategies..................19 Restrictions on the Funds' Investments..................22 Risks and Investment Considerations ..............22 How to Purchase Shares ........24 By Check ...................24 By Wire ....................25 By Electronic Transfer .....25 By Exchange ................26 Purchase Price and Effective Date.........26 Conditions of Purchase .....26 Purchases Through Third Parties..................26 How to Redeem Shares...........27 By Written Request .........27 By Exchange ................28 Special Redemption Privileges ................28 General Redemption Policies .................30 Shareholder Services ..........32 Net Asset Value ...............34 Distributions and Income Taxes.35 Investment Return .............37 Management of the Funds .......38 Organization and Description of Shares.......41 Certificate of Authorization ..47 SUMMARY SteinRoe Municipal Money Market Fund ("Municipal Money Fund"), SteinRoe Intermediate Municipals ("Intermediate Municipals"), SteinRoe Managed Municipals ("Managed Municipals"), and SteinRoe High-Yield Municipals ("High-Yield Municipals") are series of SteinRoe Municipal Trust, an open-end diversified management investment company organized as a Massachusetts business trust. Each Fund is a "no-load" fund. There are no sales or redemption charges. (See The Funds and Organization and Description of Shares.) INVESTMENT OBJECTIVES AND POLICIES. Each Fund seeks a high level of current income that is exempt from Federal income tax by investing in various types of Municipal Securities. (See Portfolio Investments and Strategies.) 3 MUNICIPAL MONEY FUND invests all of its net investable assets in SR&F Municipal Money Market Portfolio (the "Portfolio"). The Portfolio invests in a diversified portfolio of securities in accordance with an investment objective and investment policies identical to those of the Fund. The Portfolio seeks current income exempt from Federal income tax by investing principally in "short-term" Municipal Securities. In pursuing that objective, the Portfolio attempts to maintain relative stability of principal and liquidity. Although there can be no assurance that either the Portfolio or the Fund will always be able to do so, each of them follows procedures that are intended to afford a reasonable expectation that its price per share will be stabilized at $1.00. The Portfolio invests primarily in Municipal Securities rated within the top two grades assigned by Moody's or S&P, except for certain types of issues which must carry the highest rating. The Portfolio may also invest in unrated securities that, in the opinion of the Board of Trustees, are at least equal in quality to the foregoing ratings. Prior to August 7, 1995, Municipal Money Fund invested directly in municipal securities. INTERMEDIATE MUNICIPALS seeks a high current yield exempt from Federal income tax, consistent with the preservation of capital, by investing primarily in "intermediate-term" Municipal Securities. At least 75% of the Fund's investments in Municipal Securities will be (i) rated at the time of purchase within the three highest ratings by Moody's or S&P (except that if the Fund relies on ratings by S&P for municipal 4 notes, such notes must be within the two highest ratings), (ii) if unrated, of comparable quality as determined by the Adviser, or (iii) backed by the full faith and credit or guarantee of the U.S. Government. MANAGED MUNICIPALS seeks a high level of current income that is exempt from Federal income tax, consistent with the preservation of capital, by investing primarily in long-term Municipal Securities. At least 75% of the Fund's investments in Municipal Securities will be (i) rated at the time of purchase within the three highest ratings assigned by Moody's or S&P (except that if the Fund relies on ratings by S&P for municipal notes, such notes must be within the two highest ratings for such securities), or (ii) backed by the full faith and credit or guarantee of the U.S. Government. HIGH-YIELD MUNICIPALS seeks a high current yield exempt from Federal income tax by investing principally in long-term, medium- or lower- quality Municipal Securities. Medium-quality Municipal Securities are obligations of issuers that the Adviser believes possess adequate, but not outstanding, capacities to service the obligations. Lower-quality Municipal 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 Adviser attributes to medium- and lower-quality obligations the same general characteristics as do rating services. Because many issuers of medium- and lower-quality Municipal Securities choose not to have their obligations rated by a rating agency, many of the obligations in the Fund's portfolio may be unrated. The market for unrated securities is usually less broad than for rated obligations, which could adversely affect their marketability. INVESTMENT RISKS. The risks inherent in each Fund and the Portfolio depend primarily upon the maturity and quality of the obligations in their respective portfolios, as well as on market conditions. Municipal Money Fund is designed for investors who seek little or no fluctuation in portfolio value. Intermediate Municipals is appropriate for investors who seek more tax-exempt income than is usually available from tax-exempt money funds and who can accept some fluctuation in portfolio value. Managed Municipals is appropriate for investors who seek higher tax-exempt income than normally provided by shorter-term tax-exempt securities and who can accept the greater portfolio fluctuation 5 associated with long-term Municipal Securities. High-Yield Municipals is designed for investors who seek a high level of tax-exempt income and who can accept still greater fluctuation in portfolio value and other risks, such as increased credit risk, associated with medium- or lower- quality long-term Municipal Securities. See Risks and Investment Considerations for further information. Each Fund and the Portfolio may invest in Municipal Securities the interest on which is subject to the alternative minimum tax. For a more detailed discussion of their investment objective and policies, please see How the Funds Invest. There is, of course, no assurance that a Fund or the Portfolio will achieve its investment objective. PURCHASES. The minimum initial investment for each Fund is $2,500, and additional investments must be at least $100 (only $50 for purchases by electronic transfer). Shares may be purchased by check, by bank wire, by electronic transfer, or by exchange from another SteinRoe Fund. For more detailed information, see How to Purchase Shares. REDEMPTIONS. For information on redeeming Fund shares, including the special redemption privileges, see How to Redeem Shares. DISTRIBUTIONS. Dividends are declared each business day and are paid monthly. Dividends will be reinvested into your Fund account unless you elect to have them paid in cash, deposited by electronic transfer into your bank checking account, or invested into another SteinRoe Fund account. (See Distributions and Income Taxes and Shareholder Services.) MANAGEMENT AND FEES. Stein Roe & Farnham Incorporated (the "Adviser") is investment adviser to Intermediate Municipals, Managed Municipals, High-Yield Municipals, and the Portfolio. In addition, it provides administrative and bookkeeping and accounting services to each Fund and the Portfolio. For a description of the Adviser and the fees it receives for these services, see Management of the Funds. If you have any additional questions about the Funds, please feel free to discuss them with a relationship manager by calling 1-800-338-2550. 6 FEE TABLE Municipal High- Money Intermediate Managed Yield Fund Municipals Municipals Municipals -------- ------------ ---------- --------- SHAREHOLDER TRANSACTION EXPENSES Sales Load Imposed on Purchases None None None None Sales Load Imposed on Reinvested Dividends None None None None Deferred Sales Load None None None None Redemption Fees None* None None None Exchange Fees None None None None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management and Administrative Fees ... .50% .56% .52% .54% 12b-1 Fees None None None None Other Expenses . .20% .15% .13% .22% ---- ---- ---- ---- Total Fund Operating Expenses .70% .71% .65% .76% ---- ---- ---- ---- ---- ---- ---- ---- ____________________ *There is a $3.50 charge for wiring redemption proceeds to your bank. EXAMPLES. You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period: 1 year 3 years 5 years 10 years ------ ------- ------- -------- Municipal Money Fund $7 $22 $39 $87 Intermediate Municipals 7 23 40 88 Managed Municipals 7 21 36 81 High-Yield Municipals 8 24 42 94 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. (Also see Management of the Funds--Fees and Expenses.) On August 7, 1995, Municipal Money Fund began investing all of its net investable assets in the Portfolio and its management fee structure was changed. As of that date, the Fund began paying the 7 Adviser an administrative fee based on the Fund's average daily net assets and the Portfolio began paying the Adviser a management fee based on the Portfolio's average daily net assets. As of the date of this change, the Fund's income and expenses reflect its proportionate share of the Portfolio's income and expenses. The trustees of the Trust have considered whether the annual operating expenses of Municipal Money 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, and concluded that the Fund's expenses would not be greater in such case. From time to time, the Adviser may voluntarily absorb certain expenses of a Fund. The Adviser has agreed to voluntarily absorb the expenses of each of Municipal Money Fund and Intermediate Municipals to the extent that expenses exceed .7 of 1% of the Fund's annual average net assets through October 31, 1995, subject to earlier termination by the Adviser on 30 days' notice. There was no expense absorption for any Fund during the last fiscal year because the Funds' actual expenses were less than the amount of the expense limitation. Any such absorption will temporarily lower a Fund's overall expense ratio and increase a Fund's overall return to investors. For purposes of the Examples above, the figures assume that the percentage amounts listed for the respective Funds under Annual Fund Operating Expenses remain the same during each of the periods, that all income dividends and capital gain distributions are reinvested in additional Fund shares, and that, for purposes of management fee breakpoints, if any, the Funds' respective net assets remain at the same levels as in the most recently completed fiscal year. The figures in the Examples are not necessarily indicative of past or future expenses, and actual expenses may be greater or less than those shown. Although information such as that shown above is useful in reviewing the Funds' expenses and in providing a basis for comparison with other mutual funds, it should not be used for comparison with other investments using different assumptions or time periods. 8 FINANCIAL HIGHLIGHTS The tables below reflect the results of operations of the Funds on a per-share basis for the periods shown. The tables up through the year ended June 30, 1994 for Municipal Money Fund and High-Yield Municipals and information for the periods beginning after December 31, 1987 for Managed Municipals and Intermediate Municipals have been audited by Ernst & Young LLP, independent auditors. All of the auditors' reports related to information for these periods were unqualified. The information for the six months ended December 31, 1994 is unaudited. 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 upon request without charge, contains additional performance information. 9 MUNICIPAL MONEY FUND
Six Six Months Months Ended Ended Years Ended December 31, June 30, Years Ended June 30, Dec. 31, 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1994 ---- ---- ---- ------- ---- ---- ---- ---- ---- ----- ---- -------- NET ASSET VALUE, BEGINNING OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Net investment income .054 .047 .041 .040 .021 .056 .054 .046 .032 .020 .019 .013 Distributions from net investment income (.054) (.047) (.041) (.040) (.021) (.056) (.054) (.046) (.032) (.020) (.019) (.013) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of expenses to average net assets (b) 0.60% 0.60% 0.60% 0.69% *0.67% 0.67% 0.67% 0.68% 0.70% 0.70% 0.70% *0.70% Ratio of net investment income to average net assets (c) 5.45% 4.74% 4.05% 4.08% *4.25% 5.57% 5.40% 4.66% 3.19% 1.96% 1.88% *2.61% Total return 5.59% 4.82% 4.22% 4.11% *4.29% 5.74% 5.52% 4.74% 3.25% 1.97% 1.90% *2.61% Net assets, end of period (000 omitted) $145,291 $152,277 $251,465 $306,971 $294,116 $254,261 $255,953 $237,403 $199,037 $195,887 $165,820 $173,935
10 INTERMEDIATE MUNICIPALS
Six Six Period Months Months Ended Years Ended Ended Ended Dec. 31, December 31, June 30, Years Ended June 30, Dec. 31, 1985 (a) 1986 1987 1988 1989 1990 1991 1992 1993 1994 1994 ------- ---- ---- ------- ---- ----- ---- ---- ---- ---- -------- NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.14 $10.76 $10.37 $10.43 $10.50 $10.54 $10.73 $11.06 $11.57 $11.00 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Income from Investment Operations Net investment income .12 .58 .57 .29 .62 .63 .62 .57 .54 .53 .26 Net realized and unrealized gains (losses) on investments .14 .62 (.38) .06 .07 .07 .22 .50 .63 (.39) (.30) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from investment operations .26 1.20 .19 .35 .69 .70 .84 1.07 1.17 .14 (.04) Distributions Net investment income (.12) (.58) (.57) (.29) (.62) (.63) (.62) (.57) (.54) (.53) (.26) Net realized capital gains -- -- (.01) -- -- (.03) (.03) (.17) (.12) (.17) -- In excess of realized gains -- -- -- -- -- -- -- -- -- (.01) -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total distributions (.12) (.58) (.58) (.29) (.62) (.66) (.65) (.74) (.66) (.71) (.26) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $10.14 $10.76 $10.37 $10.43 $10.50 $10.54 $10.73 $11.06 $11.57 $11.00 $10.70 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of net expenses to average net assets (b) *0.80% 0.80% 0.80% *0.80% 0.80% 0.80% 0.80% 0.79% 0.72% 0.71% *0.75% Ratio of net investment income to average net assets (c) *5.82% 5.45% 5.47% *5.66% 5.96% 5.96% 5.79% 5.23% 4.79% 4.63% *4.95% Portfolio turnover rate 0% 10% 49% **22% 83% 141% 96% 109% 96% 55% **26% Total return **2.61% 12.09% 1.93% **3.45% 6.85% 6.85% 8.18% 10.31% 10.92% 1.16% **(0.29%) Net assets, end of period (000 omitted) $22,973 $104,750 $96,143 $97,308 $91,304 $98,918 $118,651 $165,401 $245,441 $238,053 $216,030
11 MANAGED MUNICIPALS
Six Six Months Months Ended Ended Years Ended December 31, June 30, Years Ended June 30, Dec. 31, 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1994 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.71 $ 7.89 $ 8.93 $ 9.22 $ 8.50 $ 8.61 $ 9.02 $ 8.71 $ 8.85 $ 9.11 $ 9.38 $ 8.70 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Income from Investment Operations Net investment income .67 .68 .67 .61 .30 .61 .59 .56 .55 .52 .50 .25 Net realized and unrealized gains (losses) on investments .18 1.07 1.21 (.59) .11 .44 (.06) .19 .46 .42 (.51) (.34) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Total from investment operations .85 1.75 1.88 .02 .41 1.05 .53 .75 1.01 .94 (.01) (.09) Distributions Net investment income (.67) (.68) (.67) (.61) (.30) (.61) (.59) (.56) (.55) (.52) (.50) (.25) Net realized capital gains -- (.03) (.92) (.13) -- (.03) (.25) (.05) (.20) (.15) (.11) -- In excess of realized gains -- -- -- -- -- -- -- -- -- -- (.06) -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Total distributions (.67) (.71) (1.59) (.74) (.30) (.64) (.84) (.61) (.75) (.67) (.67) (.25) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- NET ASSET VALUE, END OF PERIOD $ 7.89 $ 8.93 $ 9.22 $ 8.50 $ 8.61 $ 9.02 $ 8.71 $ 8.85 $ 9.11 $ 9.38 $ 8.70 $ 8.36 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Ratio of expenses to average net assets 0.64% 0.65% 0.65% 0.65% *0.65% 0.65% 0.66% 0.66% 0.64% 0.64% 0.65% *0.66% Ratio of net investment income to average net assets 8.74% 8.11% 7.04% 6.99% *7.03% 7.00% 6.66% 6.39% 6.17% 5.65% 5.45% *5.90% Portfolio turnover rate 190% 113% 92% 113% **28% 102% 95% 203% 94% 63% 36% **9% Total return 11.63% 23.00% 21.70% 0.39% **4.90% 12.69% 6.15% 8.92% 11.95% 10.79% (0.29%) **(1.01%) Net assets, end of period (000 omitted) $242,693 $357,360 $523,947 458,170 $467,595 $514,898 $584,081 $655,930 $725,472 $776,694 $687,252 $604,376
12 HIGH-YIELD MUNICIPALS
Six Six Period Months Months Ended Years Ended Ended Ended Dec. 31, December 31, June 30, Years Ended June 30, Dec. 31, 1984(a) 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1994 ------- ---- ---- ---- ------- ---- ---- ---- ---- ---- ---- ------ NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.02 $11.10 $12.06 $11.06 $11.37 $11.97 $11.78 $11.79 $11.83 $11.84 $11.06 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Income from Investment Operations Net investment income .73 .94 .90 .87 .44 .88 .85 .82 .80 .71 .67 .33 Net realized and unrealized gains (losses) on investments .02 1.08 1.11 (.89) .31 .63 .02 .17 .22 .18 (.54) (.42) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Total from investment operations .75 2.02 2.01 (.02) .75 1.51 .87 .99 1.02 .89 .13 (.09) Distributions Net investment income (.73) (.94) (.90) (.87) (.44) (.88) (.85) (.82) (.80) (.71) (.67) (.33) Net realized capital gains -- -- (.15) (.11) -- (.03) (.21) (.16) (.18) (.17) (.17) -- In excess of realized gains -- -- -- -- -- -- -- -- -- -- (.07) -- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Total distributions (.73) (.94) (1.05) (.98) (.44) (.91) (1.06) (.98) (.98) (.88) (.91) (.33) ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- NET ASSET VALUE, END OF PERIOD $10.02 $11.10 $12.06 $11.06 $11.37 $11.97 $11.78 $11.79 $11.83 $11.84 $11.06 $10.64 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- Ratio of net expenses to average net assets (b) *0.80% 0.80% 0.76% 0.73% *0.76% 0.73% 0.71% 0.71% 0.69% 0.73% 0.76% *0.89% Ratio of net investment income to average net assets (c) *9.60% 8.89% 7.77% 8.20% *7.87% 7.54% 7.22% 7.00% 6.75% 6.04% 5.76% *5.94% Portfolio turnover rate **68% 46% 34% 110% **53% 208% 261% 195% 88% 75% 36% **7% Total return **7.97% 20.96% 18.64% (0.16%) **6.89% 13.79% 7.59% 8.79% 9.01% 7.88% 0.95% **(0.88%) Net assets, end of period (000 omitted) $32,780 $99,796 $225,883 181,600 $201,274 $277,620 $310,582 $373,948 $410,613 $359,103 $308,181 $264,801 13 *Annualized. **Not annualized. (a) The Funds commenced operations on the following dates: Intermediate Municipals, October 9, 1985 and High-Yield Municipals, March 5, 1984. (b) If the Funds had paid all of their expenses and there had been no reimbursement of expenses by the Adviser, these ratios would have been: for Municipal Money Fund, 0.70%, 0.72%, and 0.70% for the years ended December 31, 1984, 1985 and 1986, respectively, and 0.75% for the six months ended December 31, 1994; for Intermediate Municipals, 2.38% for the period ended December 31, 1985, 0.94% and 0.83% for the years ended December 31, 1986 and 1987, respectively, 0.87% for the six months ended June 30, 1988, and 0.82%, 0.81%, and 0.81% for the years ended June 30, 1989 through 1991, respectively; and for High- Yield Municipals, 1.43% for the period ended December 31, 1984 and 0.81% for the year ended December 31, 1985. (c) Computed giving effect to the Adviser's expense limitation undertaking.
THE FUNDS The mutual funds offered by this prospectus are SteinRoe Municipal Money Market Fund ("Municipal Money Fund"), SteinRoe Intermediate Municipals ("Intermediate Municipals"), SteinRoe Managed Municipals ("Managed Municipals"), and SteinRoe High-Yield Municipals ("High-Yield Municipals") (collectively, the "Funds"). Each of the Funds is a no- load, diversified "mutual fund." Mutual funds sell their own shares to investors and invest the proceeds in a portfolio of securities. A mutual fund allows you to pool your money with that of other investors in order to obtain professional investment management. Mutual funds generally make it possible for you to obtain greater diversification of your investments and simplify your recordkeeping. The Funds do not impose commissions or charges when shares are purchased or redeemed. The Funds are series of the SteinRoe Municipal Trust (the "Municipal Trust"), an open-end management investment company, which is authorized to issue shares of beneficial interest in separate series. Each series represents interests in a separate portfolio of securities and other assets, with its own investment objectives and policies. Stein Roe & Farnham Incorporated (the "Adviser") provides investment advisory, administrative, and accounting and recordkeeping services to the Funds and the Portfolio. The Adviser also manages several other no- load mutual funds with different 14 investment objectives, including international funds, equity funds, taxable bond funds, and money market funds. To obtain prospectuses and other information on any of those mutual funds, please call 1-800-338- 2550. Rather than invest in securities directly, each Fund may seek to achieve its investment objective by converting to a "master fund/feeder fund" structure. Under that structure, the Fund and other mutual funds with the same investment objective would invest their assets in another investment company having the same investment objective and substantially the same investment policies and restrictions as the Fund. The purpose of such an arrangement is to achieve greater operational efficiencies and reduce costs. It is expected that any such investment company would be managed by the Adviser in substantially the same manner as the Fund. The only Fund operating under the Master Fund/Feeder Fund structure is Municipal Money Fund, which converted to the Master Fund/Feeder Fund structure on August 7, 1995. If another Fund were to convert to the Master Fund/ Feeder Fund structure, shareholders of that Fund would be given at least 30 days' prior notice, although they would not be entitled to vote on the action. Such investment would be made only if the Trustees determine it to be in the best interests of a Fund and its shareholders. (See Organization and Description of Shares-- Special Considerations Regarding Master Fund/Feeder Fund Structure.) HOW THE FUNDS INVEST Each Fund seeks a high level of current income that is exempt from Federal income tax by investing in Municipal Securities (described under Portfolio Investments and Strategies below), consistent with specified maturity and quality standards that differ among the Funds. Each Fund will invest as described below and also may employ the investment techniques described elsewhere in this prospectus. MUNICIPAL MONEY FUND. Municipal Money Fund seeks to achieve its objective by investing all of its assets in the Portfolio. The investment policies of the Portfolio and the Fund are identical. The Portfolio seeks maximum current income exempt from Federal income tax by 15 investing principally in a diversified portfolio of "short-term" Municipal Securities. In pursuing that objective, the Portfolio attempts to maintain relative stability of principal and liquidity. Generally, "short-term" securities are those with remaining maturities of no more than thirteen months. Although there can be no assurance that it will always be able to do so, the Portfolio follows procedures that the Board of Trustees of Base Trust believes are reasonably designed to stabilize its price per share at $1.00. These procedures and the definition of "short-term" are described in detail in the Statement of Additional Information. It is a fundamental policy /1/ that normally at least 80% of the Portfolio's investments will produce income that is exempt from Federal income tax, except for periods that the Adviser believes require a defensive position /2/ for the protection of shareholders. The Portfolio may invest in Municipal Securities that, at the time of purchase, are rated within the two highest ratings assigned by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation ("S&P"), except that if the Portfolio relies on ratings by Moody's for municipal commercial paper or ratings by S&P for short-term municipal notes, such securities must carry the highest rating assigned by the respective rating service./3/ The Portfolio may also invest in unrated securities that, in the opinion of the Board of Trustees of Base Trust, are at least equal in quality to the foregoing ratings. The Portfolio also may invest in [i] securities backed by the full faith and credit of the U.S. Government or [ii] securities as to which payment of principal and interest is collateralized by an escrow of securities issued or guaranteed by the U.S. Government or by its agencies or instrumentalities - ---------------------- /1/ A fundamental policy of a Fund or Portfolio may be changed only with the approval of a "majority of its outstanding voting securities" as defined in the Investment Company Act of 1940. /2/ A defensive position is one that temporarily reduces a Fund's or Portfolio's exposure to anticipated adverse market changes. /3/ For a description of Moody's and S&P ratings, see the Appendix to the Statement of Additional Information. All references to ratings apply to any ratings adopted in the future by a rating service that are determined by the Board of Trustees to be equivalent to current ratings. 16 ["U.S. Government Securities"]. The policies described in the preceding three sentences (except for the portions in brackets) are fundamental policies. In accordance with SEC Rule 2a-7 under the Investment Company Act, each security in which the Portfolio invests will be U.S. dollar denominated and (i) rated (or be issued by an issuer that is rated with respect to its short-term debt) within the two highest rating categories for short-term debt by at least two nationally recognized statistical rating organizations ("NRSRO") or, if rated by only one NRSRO, rated within the two highest rating categories by that NRSRO, or, if unrated, determined by or under the direction of the Board of Trustees of Base Trust to be of comparable quality, and (ii) determined by or under the direction of the Board of Trustees of Base Trust to present minimal credit risks. INTERMEDIATE MUNICIPALS. This Fund seeks a high current yield exempt from Federal income tax, consistent with the preservation of capital, by investing primarily in a diversified portfolio of "intermediate-term" Municipal Securities. Normally, at least 65% of the Fund's assets will be invested in Municipal Securities with a maturity of ten years or less (including Municipal Securities with longer maturities, but under which the holder is entitled to receive, upon demand at a stated time within ten years, the entire principal and accrued interest). In addition, the Fund's portfolio is expected to have a dollar-weighted average maturity of between three and ten years. It is a fundamental policy that normally at least 80% of the Fund's investments will produce income that is exempt from Federal income tax, except during periods that the Adviser believes require a temporary defensive position for the protection of shareholders. At least 75% of the Fund's investments in Municipal Securities will be (i) rated at the time of purchase within the three highest ratings by Moody's or S&P (except that if the Fund relies on ratings by S&P for municipal notes, such notes must be within the two highest ratings), (ii) if unrated, of comparable quality as determined by the Adviser, or (iii) backed by the U.S. Government or by an agency or instrumentality of the U.S. Government or by U.S. Government Securities. The Fund may also invest up to 25% of 17 its assets in other Municipal Securities without any minimum credit quality requirement, including those for which a limited market may exist, which normally involve greater risk of loss of principal or income and higher yield. MANAGED MUNICIPALS. This Fund seeks a high level of current income that is exempt from Federal income tax, consistent with the preservation of capital, by investing in a diversified portfolio of Municipal Securities. The Fund invests primarily in long-term Municipal Securities (generally maturing in more than ten years) but may also invest in shorter-term securities as a temporary defensive move. It is a fundamental policy that the Fund's assets will be invested so that at least 80% of its income will be exempt from Federal income tax, except during periods in which the Adviser 18 believes a temporary defensive position is advisable. At least 75% of the Fund's investments in Municipal Securities will be (i) rated at the time of purchase within the three highest ratings assigned by Moody's or S&P (except that if the Fund relies on ratings by S&P for municipal notes, such notes must be within the two highest ratings for such securities) or (ii) backed by the U.S. Government, by an agency or instrumentality of the U.S. Government or by U.S. Government Securities. The Fund may also invest up to 25% of its assets in other Municipal Securities without any minimum credit quality requirement, including those for which a limited market may exist, which normally involve greater risk of loss of principal or income and higher yield. HIGH-YIELD MUNICIPALS. This Fund seeks a high current yield exempt from Federal income tax by investing primarily in a diversified portfolio of Municipal Securities. The Fund invests principally in long-term (generally maturing in more than ten years) medium- or lower-quality Municipal Securities bearing a high rate of interest income; possible capital appreciation is of secondary importance. It is a fundamental policy that normally the Fund's assets will be invested so that at least 80% of its gross income will be derived from securities the interest on which is exempt from Federal income tax in the opinion of counsel for the issuers of such securities, except during periods in which the Adviser believes a temporary defensive position is advisable. Medium-quality Municipal Securities are obligations of issuers that the Adviser believes possess adequate, but not outstanding, capacities to service the obligations. Lower-quality Municipal 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. The Adviser attributes to medium- and lower-quality obligations the same general characteristics as do rating services. Because many issuers of medium- and lower-quality Municipal Securities choose not to have their obligations rated by a rating agency, many of the obligations in the Fund's portfolio may be unrated. 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. 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. Medium- and lower-quality debt securities tend to be less marketable than higher-quality debt securities because the market for them is less broad. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and the Fund may have greater difficulty selling its portfolio securities. Although the Fund invests principally in medium- or lower-quality Municipal Securities, it may invest in Municipal Securities of higher quality when the Adviser believes it is appropriate to do so. For the fiscal year ended June 30, 1994, the Fund's 19 portfolio was invested, on average, as follows: high-quality short-term instruments, 2.72%; AAA, 9.34%; AA, 19.54%; A, 33.20%; BBB, 18.08%; BB, 3.40%; CC, 0.36%; and unrated, 13.36%. The ratings are based on a dollar-weighted average, computed monthly, and reflect the higher of S&P or Moody's ratings. The ratings do not necessarily reflect the current or future composition of the Fund's portfolio. PORTFOLIO INVESTMENTS AND STRATEGIES MUNICIPAL SECURITIES. Municipal Securities are debt obligations issued by or on behalf of the governments of states, territories or possessions of the United States, the District of Columbia and their political subdivisions, agencies and instrumentalities, the interest on which is generally exempt from the regular Federal income tax. Except with respect to Municipal Money Fund and the Portfolio and subject to each Fund's investment policies described above, each Fund may invest in Municipal Securities rated with any credit rating below investment grade. Medium- and lower-quality Municipal Securities involve greater investment risk, as discussed above under How the Funds Invest--High- Yield Municipals. The two principal classifications of Municipal Securities are "general obligation" and "revenue" bonds. "General obligation" bonds are secured by the issuer's pledge of its faith, credit, and taxing power for the payment of principal and interest. "Revenue" bonds are usually payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source. Industrial development bonds are usually revenue bonds, the credit quality of which is normally directly related to the credit standing of the industrial user involved. Municipal Securities may bear either fixed or variable rates of interest. Variable rate securities bear rates of interest that are adjusted periodically according to formulae intended to minimize fluctuation in values of the instruments. Within the principal classifications of Municipal Securities, there are various types of instruments, including municipal bonds, municipal notes, municipal leases, custodial receipts, and participation certificates. Municipal notes include tax, revenue, and bond 20 anticipation notes of short maturity, generally less than three years, which are issued to obtain temporary funds for various public purposes. Municipal lease securities, and participation certificates therein, evidence certain types of interests in lease or installment purchases contract obligations of a municipal authority or other entity. Custodial receipts represent ownership in future interest or principal payments (or both) on certain Municipal Securities and are underwritten by securities dealers or banks. Some Municipal Securities may not be backed by the faith, credit, and taxing power of the issuer and may involve "non-appropriation" clauses which provide that the municipal authority is not obligated to make lease or other contractual payments, unless specific annual appropriations are made by the municipality. Each Fund may invest more than 5% of its net assets in municipal bonds and notes, but does not expect to invest more than 5% of its net assets in the other Municipal Securities described in this paragraph. The Funds may also purchase Municipal Securities that are insured as to the timely payment of interest and principal. Such insured Municipal Securities may already be insured when purchased by a Fund or the Fund may purchase insurance in order to turn an uninsured Municipal Security into an insured Municipal Security. Some Municipal Securities are backed by (i) the full faith and credit of the U.S. Government, (ii) agencies or instrumentalities of the U.S. Government, or (iii) U.S. Government Securities. Except with respect to Municipal Securities with a demand feature acquired by Municipal Money Fund and the Portfolio (see the definition of "short-term" in the Statement of Additional Information), if, after purchase by a Fund, an issue of Municipal Securities ceases to meet the required rating standards, if any, the Fund is not required to sell such security, but the Adviser would consider such an event in deciding whether the Fund should retain the security in its portfolio. In the case of Municipal Securities with a demand feature acquired by Municipal Money Fund or the Portfolio, if the quality of such a security falls below the minimum level applicable at the time of acquisition, the Fund must dispose of 21 the security, unless the Board of Trustees determines that it is in the best interests of the Fund and its shareholders to retain the security. WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Each Fund's assets may include securities purchased on a when-issued or delayed-delivery basis. Although the payment and interest terms of these securities are established at the time the purchaser enters into the commitment, the securities may be delivered and paid for a month or more after the date of purchase, when their value may have changed. The Funds 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. Securities purchased in this manner involve a risk of loss if the value of the security purchased declines before settlement date. STANDBY COMMITMENTS. To facilitate portfolio liquidity, each Fund may obtain standby commitments when it purchases Municipal Securities. A standby commitment gives the holder the right to sell the underlying security to the seller at an agreed-upon price on certain dates or within a specified period. PARTICIPATION INTERESTS. Each Fund may also purchase participation interests or certificates of participation in all or part of specific holdings of Municipal Securities, including municipal lease obligations. Some participation interests, certificates of participation, and municipal lease obligations are illiquid and, as such, will be subject to the Funds' 15% limit on investments in illiquid securities. FUTURES AND OPTIONS. Each of Intermediate Municipals, Managed Municipals, and High Yield Municipals may purchase and write both call options and put options on securities and on indexes, and enter into interest rate and index futures contracts and options on such futures contracts in order to provide additional revenue, or to hedge against changes in security prices or interest rates. Each Fund may write a call or put option only if the option is covered. As the writer of a covered call option, the Fund foregoes, during the option's life, the opportunity to profit from increases in market value of the security covering the call option above the sum of the premium and the exercise price of the call. Because 22 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. Since there can be no assurance that a liquid market will exist when the Fund seeks to close out a position, these risks may become magnified. RESTRICTIONS ON THE FUNDS' INVESTMENTS For purposes of discussion under Restrictions on the Funds' Investments and Risks and Investment Considerations, the term "the Fund" refers to Municipal Money Fund, Intermediate Municipals, Managed Municipals, High- Yield Municipals, and the Portfolio. No Fund will: (i) with respect to 75% of its total assets, invest more than 5% of its total assets in the securities of any one issuer (except for obligations issued or guaranteed by the U.S. Government or by its agencies or instrumentalities; guarantees or letters of credit of a single guarantor may exceed this limit; see the Statement of Additional Information); or (ii) invest more than 25% of its total assets in securities of non-governmental issuers whose principal business activities are in the same industry. Notwithstanding these limitations, each Fund, but not the Portfolio, may invest all or substantially all of its assets in another registered investment company having the same investment objective and substantially similar investment policies as the Fund. No Fund may borrow money or pledge or mortgage its assets except as a temporary measure for extraordinary or emergency purposes, and then the aggregate borrowings at any one time (including any reverse repurchase agreements) may not exceed 33 1/3% of its assets (at market value). No Fund may purchase additional securities when its borrowings, less proceeds receivable from sales of portfolio securities, exceed 5% of its total assets. (See, however, Risks and Investment Considerations.) The restrictions described in this section are fundamental policies of the Funds. 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. Although each Fund seeks to reduce risk by investing (directly 23 or, in the case of Municipal Money Fund, through the Portfolio) in a diversified portfolio, this does not eliminate all risk. The risks inherent in each Fund depend primarily upon the maturity and quality of the obligations in which the Fund invests, as well as on market conditions. A decline in prevailing levels of interest rates generally increases the value of securities in which a Fund invests, while an increase in rates usually reduces the value of those securities. Generally, high-quality short-term obligations offer lower yields and less fluctuation in value than long-term low-quality obligations. Consequently, Municipal Money Fund is designed for investors who seek little or no fluctuation in portfolio value. Intermediate Municipals is appropriate for investors who seek more tax-exempt income than is usually available from tax-exempt money funds and who can accept some fluctuation in portfolio value. Managed Municipals is appropriate for investors who seek higher tax-exempt income than normally provided by shorter-term tax-exempt securities and who can accept the greater portfolio fluctuation associated with long-term Municipal Securities. High-Yield Municipals is designed for investors who seek a high level of tax-exempt income and who can accept still greater fluctuation in portfolio value and other risks, such as increased credit risk, associated with medium- and lower-quality long-term Municipal Securities. Although the Funds currently limit their investments in Municipal Securities to those the interest on which is exempt from the regular Federal income tax, each Fund may invest up to 100% of its total assets in Municipal Securities the interest on which is subject to the Federal alternative minimum tax. (See Distributions and Income Taxes.) Each Fund's objective is not fundamental and may be changed by the Board of Trustees without a vote of shareholders. If there is a change in a Fund's investment objective, shareholders should consider whether the Fund remains an appropriate investment in light of their then-current financial position and needs. There can be no assurance that a Fund will achieve its objective, nor can a Fund assure that payments of interest and principal on portfolio obligations will be made when due. In seeking to attain its 24 objective, a Fund may sell securities without regard to the period of time they have been held. As a result, the turnover rate may vary from year to year. A high rate of portfolio turnover may result in increased transaction costs and the realization of capital gains or losses. Each Fund may invest 25% or more of its assets in Municipal Securities that are related in such a way that an economic, business, or political development affecting one such security could also affect the other securities. For example, Municipal Securities the interest upon which is paid from revenues of similar-type projects, such as hospitals, utilities, or housing, would be so related. Each Fund may invest 25% or more of its assets in industrial development bonds (subject to the concentration restrictions described in this prospectus under Restrictions on the Funds' Investments and in the Statement of Additional Information). Assets of a Fund that are not invested in Municipal Securities may be held in cash or invested in short-term taxable investments. /4/ 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 SteinRoe 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; and 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. Subsequent purchases must be at least $100, or at least $50 if you purchase by electronic transfer. (See Shareholder Services.) BY CHECK. To make an initial purchase of shares of a Fund, please complete and sign the Application and mail it to P.O. Box 804058, Chicago, Illinois 60680, together with a check made payable to SteinRoe Funds. You may make subsequent investments by submitting a check along with either the stub from your Fund account confirmation statement or a note indicating the amount of the purchase, your account - --------------------- /4/ The policy expressed in this sentence is a fundamental policy of Municipal Money Fund, the Portfolio, and Managed Municipals. 25 number, and the name in which your account is registered. Each individual check submitted for purchase must be at least $100, and the Trust generally will not accept cash, drafts, third party checks, or checks drawn on banks outside of the United States. Should an order to purchase shares of a Fund be cancelled because your check does not clear, you will be responsible for any resulting loss incurred by that Fund. BY WIRE. You may also pay for shares by instructing your bank to wire Federal funds (monies of member banks within the Federal Reserve System) to the Funds' custodian bank. Your bank may charge you a fee for sending the wire. If you are opening a new account by wire transfer, you must first telephone the Trust to request an account number and furnish your social security or other tax identification number. Neither the Funds nor the Trust will be responsible for the consequences of delays, including delays in the banking or Federal Reserve wire systems. Your bank must include the full name(s) in which your account is registered and your Fund account number, and should address its wire as follows: State Street Bank and Trust Company Boston, Massachusetts Attention: Custody Fund No. ____; SteinRoe _______ Account of (exact name(s) in registration) Shareholder Account No. _____ Fund Numbers: 7101--Managed Municipals 7110--Municipal Money Fund 7113--High-Yield Municipals 7114--Intermediate Municipals BY ELECTRONIC TRANSFER. You may also make subsequent investments by an electronic transfer of funds from your bank checking account. Electronic transfer allows you to make purchases at your request ("Special Investments") by calling 1-800-338-2550 or at pre-scheduled intervals ("Regular Investments"). (See Shareholder Services.) Electronic transfer purchases are subject to a $50 minimum and a $100,000 maximum. You may not open a new account through electronic transfer. Should an order to purchase shares of a Fund be cancelled because your electronic transfer does not clear, you will be responsible for any resulting loss incurred by that Fund. 26 BY EXCHANGE. You may purchase shares by exchange of shares from another SteinRoe Fund account either by phone (if the Telephone Exchange Privilege has been established on the account from which the exchange is being made), by mail, in person, or automatically at regular intervals (if you have elected Automatic Exchanges). Restrictions apply; please review the information under How to Redeem Shares--By Exchange. PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of a Fund's shares is made at that Fund's net asset value (see Net Asset Value) next determined after receipt of payment as follows: A purchase by check or wire transfer is made at the net asset value next determined after receipt by the Fund of the check or wire transfer of funds in payment of the purchase. A purchase by electronic transfer is made at the net asset value next determined after the Fund receives the electronic transfer from your bank. A Special Electronic Transfer Investment order received by telephone on a business day before 2:00 p.m., Chicago time, is effective on the next business day. Shares begin earning dividends on the day following the day on which they are purchased. CONDITIONS OF PURCHASE. Each purchase order for a Fund must be accepted by an authorized officer of Municipal Trust in Chicago and is not binding until accepted and entered on the books of that Fund. Once your purchase order has been accepted, you may not cancel or revoke it; however, you may redeem the shares. Municipal Trust reserves the right not to accept any purchase order that it determines not to be in the best interest of the Trust or of a Fund's shareholders. Municipal Trust also reserves the right to waive or lower its investment minimums for any reason. The Trust does not issue certificates for shares. PURCHASES THROUGH THIRD PARTIES. You may purchase (or redeem) shares through investment dealers, banks, or other financial institutions. These institutions may charge for their services or place limitations on the extent to which you may use the services offered by Municipal Trust. There are no charges or limitations imposed by the Trust (other than those described in this prospectus) if 27 shares are purchased (or redeemed) directly from the Trust. Some financial institutions which maintain nominee accounts with the Fund for their clients who are Fund shareholders charge an annual fee of up to 0.25% of the average net assets held in such accounts for accounting, servicing, and distribution services they provide with respect to the underlying Fund shares. The Fund may pay a portion of those fees not to exceed the fees and expenses the Fund would pay to its transfer agent if the shares held in nominee name were registered on the Fund's books in the individual names of the owners of such shares. The balance of such fees are paid by the Adviser. HOW TO REDEEM SHARES BY WRITTEN REQUEST. You may redeem all or a portion of your shares of a Fund by submitting a written request in "good order" to Municipal Trust at P.O. Box 804058, Chicago, Illinois 60680. A redemption request will be considered to have been received in good order if the following conditions are satisfied: (1) the request must be in writing, indicate the number of shares or dollar amount to be redeemed, and identify the shareholder's account number; (2) the request must be signed by the shareholder(s) exactly as the shares are registered; (3) the request must be accompanied by any certificates for the shares, either properly endorsed for transfer, or accompanied by a stock assignment properly endorsed exactly as the shares are registered; (4) the signatures on either the written redemption request or the certificates (or the accompanying stock power) must be guaranteed (a signature guarantee is not a notarization, but is a widely accepted way to protect you and the Funds by verifying your signature); (5) corporations and associations must submit with each request a completed Certificate of Authorization included in this prospectus (or a form of resolution acceptable to the Trust); and (6) other supporting legal documents may be required from organizations, executors, administrators, trustees, or others acting 28 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 SteinRoe 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 SteinRoe 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 SteinRoe 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 SteinRoe Fund to which you exchange on the next business day. An exchange may be made by following the redemption procedure described above under By Written Request and indicating the SteinRoe Fund to be purchased, except that a signature guarantee normally is not required. (See also the discussion below of the Telephone Exchange Privilege and Automatic Exchanges.) SPECIAL REDEMPTION PRIVILEGES. The Telephone Exchange Privilege and the Telephone Redemption by Check Privilege will be established automatically for you when you open your account unless you decline these Privileges on your Application. Other Privileges must be specifically elected. If you do not want the Telephone Exchange and Redemption Privileges, check the box(es) under the section "Telephone Redemption Options" when completing your Application. In addition, a signature guarantee may be required to establish a Privilege after you open your account. If you establish both the Telephone Redemption by Wire Privilege and the Electronic Transfer Privilege, the bank account that you designate for both Privileges must be the same. You may not use any of the Special Redemption Privileges if you hold certificates for any of your Fund shares. (See also General Redemption Policies.) 29 Telephone Exchange Privilege. You may use the Telephone Exchange Privilege to exchange an amount of $1,000 or more from your account by calling 1-800-338-2550 or by sending a telegram; new accounts opened by exchange are subject to the $2,500 initial purchase minimum. Generally, you will be limited to four Telephone Exchange round-trips per year and the Funds may refuse requests for Telephone Exchanges in excess of four round-trips (a round-trip being the exchange out of a Fund into another SteinRoe Fund, and then back to that Fund). Also, Municipal Trust's general redemption policies apply to redemptions of shares by Telephone Exchange. (See General Redemption Policies.) Municipal Trust reserves the right at any time without prior notice to suspend or terminate the use of the Telephone Exchange Privilege by any person or class of persons. The Trust believes that use of the Telephone Exchange Privilege by investors utilizing market-timing strategies adversely affects the Funds. Therefore, the Trust generally will not honor requests for Telephone Exchanges by shareholders identified by the Trust as "market-timers." Moreover, the Trust reserves the right at any time without prior notice to suspend, limit, modify, or terminate the Telephone Exchange Privilege in its entirety. Because such a step would be taken only if the Board of Trustees believes it would be in the best interests of the Funds, the Trust expects that it would provide shareholders with prior written notice of any such action unless it appears that the resulting delay in the suspension, limitation, modification, or termination of the Telephone Exchange Privilege would adversely affect the Funds. If the Trust were to suspend, limit, modify, or terminate the Telephone Exchange Privilege, a shareholder expecting to make a Telephone Exchange might find that an exchange could not be processed or that there might be a delay in the implementation of the exchange. (See How to Redeem Shares- - -By Exchange.) During periods of volatile economic and market conditions, you may have difficulty placing your exchange by telephone. Automatic Exchanges. You may use the Automatic Exchange Privilege to automatically redeem a fixed amount from your Fund account for investment in another SteinRoe 30 Fund account on a regular basis. Telephone Redemption by Check Privilege. You may use the Telephone Redemption by Check Privilege to redeem an amount of $1,000 or more from your account by calling 1-800-338-2550. The proceeds will be sent by check to your registered address. Telephone Redemption by Wire Privilege (Municipal Money Fund accounts only). You may use this Privilege to redeem an amount of $1,000 or more from your account by calling 1-800-338-2550. The proceeds will be transmitted by wire to your account at a commercial bank previously designated by you that is a member of the Federal Reserve System. The fee for wiring proceeds (currently $3.50 per transaction) will be deducted from the amount wired. Check-Writing Privilege (Municipal Money Fund accounts only). You may also redeem shares by writing special checks in the amounts of $50 or more. Your checks are drawn against a special checking account maintained with the custodian, and you will be subject to the custodian's procedures and rules relating to its checking accounts and to this Privilege. Electronic Transfer Privilege. You may redeem shares by calling 1-800- 338-2550 and requesting an electronic transfer ("Special Redemption") of the proceeds to a checking account previously designated by you at a bank that is a member of the Automated Clearing House or at scheduled intervals ("Automatic Redemptions"--see Shareholder Services). Electronic transfers are subject to a $50 minimum and a $100,000 maximum. A Special Redemption request received by telephone after 2:00 p.m., Chicago time, is deemed received on the next business day. GENERAL REDEMPTION POLICIES. You may not cancel or revoke your redemption order once instructions have been received and accepted. The Trust cannot accept a redemption request that specifies a particular date or price for redemption or any special conditions. Please telephone the Trust if you have any questions about requirements for a redemption before submitting your request. The Trust reserves the right to require a properly completed Application before making payment for shares redeemed. 31 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, Municipal Money Fund normally intends to pay proceeds of a written redemption within two business days and proceeds of a Telephone Redemption paid by wire on the next business day. The Trust will not be responsible for the consequences of delays, including delays in the mail, banking, or Federal Reserve wire systems. If you attempt to redeem shares within 15 days after they have been purchased by check or electronic transfer, the Trust may delay payment of the redemption proceeds to you until it can verify that payment for the purchase of those shares has been (or will be) collected. To reduce such delays, the Trust recommends that your purchase be made by Federal funds wire through your bank. The Trust reserves the right at any time without prior notice to suspend, limit, modify, or terminate any Privilege or its use in any manner by any person or class. Neither the Trust, its transfer agent, nor their respective officers, trustees, directors, employees, or agents will be responsible for the authenticity of instructions provided under the Privileges, nor for any loss, liability, cost or expense for acting upon instructions furnished thereunder if they reasonably believe that such instructions are genuine. The Funds employ procedures reasonably designed to confirm that instructions communicated by telephone under any Special Redemption Privilege or the Special Electronic Transfer Redemption Privilege are genuine. Use of any Special Redemption Privilege or the Special Electronic Transfer Redemption Privilege authorizes the Funds and their transfer agent to tape-record all instructions to redeem. In addition, callers are asked to identify the account number and registration, and may be 32 required to provide other forms of identification. Written confirmations of transactions are mailed promptly to the registered address; a legend on the confirmation requests the shareholder to review the transactions and inform the Fund immediately if there is a problem. If a Fund does not follow reasonable procedures for protecting shareholders against loss on telephone transactions, it may be liable for any losses due to unauthorized or fraudulent instructions. Generally, you may not use the Exchange Privilege or any Special Redemption Privilege to redeem shares purchased by check (other than certified or cashiers' checks) or electronic transfer until 15 days after their date of purchase. The Trust reserves the right to redeem shares in any account and send the proceeds to the owner if the shares in the account do not have a value of at least $1,000. Shares in any account you maintain with a Fund or any of the other SteinRoe Funds may be redeemed to the extent necessary to reimburse any SteinRoe Fund for any loss it sustains that is caused by you (such as losses from uncollected checks and electronic transfers or any SteinRoe Fund liability under the Internal Revenue Code provisions on backup withholding). SHAREHOLDER SERVICES REPORTING TO SHAREHOLDERS. You will receive a confirmation statement reflecting each of your purchases and redemptions of shares of a Fund, as well as periodic statements detailing distributions made by that Fund. Shares purchased by reinvestment of dividends, by cross- reinvestment of dividends from another Fund, or pursuant to an automatic investment plan will be confirmed to you quarterly. In addition, the Trust will send you semiannual and annual reports showing Fund portfolio holdings and will provide you annually with tax information. FUNDS-ON-CALL [registered trademark] 24-HOUR INFORMATION SERVICE. To access the SteinRoe Funds-on-Call [registered trademark] automated telephone service, just call 1-800-338-2550 on any touch-tone telephone and follow the recorded instructions. Funds-on-Call [registered trademark] provides yields, prices, latest dividends, account balances, last transaction, and other information 24 hours a day, seven days a week. 33 FUNDS-ON-CALL [registered trademark] AUTOMATED TELEPHONE TRANSACTIONS. If you have established the Funds-on-Call [registered trademark] transaction privilege (Funds-on-Call [registered trademark] Application will be required), you may initiate Special Investments and Redemptions, Telephone Exchanges, and Telephone Redemptions by Check 24 hours a day, seven days a week by calling 1-800-338-2550 on a touch-tone telephone. These transactions are subject to the terms and conditions of the individual privileges. (See How to Purchase Shares and How to Redeem Shares.) STEINROE COUNSELOR [service mark] PROGRAM. The Adviser offers a SteinRoe Counselor [service mark] and a SteinRoe Counselor Preferred [service mark] program. The programs are designed to provide investment guidance in helping investors to select a portfolio of SteinRoe Mutual Funds. The SteinRoe Counselor Preferred [service mark] program, which automatically adjusts client portfolios, has a fee of up to 1% of assets. RECORDKEEPING AND ADMINISTRATION SERVICES. If you oversee or administer investments for a group of investors, we offer a variety of services. SPECIAL SERVICES. The following special services are available to shareholders. Please call 1-800-338-2550 or write the Trust for additional information and forms. Dividend Purchase Option--to diversify your Fund investments by having distributions from one Fund account automatically invested in another SteinRoe Fund account. Before establishing this option, you should obtain and read carefully the prospectus of the SteinRoe Fund into which you wish to have your distributions invested. The account from which distributions are made must be of sufficient size that each distribution will usually be at least $25. The account into which distributions are to be invested may be opened with an initial investment of only $1,000. Automatic Dividend Deposit (electronic transfer)--to have income dividends and capital gain distributions deposited directly into your bank checking account. Telephone Redemption by Check Privilege and Telephone Exchange Privilege--established automatically when you open your account unless you decline them on your Application ($1,000 minimum). (See How to 34 Redeem Shares--Special Redemption Privileges.) Telephone Redemption by Wire Privilege--to redeem shares from your account by phone and have the proceeds transmitted by wire to your checking account ($1,000 minimum). (This Privilege is available only for Municipal Money Fund accounts.) Check-Writing Privilege--to redeem shares by writing special checks against your Fund account ($50 minimum per check). (This Privilege is available only for Municipal Money Fund accounts.) Special Redemption Option (electronic transfer)--to redeem shares at any time and have the proceeds deposited directly to your bank checking account ($50 minimum; $100,000 maximum). Regular Investments (electronic transfer)--to purchase Fund shares at regular intervals directly from your bank checking account ($50 minimum; $100,000 maximum). Special Investments (electronic transfer)--to purchase Fund shares by telephone and pay for them by electronic transfer of funds from your checking account ($50 minimum; $100,000 maximum). Automatic Exchange Plan--to automatically redeem a fixed dollar amount from your Fund account and invest it in another SteinRoe Fund account on a regular basis ($50 minimum; $100,000 maximum). Automatic Redemptions (electronic transfer)--to have a fixed dollar amount redeemed and sent at regular intervals directly to your bank checking account ($50 minimum; $100,000 maximum). Systematic Withdrawals--to have a fixed dollar amount, declining balance, or fixed percentage of your account redeemed and sent at regular intervals by check to you or another payee. NET ASSET VALUE The purchase and redemption price of each Fund's shares is its net asset value per share. Each Fund and the Portfolio determines the net asset value of its shares as of the close of trading on the New York Stock Exchange (currently 3:00 p.m., Chicago time) by dividing the difference between the values of its assets and liabilities by the number of its shares outstanding. In the case of Municipal 35 Money Fund, its shares of the Portfolio are valued at their net asset value. Net asset value will not be determined on days when the Exchange is closed unless, in the judgment of the Board of Trustees, the net asset value of a Fund should be determined on any such day, in which case the determination will be made at 3:00 p.m., Chicago time. Securities held by Intermediate Municipals, Managed Municipals, or High- Yield Municipals are valued based on valuations provided by a pricing service. These valuations are reviewed by the Adviser. If the Adviser believes that a valuation received from the service does not represent a fair value, it values the obligation by a method that the Board of Municipal Trust believes will determine a fair value. The Board may approve the use of another pricing service and any pricing service used may employ electronic data processing techniques, including a so-called "matrix" system, to determine valuations. Other assets and securities are valued by a method that the Board believes will determine a fair value. Securities held by the Portfolio are valued at their amortized cost, which does not take into account unrealized gains or losses, in an attempt to maintain the net asset value of each of the Portfolio and Municipal Money Fund at $1.00 per share. 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 of the appropriate Trust. If such deviation were to exceed 1/2 of 1%, the Board would consider what action, if any, should be taken, including selling portfolio securities, increasing, reducing or suspending distributions, or redeeming shares in kind. Other assets and securities of the Portfolio for which this valuation method does not produce a fair value are valued at a fair value determined by the Board of Base Trust. DISTRIBUTIONS AND INCOME TAXES DISTRIBUTIONS. Income dividends are declared each business day, and are paid monthly and confirmed at least quarterly. 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. Each 36 Fund intends to distribute by the end of each calendar year at least 98% of any net capital gains realized from the sale of securities during the twelve-month period ended October 31 in that year. The Funds intend to distribute any undistributed net realized capital gains in the following year. All of your income dividends and capital gain distributions will be reinvested in additional shares unless you elect to have distributions either (1) paid by check, (2) deposited by electronic transfer into your bank checking account, (3) applied to purchase shares in your account with another SteinRoe Fund, or (4) applied to purchase shares in a SteinRoe Fund account of another person. (See Shareholder Services.) Reinvestment normally occurs on the payable date. The Trust reserves the right to reinvest the proceeds and future distributions in additional Fund shares if checks mailed to you for distributions are returned as undeliverable or are not presented for payment within six months. INCOME TAXES. All of the Funds and the Portfolio currently limit their investments in Municipal Securities to those the interest on which they believe is exempt from the regular Federal income tax ("exempt-interest dividends"). Each Fund and the Portfolio may invest up to 100% of its total assets in Municipal Securities the interest on which is subject to the alternative minimum tax. In addition, if a Fund or the Portfolio should ever invest in securities the interest on which is not exempt, dividends paid by it from such interest would be subject to Federal income tax at ordinary rates. The portion of the dividends you receive representing net short-term capital gain is taxable to you as ordinary income. Distributions of net long-term capital gain are taxable to you as long-term capital gain regardless of the length of time you have held your Fund shares. Promptly after the end of each calendar year, you will receive a statement of the Federal income tax status of all dividends and capital gain distributions paid during the year. The portion of your dividends and distributions that are taxable will be taxable to you whether received in cash or reinvested in additional shares. 37 If you are receiving social security benefits, tax-exempt income, including exempt-interest dividends received from the Funds, will be added to your taxable income in determining whether a portion of your benefits will be subject to Federal income tax. Interest on borrowings you incur to purchase or carry shares of a Fund is not deductible for Federal income tax purposes. You may be subject to state and local taxes on distributions from the Funds, including those distributions that are exempt from Federal income tax. For Federal income tax purposes, each Fund is treated as a separate taxable entity distinct from the other series of the Trust. This section is not intended to be a full discussion of income tax laws and their effect on shareholders. You may wish to consult your own tax advisor. BACKUP WITHHOLDING. If (a) you fail to (i) furnish your properly certified social security or other tax identification number or (ii) certify that your tax identification number is correct or that you are not subject to backup withholding due to the underreporting of certain income, or (b) the Internal Revenue Service informs the Trust that your tax identification number is incorrect, the Trust may be required to withhold Federal income tax ("backup withholding") from certain payments (including redemption proceeds) to you. These certifications are contained in the Application that you should complete and return when you open an account. The Funds must promptly pay to the IRS all amounts withheld. Therefore, it is usually not possible for a Fund to reimburse you for amounts withheld. However, you may claim the amount withheld as a credit on your Federal income tax return. INVESTMENT RETURN The total return from an investment in a Fund is measured by the distributions received (assuming reinvestment) plus or minus the change in the net asset value per share for a given period. A total return percentage may be calculated by dividing the value of a share at the end of the period (including reinvestment of distributions) by the value of the share at the beginning of the period and subtracting one. For a given period, an average annual total return may be calculated by finding the average annual 38 compounded rate that would equate a hypothetical $1,000 investment to the ending redeemable value. Because Municipal Money 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. Municipal Money Fund's current and effective yields for the seven-day period ended September 30, 1994, were 2.84% and 2.89%, respectively. To obtain current yield information, you may call 1-800- 338-2550 or write to the address shown on the back cover. The value of the three other Funds will fluctuate. Therefore, the current yield of each of these Funds 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 that Fund and the alternative investments, the periods and methods used in the calculation of the return being compared, and the impact of taxes on alternative investments. Except for Municipal Money Fund, yield figures are not based on actual dividends paid. Past performance is not necessarily indicative of future results. MANAGEMENT OF THE FUNDS TRUSTEES AND INVESTMENT ADVISER. The Board of Trustees of Municipal Trust and the Board of Trustees of Base Trust have overall management responsibility for the Trust and the Funds and the Portfolio, respectively. See the Statement of Additional Information for the names of and other information about the trustees and officers. Since Municipal Trust and Base Trust have the same trustees, the trustees have adopted conflict of interest procedures to monitor and address potential conflicts between the interests 39 of Municipal Money Fund and the Portfolio. The Adviser, Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago, Illinois 60606, is responsible for managing the investment portfolios of the Funds and the Portfolio and the business affairs of the Funds, the Portfolio, Municipal Trust and 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 was organized in 1986 to succeed to the business of Stein Roe & Farnham, a partnership that had advised and managed mutual funds since 1949. The Adviser is a wholly-owned indirect subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual"). In approving the use of a single combined prospectus, the Boards considered the possibility that one Fund (or the Portfolio) might be liable for misstatements in the prospectus regarding information concerning another Fund (or the Portfolio). PORTFOLIO MANAGERS. Jill K. Netzel has been portfolio manager of Municipal Money Fund since August 1994 and of the Portfolio since August 1995. A vice-president of the Trust, she has been associated with the Adviser since 1989 and was previously employed by Continental Bank, Smith Barney Harris Upham, and Shearson. Ms. Netzel received her B.S. degree from the University of South Dakota in 1981. Ms. Netzel is assisted in managing the Fund and the Portfolio by Joanne T. Costopoulos. M. Jane McCart has been portfolio manager of Managed Municipals since August 1991 and of High-Yield Municipals since February 1995. Prior to August 1991, she had been portfolio manager of Municipal Money Fund since its inception in 1983 and of Intermediate Municipals since its inception in 1985. Ms. McCart is a vice-president of the Trust and a senior vice president of the Adviser, and has been associated with the Adviser since 1983. From 1973 to 1983, she was with the National Bank of Detroit. She received her B.S.B.A. degree from Lawrence Technological University in 1973 and, as of June 30, 1994, was responsible for managing $995 million in mutual fund assets. Ms. McCart is assisted in managing the Funds by Ms. Costopoulos. 40 Joanne T. Costopoulos has been portfolio manager of Intermediate Municipals since August 1991 and is a vice-president of the Trust and of the Adviser. Responsible for managing $413 million in mutual fund assets as of June 30, 1994, she joined the Adviser in 1982. In her previous position as a head trader in the fixed-income area, she traded tax-exempt securities for both institutional and individual investment portfolios. She received her B.A. in business administration from Elmhurst College in 1985. Ms. Costopoulos is assisted in managing the Fund by Ms. McCart. FEES AND EXPENSES. The Adviser receives a monthly investment advisory fee (for investment management and administrative services), computed and accrued daily based on the average net assets of each Fund other than Municipal Money Fund, at the following annual rates: Intermediate Municipals and High-Yield Municipals, .6 of 1% of the first $100 million of average net assets, .55 of 1% of the next $100 million, and .5 of 1% thereafter; and Managed Municipals, .6 of 1% of the first $100 million, .55 of 1% of the next $100 million, .5 of 1% of the next $800 million, and .45 of 1% thereafter. Prior to August 7, 1995, the Adviser received an investment advisory fee from Municipal Money Fund at an annual rate of .5 of 1% of average net assets. Effective August 7, 1995, the Adviser receives from the Portfolio a monthly portfolio management fee, computed and accrued daily, based on the Portfolio's average net assets, at the annual rate of .25 of 1% of the first $500 million, .20 of 1% of the next $500 million, and .15 of 1% thereafter. Beginning August 7, 1995, the Adviser also provides administrative services to Municipal Money Fund under a separate administrative agreement for a monthly fee, computed and accrued daily, at an annual rate of .25 of 1% of the first $500 million of average net assets, .20 of 1% of the next $500 million, and .15 of 1% thereafter. For the fiscal year ended June 30, 1994, the annualized advisory fees for Municipal Money Fund, Intermediate Municipals, Managed Municipals and High-Yield Municipals were .50%, .56%, .52%, 41 and .54% of average net assets, respectively. Under a separate agreement with the Trust, the Adviser provides certain accounting and bookkeeping services to the Funds, including computation of each Fund's net asset value and calculation of its net income and capital gains and losses on disposition of Fund assets. Please refer to Fee Table for information on the Adviser's undertaking to limit the Funds' expenses. PORTFOLIO TRANSACTIONS. The Adviser places the orders for the purchase and sale of portfolio securities for each Fund and the Portfolio. In doing so, the Adviser seeks to obtain the best combination of price and execution, which involves a number of judgmental factors. TRANSFER AGENT. SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois 60606, a wholly-owned indirect subsidiary of Liberty Mutual, is the agent of the Trust for the transfer of shares, disbursement of dividends, and maintenance of shareholder accounting records. DISTRIBUTOR. The shares of each Fund are offered for sale through Liberty Securities Corporation ("Distributor") without any sales commissions or charges to the Funds or to their shareholders. The Distributor is a wholly-owned indirect subsidiary of Liberty Mutual. The business address of the Distributor is 600 Atlantic Avenue, Boston, Massachusetts 02210; however, all Fund correspondence (including purchase and redemption orders) should be mailed to the Trust at P.O. Box 804058, Chicago, Illinois 60680. All distribution and promotional expenses are paid by the Adviser, including payments to the Distributor for sales of Fund shares. ORGANIZATION AND DESCRIPTION OF SHARES Each Fund is a separate series of Municipal Trust, a Massachusetts business trust organized under an Agreement and Declaration of Trust ("Declaration of Trust") dated October 6, 1987, 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 Municipal Trust's shareholders or its trustees. The Trust may issue 42 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 Municipal Trust could, in some circumstances, be held personally liable for unsatisfied obligations of the trust. The Declaration of Trust provides that persons extending credit to, contracting with, or having any claim against, the Trust or any particular Fund shall look only to the assets of the Trust or of the respective Fund for payment under such credit, contract or claim, and that the shareholders, trustees and officers of the Trust shall have no personal liability therefor. The Declaration of Trust requires that notice of such disclaimer of liability be given in each contract, instrument or undertaking executed or made on behalf of the Trust. The Declaration of Trust provides for indemnification of any shareholder against any loss and expense arising from personal liability solely by reason of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the Trust was unable to meet its obligations. The risk of a particular Fund incurring financial loss on account of unsatisfied liability of another Fund of the Trust is also believed to be remote, because it would be limited to claims to which the disclaimer did not apply and to circumstances in which the other Fund was unable to meet its obligations. SPECIAL CONSIDERATIONS REGARDING MASTER FUND/ FEEDER FUND STRUCTURE. Municipal Money Fund, an open-end management investment company, seeks to achieve its objective by investing all of its assets in shares of another mutual fund having an identical investment objective to the Fund. This policy permitting the Fund to act as a Feeder Fund by investing in the Portfolio, acting as a Master Fund, was approved by the Fund's shareholders. Please refer to the Fee Table, How the Funds Invest--Municipal Money Fund, and Restrictions on the Funds' Investments for a description of the investment objectives, policies, and restrictions of the Fund and the Portfolio. The management and 43 expenses of both Municipal Money Fund and the Portfolio are described under the Fee Table and Management of the Funds. The Fund will bear its proportionate share of Portfolio expenses. Although most of the mutual funds managed by the Adviser are conventionally structured funds, the Adviser has been providing investment management services in connection with another fund employing the Master Fund/Feeder Fund structure since August, 1991. SR&F Municipal Money Market Portfolio is a separate series of SR&F Base Trust (the "Base Trust"), a Massachusetts common trust organized under an Agreement and Declaration of Trust ("Declaration of Trust") dated August 23, 1993. The Declaration of Trust of the Base Trust provides that Municipal Money Fund and other investors in the Portfolio will each be liable for all obligations of the Portfolio that are not satisfied by the Portfolio. However, the risk of Municipal Money Fund incurring financial loss on account of such liability is limited to circumstances in which both inadequate insurance existed and the Portfolio itself were unable to meet its obligations. Accordingly, the Trustees of Municipal Trust believe that neither Municipal Money 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 Municipal Money 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 Municipal 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 44 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. If there are other investors in the Portfolio, there can be no assurance that any matter receiving a majority of votes cast by Fund shareholders will receive a majority of votes cast by all Portfolio investors. If other Portfolio 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 Municipal Trust would consider what action might be taken, including changes to the Fund's investment objective or 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 Municipal 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 would incur brokerage fees or other transaction costs in converting such securities to cash. In addition, a distribution in kind could result in a less diversified portfolio of investments for the Fund and could affect the liquidity of the Fund. Each investor in the Portfolio, including Municipal Money Fund, may add to or reduce its investment in the Portfolio on each day the New York Stock Exchange is open for business. At 3:00 p.m., Chicago time, on each such business day, the value of each investor's beneficial interest in 45 the Portfolio will be determined by multiplying the net asset value of the Portfolio by the percentage effective for that day which represents that investor's share of the aggregate beneficial interests in the Portfolio. Any additions or withdrawals which are to be effected on that day will then be effected. The investor's percentage of the aggregate beneficial interests in the Portfolio will then be recomputed as the percentage equal to the fraction (i) the numerator of which is the value of such investor's investment in the Portfolio as of 3:00 p.m., Chicago time, on such day plus or minus, as the case may be, the amount of any additions to or withdrawals from the investor's investment in the Portfolio effected on such day, and (ii) the denominator of which is the aggregate net asset value of the Portfolio as of 3:00 p.m., Chicago time, on such day plus or minus, as the case may be, the amount of the net additions to or withdrawals from the aggregate investment in 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 3:00 p.m., Chicago time, on the following such business day. 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 have 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. 46 There is currently no such other investment company that invests in the Portfolio. Information regarding any investment company that may invest in the Portfolio in the future may be obtained by writing to Base Trust at P.O. Box 804058, Chicago, IL 60680 or by calling 1-800-338-2550. The Adviser may provide administrative or other services to one or more of such investors. 47 CERTIFICATE OF AUTHORIZATION (FOR USE BY CORPORATIONS AND ASSOCIATIONS ONLY) A corporation or association must complete this Certificate and submit it with the Fund Application, each written redemption, transfer or exchange request, and each request to terminate or change any of the Privileges or special service elections. If the entity submitting the Certificate is an association, the word "association" shall be deemed to appear each place the word "corporation" appears. If the officer signing this Certificate is named as an authorized person, another officer must countersign the Certificate. If there is no other officer, the person signing the Certificate must have his signature guaranteed. If you are not sure whether you are required to complete this Certificate, call the office of the SteinRoe Funds, 1-800-338-2550 toll-free. The undersigned hereby certifies that he is the duly elected Secretary of __________________________________________________ (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 Bylaws provide that he is the only person authorized to so act. 48 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___. Corporate _________________________ Seal Secretary Here _________________________ Signature Guarantee* *Only required if the person signing the Certificate is the only person named as "Authorized Person." 49 STEINROE & FARNHAM FUNDS LOGO] THE STEINROE FUNDS SteinRoe Government Reserves SteinRoe Cash Reserves SteinRoe Limited Maturity Income Fund SteinRoe Government Income Fund SteinRoe Intermediate Bond Fund SteinRoe Income Fund SteinRoe Municipal Money Market Fund SteinRoe Intermediate Municipals SteinRoe Managed Municipals SteinRoe High-Yield Municipals SteinRoe Total Return Fund SteinRoe Prime Equities SteinRoe Growth Stock Fund SteinRoe Capital Opportunities Fund SteinRoe Special Fund SteinRoe International Fund SteinRoe Young Investor Fund SteinRoe Special Venture Fund P.O. Box 804058 Chicago, Illinois 60680 1-800-338-2550 In Chicago, visit our Fund Center at One South Wacker Drive Liberty Securities Corporation, Distributor 03008 1 Statement of Additional Information Dated August 7, 1995 STEINROE MUNICIPAL TRUST STEINROE MUNICIPAL MONEY MARKET FUND STEINROE INTERMEDIATE MUNICIPALS STEINROE MANAGED MUNICIPALS STEINROE HIGH-YIELD MUNICIPALS P.O. Box 804058, Chicago, Illinois 60680 1-800-338-2550 The Funds listed above are series of shares of beneficial interest of the SteinRoe Municipal Trust ("Municipal Trust"). Each series of Municipal Trust other than SteinRoe Municipal Money Market Fund ("Municipal Money Fund") invests in a separate portfolio of securities and other assets, with its own objectives and policies. Municipal Money Fund invests in shares of SR&F Municipal Money Market Portfolio ("Portfolio"), which is a series of shares of beneficial interest of SR&F Base Trust ("Base Trust"). Municipal Money Fund and the Portfolio have identical investment objectives and policies. This Statement of Additional Information is not a prospectus but provides additional information that should be read in conjunction with the Prospectus dated August 7, 1995, and any supplements thereto. The Prospectus may be obtained at no charge by telephoning 1-800-338-2550. TABLE OF CONTENTS Page General Information and History.............................2 Investment Policies.........................................3 Municipal Money Fund...................................3 Intermediate Municipals................................4 Managed Municipals.....................................5 High-Yield Municipals..................................6 Portfolio Investments and Strategies........................6 Investment Restrictions....................................17 Investment Risks...........................................20 Purchases and Redemptions..................................21 Management.................................................22 Financial Statements.......................................24 Principal Shareholders.....................................25 Investment Advisory Services...............................25 Distributor................................................28 Transfer Agent.............................................28 Custodian..................................................29 Independent Auditors.......................................29 Portfolio Transactions.....................................29 Additional Income Tax Considerations.......................31 Investment Performance.....................................32 Additional Information on Net Asset Value--Municipal Money Fund and the Portfolio............................39 Glossary...................................................40 Appendix--Ratings Of Municipal Securities..................44 2 GENERAL INFORMATION AND HISTORY Stein Roe & Farnham Incorporated (the "Adviser") is responsible for the business affairs of the Trusts and serves as investment adviser and provides accounting and recordkeeping services to the Funds (other than Municipal Money Fund) and the Portfolio. It also provides administrative services to the Funds and the Portfolio. As used herein, "Municipal Money Fund," "Intermediate Municipals," "Managed Municipals," and "High-Yield Municipals" refer to the series of Municipal Trust designated SteinRoe Municipal Money Market Fund, SteinRoe Intermediate Municipals, SteinRoe Managed Municipals, and SteinRoe High- Yield Municipals, respectively. The "Portfolio" refers to SR&F Municipal Money Market Portfolio. Currently, four series of Municipal Trust and two series of Base Trust are authorized and outstanding. The name of Municipal Trust was changed on August 1, 1991 from SteinRoe Tax-Exempt Income Trust to SteinRoe Municipal Trust. The series SteinRoe Municipal Money Market Fund was named SteinRoe Tax-Exempt Money Fund prior to November 1, 1992. Each share of a series of Municipal Trust 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) of Municipal Trust 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, Municipal 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 Municipal Trust's outstanding shares, Municipal 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 Municipal Trust are voted together in the election of trustees. On any other matter submitted to a vote of shareholders, shares are voted in the aggregate and not by individual series, except that shares are voted by individual series when required by the Investment Company Act of 1940 or other applicable law, or when the Board of Trustees determines that the matter affects only the interests of one or more series, in which case shareholders of the unaffected series are not entitled to vote on such matters. SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND STRUCTURE Rather than invest in securities directly, each Fund may seek to achieve its objective by pooling its assets with assets of other mutual funds managed by the Adviser for investment in another mutual fund having the same investment objective and 3 substantially the same investment policies and restrictions as the Fund. The purpose of such an arrangement is to achieve greater operational efficiencies and reduce costs. The Adviser is expected to manage any such mutual fund in which a Fund would invest. Such investment would be subject to determination by the Trustees that it was in the best interests of the Fund and its shareholders, and shareholders would receive advance notice of any such change. The only Fund currently operating under the Master Fund/Feeder Fund structure is Municipal Money Fund, which converted to the Master Fund/Feeder Fund structure on August 7, 1995. For more information, please refer to the Prospectus under the caption Organization and Description of Shares--Special Considerations Regarding the Master Fund/Feeder Fund Structure. INVESTMENT POLICIES The following information supplements the discussion of the Funds' respective investment objectives and policies described in the Prospectus. In pursuing its objective, each Fund will invest as described below and may employ investment techniques described in the Prospectus and elsewhere in this Statement of Additional Information. Investments and strategies that are common to two or more Funds are described under Portfolio Investments and Strategies. Each Fund's investment objective is not fundamental and may be changed by the Board of Trustees without the approval of a "majority of the outstanding voting securities" (see definition in the Glossary) of that Fund. MUNICIPAL MONEY FUND This Fund seeks maximum current income exempt from Federal income tax by investing all of its net investable assets in shares of the Portfolio, another mutual fund that has an identical investment objective and identical investment policies to the Fund. In pursuing its objective, the Portfolio attempts to maintain relative stability of principal and liquidity. The Portfolio invests principally in a diversified portfolio of short-term Municipal Securities (as defined in the Prospectus). "Short-term" means a remaining maturity of no more than thirteen months (or comparable period) as defined in the Glossary. It is a fundamental policy that normally at least 80% of the Portfolio's investments will produce income that is exempt from Federal income tax, except for periods in which the Adviser believes require a defensive position for the protection of shareholders. As a fundamental policy, the Portfolio invests in Municipal Securities that, at the time of purchase, are: (i) variable rate demand securities (as defined in the Glossary) whose demand feature is rated within the two highest ratings assigned by Moody's Investors Service, Inc. ("Moody's"), VMIG 1 or VMIG 2 /1/; (ii) notes rated - ------------------- /1/ The Board of Trustees of Municipal Trust and Base Trust have determined that the demand feature of a variable rate demand security rated SP-1+, A-1+ or A-1 by S&P or MIG 1, MIG 2 or Prime 1 by Moody's is at least equal in quality to the demand feature of a variable rate demand security rated VMIG 2 by Moody's. As a non-fundamental policy, the Portfolio will not invest in a variable rate security whose demand feature is conditional unless the Board of Trustees determines that the security is at least the economic equivalent of a variable rate security with an unconditional demand feature or (a) the demand feature is rated within the two highest ratings assigned by Moody's or within the equivalent ratings assigned by S&P and (b) the underlying security is rated within the two highest ratings assigned by Moody's or S&P. The Boards of Trustees has determined that a variable rate security where the demand feature is suspended only after a default followed by an acceleration of maturity is the economic equivalent of a variable rate security with an unconditional demand feature. 4 within the two highest short-term municipal ratings assigned by Moody's, MIG 1 or MIG 2, or within the highest rating assigned by Standard & Poor's Corporation ("S&P"), /2/ SP-l+; (iii) municipal commercial paper (short-term promissory notes) rated Prime-1 by Moody's, or A-l by S&P; (iv) municipal bonds, including industrial development bonds, rated within the two highest ratings assigned to municipal bonds by S&P, AAA or AA, or by Moody's, Aaa or Aa; (v) securities not rated as described in (i) through (iv) but determined by the Board of Trustees to be at least equal in quality to one or more of the foregoing ratings, although other types of obligations of the same issuer might not be within the foregoing ratings; (vi) securities backed by the full faith and credit of the U.S. Government; or (vii) securities as to which the payment of principal and interest is collateralized by securities issued or guaranteed by the U.S. Government or by its agencies or instrumentalities ["U.S. Government Securities"] deposited in an escrow for the benefit of holders of the securities. In accordance with SEC Rule 2a-7 under the Investment Company Act, each security in which the Portfolio invests will be U.S. dollar denominated and (i) rated (or be issued by an issuer that is rated with respect to its short-term debt) within the two highest rating categories for short-term debt by at least two nationally recognized statistical rating organizations ("NRSRO") or, if rated by only one NRSRO, rated within the two highest rating categories by that NRSRO, or, if unrated, determined by or under the direction of the Board of Trustees to be of comparable quality, and (ii) determined by or under the direction of the Board of Trustees to present minimal credit risks. INTERMEDIATE MUNICIPALS This Fund seeks a high current yield exempt from Federal income tax, consistent with the preservation of capital. The Fund attempts to achieve its objective by investing primarily in a diversified portfolio of "intermediate-term" Municipal Securities. Normally, at least 65% of the Fund's assets will be invested in Municipal Securities with a maturity of ten years or less (including Municipal Securities with a longer maturity, but under which the holder is entitled to receive, upon demand at a stated time within ten years, the entire principal and accrued interest). In addition, the Fund's portfolio is expected to have a dollar-weighted average maturity of between three and ten years. It is a fundamental policy that normally at least 80% of the Fund's investments will produce income that is exempt from Federal income tax, except during periods that the Adviser believes require a temporary defensive position for the protection of shareholders. - ------------------- /2/ For a description of Moody's and S&P quality ratings, see the Appendix. All references to ratings apply to ratings adopted in the future by Moody's or S&P that are determined by the Boards of Trustees to be equivalent to current ratings. 5 The Fund will invest not less than 75% (taken at current value at time of purchase) of its Municipal Securities investments, in such proportions as the Adviser shall determine, in municipal bonds rated at the time of purchase within the three highest grades by Moody's (Aaa, Aa, and A) or by S&P (AAA, AA and A) (or in variable rate demand securities whose demand feature is rated VMIG 1, VMIG 2 or Prime-1 by Moody's or SP-1+, A-1+ or A-1 by S&P), or backed by the U.S. Government or by an agency or instrumentality of the U.S. Government or by U.S. Government Securities, or municipal notes that are rated at the time of purchase within the three highest ratings for such securities by Moody's (MIG 1, MIG 2, and MIG 3), within the two highest ratings for such securities by S&P (SP-1+ and SP-1), or, if unrated, of comparable quality, as determined by the Adviser. The Fund may also invest up to 25% of its assets in other Municipal Securities without any minimum credit quality requirement, including Municipal Securities for which a limited market may exist. These investments (which are medium- or lower- quality debt securities) normally involve greater risk of loss of principal or income and higher yield. MANAGED MUNICIPALS This Fund's investment objective is to provide its shareholders a high level of current income that is exempt from Federal income tax, consistent with the preservation of capital. The Fund attempts to achieve this objective by investing in a diversified portfolio of Municipal Securities, the interest from which is exempt from Federal income tax. It is a fundamental policy that the Fund's assets will be invested so that at least 80% of its income will be exempt from Federal income tax, except for temporary periods during which, in the opinion of the Adviser, normal market conditions are not expected to prevail, including, without limitation, circumstances that, in the opinion of the Adviser, require an unusual defensive position for protection of the Fund's shareholders. For purposes of this policy the Fund does not regard realized capital gains as income. The Fund will invest not less than 75% (taken at current value at time of purchase) of its Municipal Securities investments, in such proportions as the Adviser shall determine, in municipal bonds rated at the time of purchase within the three highest ratings for such securities by Moody's (Aaa, Aa, and A) or by S&P (AAA, AA, and A) (or in variable rate demand securities whose demand feature is rated VMIG 1, VMIG 2 or Prime-1 by Moody's or SP-1+, A-1+ or A-1 by S&P), or backed by the U.S. Government, by an agency or instrumentality of the U.S. Government or by U.S. Government Securities, or municipal notes that are rated at the time of purchase within the three highest ratings for municipal notes by Moody's (MIG 1, MIG 2, and MIG 3) or within the two highest ratings for municipal notes by S&P (SP-1+ and SP-1). The Fund may also invest up to 25% of its assets in other Municipal Securities without any minimum credit quality requirement, including Municipal Securities for which a limited market may exist. These investments (which are medium- or lower-quality debt securities) normally involve greater risk of loss of principal or income and higher yield. 6 The Fund invests primarily in long-term Municipal Securities (generally maturing in more than ten years) but may also invest in both short-term and medium-term securities from time to time as a defensive move. HIGH-YIELD MUNICIPALS This Fund seeks a high current yield exempt from Federal income tax. The Fund attempts to achieve this objective by investing primarily in a diversified portfolio of long-term medium- or lower-quality Municipal Securities (generally maturing in more than ten years) bearing a high rate of interest income; possible capital appreciation is of secondary importance. Of course, there is no guarantee that the payments of interest and principal on securities held by the Fund will be made when due. It is a fundamental policy that normally the Fund's assets will be invested so that at least 80% of the gross income will be derived from securities the interest on which is exempt from Federal income tax in the opinion of counsel for the issuers of such securities, except during periods in which the Adviser believes a temporary defensive position is advisable. Although the Fund invests primarily in medium- and lower-quality Municipal Securities, it may invest in Municipal Securities of higher quality when the Adviser believes it is appropriate to do so. PORTFOLIO INVESTMENTS AND STRATEGIES In addition to the policies described above, the following investment policies and techniques have been adopted by each Fund as indicated. For purposes of discussion under Portfolio Investments and Strategies, Investment Restrictions, and Investment Risks, the term "the Fund" refers to Municipal Money Fund, the Portfolio, Intermediate Municipals, Managed Municipals, and High-Yield Municipals. TAXABLE SECURITIES Assets of each Fund that are not invested in Municipal Securities may be held in cash or invested in short-term taxable investments /3/ such as: (1) U.S. Government bills, notes and bonds; (2) obligations of agencies and instrumentalities of the U.S. Government (including obligations not backed by the full faith and credit of the U.S. Government); (3) in the case of Intermediate Municipals and High-Yield Municipals, other money market instruments, and in the case of Municipal Money Fund, the Portfolio, and Managed Municipals, other money market instruments such as certificates of deposit and bankers' acceptances of domestic banks having total assets in excess of $1 billion, and corporate commercial paper rated Prime-1 by Moody's or A-1 by S&P at the time of purchase, or, if unrated, issued or guaranteed by an issuer with outstanding debt rated Aa or better by Moody's or AA or better by S&P; and (4) repurchase agreements (defined in the Glossary) with banks and, for all Funds except - ----------------------- /3/ In the case of Municipal Money Fund, the Portfolio, and Managed Municipals, the policies described in this paragraph are fundamental. 7 Managed Municipals, securities dealers. Municipal Money Fund and the Portfolio limit repurchase agreements to those that are short-term, subject to item (h) under Investment Restrictions (although the underlying securities may not be short-term). Managed Municipals limits repurchase agreements to those in which the underlying collateral consists of securities that the Fund may purchase directly. AMT SECURITIES Although the Funds currently limit their investments in Municipal Securities to those the interest on which is exempt from the regular Federal income tax, each Fund may invest 100% of its total assets in Municipal Securities the interest on which is subject to the Federal alternative minimum tax ("AMT"). STANDBY COMMITMENTS Each Fund may obtain standby commitments when it purchases Municipal Securities. A standby commitment gives the holder the right to sell the underlying security to the seller at an agreed-upon price on certain dates or within a specified period. A Fund will acquire standby commitments solely to facilitate portfolio liquidity and not with a view to exercising them at a time when the exercise price may exceed the current value of the underlying securities. If the exercise price of a standby commitment held by a Fund should exceed the current value of the underlying securities, a Fund may refrain from exercising the standby commitment in order to avoid causing the issuer of the standby commitment to sustain a loss and thereby jeopardizing the Fund's business relationship with the issuer. A Fund will enter into standby commitments only with banks and securities dealers that, in the opinion of the Adviser, present minimal credit risks. However, if a securities dealer or bank is unable to meet its obligation to repurchase the security when a Fund exercises a standby commitment, the Fund might be unable to recover all or a portion of any loss sustained from having to sell the security elsewhere. Standby commitments will be valued at zero in determining each Fund's net asset value. Municipal Trust has received an opinion of Bell, Boyd & Lloyd, counsel to the Trust, that interest earned by the Funds on Municipal Securities will continue to be exempt from the regular Federal income tax regardless of the fact that the Fund holds standby commitments with respect to such Municipal Securities. PARTICIPATION INTERESTS Each Fund may purchase participation interests or certificates of participation in all or part of specific holdings of Municipal Securities, but does not intend to do so unless the tax-exempt status of those participation interests or certificates of participation is confirmed to the satisfaction of the Board of Trustees, which may include consideration of an opinion of counsel as to the tax-exempt status. Each participation interest would meet the prescribed quality standards of the Fund or be backed by an irrevocable letter of credit or guarantee of a bank that meets the prescribed quality standards of the Fund. (See Investment Policies.) Some participation interests are illiquid securities. 8 Each Fund may also purchase participations in lease obligations or installment purchase contract obligations (hereinafter collectively called "lease obligations") of municipal authorities or entities. Although lease obligations do not constitute general obligations of the municipality for which the municipality's taxing power is pledged, a lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate, and make the payments due under the lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In addition to the "non-appropriation" risk, these securities represent a relatively new type of financing that has not yet developed the depth of marketability associated with more conventional bonds. Although "non-appropriation" lease obligations are secured by leased property, disposition of the property in the event of foreclosure might prove difficult. Each Fund will seek to minimize these risks by investing primarily in those "non-appropriation" lease obligations where (1) the nature of the leased equipment or property is such that its ownership or use is essential to a governmental function of the municipality, (2) the lease obligor has maintained good market acceptability in the past, (3) the investment is of a size that will be attractive to institutional investors, and (4) the underlying leased equipment has elements of portability and/or use that enhance its marketability in the event foreclosure on the underlying equipment were ever required. The Board of Trustees has delegated to the Adviser the responsibility to determine the credit quality of participation interests. WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES Each Fund may purchase securities on a when-issued or delayed-delivery basis, as described in the Prospectus. A Fund makes such commitments only with the intention of actually acquiring the securities, but may sell the securities before settlement date if it is deemed 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. At the time a Fund enters into a binding obligation to purchase securities on a when-issued basis, liquid assets (cash, U.S. Government or other "high grade" debt obligations) of the Fund having a value of at least as great as the purchase price of the securities to be purchased will be segregated on the books of the Fund and held by the custodian throughout the period of the obligation. SHORT SALES Each Fund may make short sales "against the box." In a short sale, the Fund sells a borrowed security and is required to return the identical security to the lender. A short sale "against the box" involves the sale of a security with respect to which the Fund already owns an equivalent security in kind and amount. A short sale "against the box" enables a Fund to obtain the current market price of a security which it desires to sell but is unavailable for settlement. 9 BORROWINGS; REVERSE REPURCHASE AGREEMENTS Subject to restriction (iv) under Investment Restrictions, each Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowing may be preferable to liquidation of portfolio securities. Each Fund may also enter into reverse repurchase agreements (defined in the Glossary) with banks and securities dealers. Use of a reverse repurchase agreement may be preferable to a regular sale and later repurchase of the securities because it avoids certain market risks and transaction costs. The Funds did not enter into reverse repurchase agreements during the last year and have no present intention to do so. A Fund's reverse repurchase agreements and any other borrowings may not exceed 33 1/3% of its total assets, and the Fund may not purchase additional securities when its borrowings, less proceeds receivable from the sale of portfolio securities, exceed 5% of its total assets. RATED SECURITIES The rated securities described under Investment Policies above for each Fund except for Municipal Money Fund and the Portfolio include obligations given a rating conditionally by Moody's or provisionally by S&P. Except with respect to Municipal Securities with a demand feature (see the definition of "short-term" in the Glossary) acquired by Municipal Money Fund or the Portfolio, the fact that the rating of a Municipal Security held by a Fund may be lost or reduced below the minimum level applicable to its original purchase by a Fund does not require that obligation to be sold, but the Adviser will consider such fact in determining whether that Fund should continue to hold the obligation. In the case of Municipal Securities with a demand feature acquired by Municipal Money Fund or the Portfolio, if the quality of such a security falls below the minimum level applicable at the time of acquisition, the Fund must dispose of the security within a reasonable period of time either by exercising the demand feature or by selling the security in the secondary market, unless the Board of Trustees determines that it is in the best interests of the Fund and its shareholders to retain the security. To the extent that the ratings accorded by Moody's or S&P for Municipal Securities may change as a result of changes in such organizations, or changes in their rating systems, each Fund will attempt to use comparable ratings as standards for its investments in Municipal Securities in accordance with its investment policies. The Board of Trustees is required to review such ratings with respect to Municipal Money Fund and the Portfolio. 10 ZERO COUPON BONDS Each Fund may invest in zero coupon bonds. A zero coupon bond is a bond that does not pay interest for its entire life. The market prices of zero coupon 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. In addition, because a Fund accrues income with respect to these securities prior to the receipt of such interest, 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. PORTFOLIO TURNOVER Although the Funds do not purchase securities with a view toward rapid turnover, there are no limitations on the length of time that portfolio securities must be held. As a result, the turnover rate may vary from year to year. Recent higher levels of portfolio turnover for Intermediate Municipals and for High-Yield Municipals were due, in part, to recognition of capital gains from favorable investments and from the Adviser's refining of techniques for reacting to changes in the markets to shift exposures to certain sectors. A high rate of portfolio turnover in a Fund, if it should occur, may result in the realization of capital gains or losses, and, to the extent net short-term capital gains are realized, any distributions resulting from such gains will be considered ordinary income for Federal income tax purposes. For further information on the portfolio turnover rate of each Fund, see Financial Highlights and Risks and Investment Considerations in the Prospectus and Additional Tax Considerations herein. OPTIONS Each of Intermediate Municipals, Managed Municipals, and High-Yield Municipals is permitted to purchase and to write both call options and put options on debt or other securities or indexes in standardized contracts traded on U.S. 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. Currently there are no publicly-traded options on individual tax-exempt securities. However, it is anticipated that such instruments may become available in the future. An option 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 an index) at a specified exercise price at any time during the term of the option (normally not exceeding nine months). The writer of the option 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 11 option on an index is obligated to pay the difference between the cash value of the index and the exercise price multiplied by the specified multiplier for the index option. (An index is designed to reflect specified facets of a particular financial or securities market, a specific group of financial instruments or securities or certain economic indicators.) A Fund is permitted to write call options and put options only if they are "covered." In the case of a call option on a security, the option is "covered" if the Fund owns the security underlying the call or has an absolute and immediate right to acquire that security without additional cash consideration (or if additional cash consideration is required, cash or cash equivalents in such amount are held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. If an option written by a Fund expires, the Fund realizes a capital gain equal to the premium received at the time the option was written. If an option purchased by a Fund expires, the Fund realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, an option may be closed out by an offsetting purchase or sale of an option of the same series (type, exchange, underlying security or index, exercise price, and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when a Fund desires. A Fund will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if it is more, the Fund will realize a capital loss. If the premium received from a closing sale transaction is more than the premium paid to purchase the option, the Fund will realize a capital gain or, if it is less, the Fund will realize a capital loss. The principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price of the underlying security or index in relation to the exercise price of the option, the volatility of the underlying security or index and the time remaining until the expiration date. A put or call option purchased by a Fund is an asset of the Fund, valued initially at the premium paid for the option. The premium received for an option written by a Fund is recorded as a deferred credit. The value of an option purchased or written is marked-to-market daily and is valued at the closing price on the exchange on which it is traded or, if not traded on an exchange or no closing price is available, at the mean between the last bid and asked prices. Risks Associated with Options. 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. 12 There can be no assurance that a liquid market will exist when a Fund seeks to close out an option position. If a Fund were unable to close out an option that it had purchased on a security, it would have to exercise the option in order to realize any profit or the option would expire and become worthless. If a Fund were unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security until the option expired. As the writer of a covered call option, a Fund foregoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the exercise price of the call. If trading were suspended in an option purchased or written by a Fund, the Fund would not be able to close out the option. If restrictions on exercise were imposed, the Fund might be unable to exercise an option it had purchased. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS Each of Intermediate Municipals, Managed Municipals, and High-Yield Municipals may enter into 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 (such as The Bond Buyer Municipal Bond Index) /4/ at a specified price and time. A public market exists in futures contracts covering a number of indexes as well as the following financial instruments: U.S. Treasury bonds; U.S. Treasury notes; Government National Mortgage Association certificates; three-month U.S. Treasury bills; 90-day commercial paper; bank certificates of deposit; and Eurodollar certificates of deposit. It is expected that other futures contracts will be developed and traded. A Fund will engage in transactions involving new futures contracts (or options thereon) if, in the opinion of the Board of Trustees, they are appropriate instruments for the Fund. Each Fund may purchase and write call options and put options on futures contracts (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 a 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. For example, a Fund might use futures contracts to hedge against anticipated changes in interest rates which might adversely affect either the value of the Fund's securities or the price of the securities that the Fund intends to purchase. Although other techniques could be used to reduce that - ---------------------------- /4/ A futures contract on an index is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. Although the value of a securities index is a function of the value of certain specified securities, no physical delivery of those securities is made. The Bond Buyer Municipal Bond Index is based on The Bond Buyer index of 40 actively-traded long-term general obligation and revenue bonds carrying at least an A rating by Moody's or S&P. 13 Fund's exposure to interest rate fluctuations, the Fund may be able to hedge its exposure more effectively and perhaps at a lower cost by using futures contracts and futures options. The success of any futures technique depends on the Adviser correctly predicting changes in the level and direction of interest rates and other factors. Should those predictions be incorrect, a Fund's return might have been better had the transaction not been attempted; however, in the absence of the ability to use futures contracts, the Adviser might have taken portfolio actions in anticipation of the same market movements with similar investment results but, presumably, at greater transaction costs. Each Fund will only enter into futures contracts and futures options that are standardized and traded on a U.S. exchange, board of trade or similar entity, or quoted on an automated quotation system. When a purchase or sale of a futures contract is made by a Fund, the Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of cash or U.S. Government securities or other securities acceptable to the broker ("initial margin"). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract that is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. Each Fund expects to earn interest income on its initial margin deposits. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking-to-market." Variation margin paid or received by a Fund does not represent a borrowing or loan by the Fund but is instead settlement between the Fund and the broker of the amount one would owe the other if the futures contract had expired at the close of the previous trading day. In computing daily net asset value, each Fund will mark to market its open futures positions. A Fund is also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option and other futures positions held by the Fund. Although some futures contracts call for making or taking delivery of the underlying securities, usually these obligations are closed out prior to delivery by offsetting purchases or sales, as the case may be, of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, the Fund realizes a capital gain, or if it is more, the Fund realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the Fund realizes a capital gain, or if it is less, the Fund realizes a capital loss. The transaction costs must also be included in these calculations. 14 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 and futures options trading and differences between the financial instruments and the instruments underlying the standard contracts available for trading in such respects as interest rate levels, maturities, and creditworthiness of issuers. A decision as to whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. There can be no assurance that a liquid market will exist at a time when a Fund seeks to close out a futures or futures option position. The Fund would be exposed to possible loss on the position during the interval of inability to close and would continue to be required to meet margin requirements until the position is closed. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist. LIMITATIONS ON OPTIONS AND FUTURES If options, futures contracts, or futures options of types other than those described herein or in the prospectus are traded in the future, each of Intermediate Municipals, Managed Municipals, and High-Yield Municipals may also use those investment vehicles, provided the Board of Trustees determines that their use is consistent with the Fund's investment objective. A Fund will not enter into a futures contract or purchase an option thereon if immediately thereafter the initial margin deposits for futures contracts held by the 15 Fund plus premiums paid by it for open futures option positions, less the amount by which any such options are "in-the-money" (as defined in the Glossary), would exceed 5% of the Fund's total assets. When purchasing a futures contract or writing a put on a futures contract, a Fund must maintain with its custodian (or broker, if legally permitted) cash or cash equivalents (including any margin) equal to the market value of such contracts. When writing a call option on a futures contract, a Fund similarly will maintain cash or cash equivalents (including any margin) equal to the amount by which such option is in-the-money until the option expires or is closed out by the Fund. A Fund may not maintain open short positions in futures contracts, call options written on futures contracts or call options written on indexes if, in the aggregate, the market value of all such open positions exceeds the current value of the securities in its portfolio, plus or minus unrealized gains and losses on the open positions, adjusted for the historical relative volatility of the relationship between the portfolio and the positions. For this purpose, to the extent a Fund has written call options on specific securities in its portfolio, the value of those securities will be deducted from the current market value of the securities portfolio. In order to comply with Commodity Futures Trading Commission Regulation 4.5 and thereby avoid being deemed a "commodity pool operator," each Fund will use commodity futures or commodity options contracts solely for bona fide hedging purposes within the meaning and intent of Regulation 1.3(z), or, with respect to positions in commodity futures and commodity options contracts that do not come within the meaning and intent of 1.3(z), the aggregate initial margin and premiums required to establish such positions will not exceed 5% of the fair market value of the assets of a Fund, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into [in the case of an option that is in-the-money at the time of purchase, the in-the-money amount (as defined in Section 190.01(x) of the Commission Regulations) may be excluded in computing such 5%]. As long as it continues to sell its shares in certain states, each Fund's futures and options transactions will also be subject to certain non- fundamental investment restrictions set forth below under Investment Restrictions. TAXATION OF OPTIONS AND FUTURES If a Fund exercises a call or put option that it holds, the premium paid for the option is added to the cost basis of the security purchased (call) or deducted from the proceeds of the security sold (put). For cash settlement options and futures options exercised by a Fund, the difference between the cash received at exercise and the premium paid is a capital gain or loss. If a call or put option written by a Fund is exercised, the premium is included in the proceeds of the sale of the underlying security (call) or reduces the cost basis of the security purchased (put). For cash settlement options and futures options written 16 by a Fund, the difference between the cash paid at exercise and the premium received is a capital gain or loss. Entry into a closing purchase transaction will result in capital gain or loss. If an option written by a Fund was in-the-money at the time it was written and the security covering the option was held for more than the long-term holding period prior to the writing of the option, any loss realized as a result of a closing purchase transaction will be long-term. The holding period of the securities covering an in-the-money option will not include the period of time the option is outstanding. A futures contract held until delivery results in capital gain or loss equal to the difference between the price at which the futures contract was entered into and the settlement price on the earlier of delivery notice date or expiration date. If a Fund delivers securities under a futures contract, the Fund also realizes a capital gain or loss on those securities. For Federal income tax purposes, a Fund generally is required to recognize as income for each taxable year its net unrealized gains and losses as of the end of the year on options, futures and futures options positions ("year-end mark-to-market"). Generally, any gain or loss recognized with respect to such positions (either by year-end mark-to-market or by actual closing of the positions) is considered to be 60% long-term and 40% short-term, without regard to the holding periods of the contracts. However, in the case of positions classified as part of a "mixed straddle," the recognition of losses on certain positions (including options, futures and futures options positions, the related securities and certain successor positions thereto) may be deferred to a later taxable year. Sale of futures contracts or writing of call options (or futures call options) or buying put options (or futures put options) that are intended to hedge against a change in the value of securities held by a Fund: (1) will affect the holding period of the hedged securities; and (2) may cause unrealized gain or loss on such securities to be recognized upon entry into the hedge. In order for a Fund to continue to qualify for Federal income tax treatment as a regulated investment company, at least 90% of its gross income for a taxable year must be derived from qualifying income; i.e., dividends, interest, income derived from loans of securities, and gains from the sale of securities or foreign currencies or other income (including but not limited to gains from options, futures, or forward contracts). In addition, gains realized on the sale or other disposition of securities held for less than three months must be limited to less than 30% of the Fund's annual gross income. Any net gain realized from futures (or futures options) contracts will be considered gain from the sale of securities and therefore be qualifying income for purposes of the 90% requirement. In order to avoid realizing excessive gains on securities held less than three months, the Fund may be required to defer the closing out of certain positions beyond the time when it would otherwise be advantageous to do so. Each Fund distributes to shareholders annually any net capital gains that have been recognized for Federal income tax purposes (including year- end mark-to-market gains) on options and futures transactions. Such distributions are combined with distributions of capital gains realized on the Fund's other investments and shareholders will be advised of the nature of the payments. 17 INVESTMENT RESTRICTIONS Each Fund operates under the following investment restrictions. Restrictions that are fundamental policies, as indicated below, may not be changed without the approval of a "majority of the outstanding voting securities" (as defined in the Glossary). For purposes of discussion under Investment Restrictions, the term "the Fund" also refers to the Portfolio. A Fund may not: (i) invest in a security if, with respect to 75% of the Fund's assets, as a result of such investment, more than 5% of its total assets (taken at market value at the time of investment) would be invested in the securities of any one issuer (for this purpose, the issuer(s) of a security being deemed to be only the entity or entities whose assets or revenues are subject to the principal and interest obligations of the security), other than obligations issued or guaranteed by the U.S. Government or by its agencies or instrumentalities or repurchase agreements for such securities, and [all Funds except the Portfolio] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund [however, in the case of a guarantor of securities (including an issuer of a letter of credit), the value of the guarantee (or letter of credit) may be excluded from this computation if the aggregate value of securities owned by the Fund and guaranteed by such guarantor (plus any other investments of the Fund in securities issued by the guarantor) does not exceed 10% of the Fund's total assets]; /5/ (ii) purchase any securities on margin, except for use of short-term credit necessary for clearance of purchases and sales of portfolio securities (this restriction does not apply to securities purchased on a when-issued or delayed-delivery basis or to reverse repurchase agreements), [Intermediate Municipals, Managed Municipals, and High-Yield Municipals only] but the Fund may make margin deposits in connection with futures and options transactions; (iii) make loans to other persons, except that the Fund may invest up to 100% of its assets in debt obligations, including money market instruments; (iv) borrow, except that the Fund may (a) borrow up to 33 1/3% of its total assets, taken at current value at the time of such borrowing, from banks as a temporary measure for extraordinary or emergency purposes but not to increase portfolio income (the total of reverse repurchase agreements and such borrowings will not exceed 33 1/3% of the Fund's total assets and the Fund will not purchase additional securities at a time when its borrowings, less proceeds receivable from sales of portfolio securities, exceed 5% of its total assets) [the Funds did not borrow for such purposes during the last fiscal year], and [Intermediate Municipals, Managed Municipals, and High-Yield Municipals only] (b) enter into futures and options transactions; (v) mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund except (a) as may be necessary in connection with borrowings mentioned in (iv) above, and [Intermediate Municipals, - ------------------------ /5/ In the case of a security that is insured as to payment of principal and interest, the related insurance policy is not deemed a security, nor is it subject to this investment restriction. 18 Managed Municipals, and High-Yield Municipals only] (b) it may enter into futures and options transactions; (vi) invest more than 25% of its total assets (taken at market value at the time of each investment) in securities of non-governmental issuers whose principal business activities are in the same industry, [all Funds except the Portfolio] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; (vii) purchase portfolio securities for the Fund from, or sell portfolio securities to, any of the officers, directors, or trustees of the Trust or of its investment adviser; (viii) purchase or sell commodities or commodities contracts or oil, gas, or mineral programs, [Intermediate Municipals, Managed Municipals, and High-Yield Municipals only] except that the Fund may enter into futures and options transactions; (ix) [Municipal Money Fund only] purchase any securities other than those described under Investment Policies--Municipal Money Fund, and under Portfolio Investments and Strategies; [Managed Municipals only] purchase any securities other than those described under Investment Policies--Managed Municipals and under Portfolio Investments and Strategies; or (x) issue any senior security except to the extent permitted under the Investment Company Act of 1940. The above restrictions (other than material within brackets) are fundamental policies. The Funds have also adopted the following restrictions that may be required by various laws and administrative positions. These restrictions are not fundamental. A Fund may not: (a) own more than 10% of the outstanding voting securities of an issuer, [all Funds except the Portfolio] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; (b) invest in companies for the purpose of exercising control or management, [all Funds except the Portfolio] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; (c) make investments in the securities of other investment companies, except in connection with a merger, consolidation, or reorganization; (d) purchase or sell real estate (other than Municipal Securities or money market securities secured by real estate or interests therein or such securities issued by companies which invest in real estate or interests therein); (e) invest in securities of issuers (other than issuers of Federal agency obligations or of Municipal Securities) having a record of less than three years of continuous operation (for this purpose, the period of operation of any issuer shall include the period of operation of any predecessor or unconditional guarantor of such issuer) if, 19 regarding all such securities, more than 5% of the Fund's total assets (taken at market value at the time of each investment) would be invested in such securities, [all Funds except the Portfolio] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; (f) act as an underwriter of securities, except that the Fund may participate as part of a group in bidding, or bid alone, for the purchase of Municipal Securities directly from an issuer for the Fund's own portfolio, and [all Funds except the Portfolio] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; (g) purchase or retain securities of an issuer if 5% of the securities of such issuer are owned by those trustees and officers of the Fund who own individually more than 1/2 of 1% of such securities; (h) invest more than 15% of its net assets (taken at market value at the time of each purchase) in illiquid securities, including repurchase agreements maturing in more than seven days; or (i) sell securities short unless (1) the Fund owns or has the right to obtain securities equivalent in kind and amount to those sold short at no added cost or (2) the securities sold are "when issued" or "when distributed" securities which the Fund expects to receive in a recapitalization, reorganization, or other exchange for securities the Fund contemporaneously owns or has the right to obtain and provided that the Fund may purchase standby commitments and securities subject to a demand feature entitling the Fund to require sellers of securities to the Fund to repurchase them upon demand by the Fund [Intermediate Municipals, Managed Municipals, and High-Yield Municipals only] and that transactions in options, futures, and options on futures are not treated as short sales. In addition, as long as a Fund continues to sell its shares in certain states, it may not: (i) purchase shares of other open-end investment companies, except in connection with a merger, consolidation, acquisition, or reorganization and [all Funds except the Portfolio] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; or (ii) invest more than 5% of its net assets (valued at time of investment) in warrants, nor more than 2% of its net assets in warrants that are not listed on the New York or American stock exchange. Further, as long as a Fund (except Municipal Money Fund and the Portfolio) continues to sell its shares in certain states, it may not: (1) write an option on a security unless the option is issued by the Options Clearing Corporation, an exchange, or similar entity; (2) buy or sell an option on a security, a futures contract or an option on a futures contract unless the option, the futures contract or the option on the futures contract is offered through the facilities of a national securities association or listed on a national exchange or similar entity; or (3) 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. 20 INVESTMENT RISKS Medium-quality Municipal Securities are obligations of municipal issuers that, in the opinion of the Adviser, possess adequate, but not outstanding, capacities to service the obligations. Lower-quality Municipal 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 characteristics attributed to medium- and lower-quality obligations by the Adviser are much the same as those attributed to medium- and lower-quality obligations by rating services (see the Appendix). Because many issuers of medium- and lower-quality Municipal Securities choose not to have their obligations rated by a rating agency, many of the obligations in the Fund's portfolio may be unrated. 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. 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. Medium- and lower-quality debt securities tend to be less marketable than higher-quality debt securities because the market for them is less broad. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and the Fund may have greater difficulty selling its portfolio securities. The Federal bankruptcy statutes relating to the debts of political subdivisions and authorities of states of the United States provide that, in certain circumstances, such subdivisions or authorities may be authorized to initiate bankruptcy proceedings without prior notice to or consent of creditors, which proceedings could result in material and adverse changes in the rights of holders of their obligations. Lawsuits challenging the validity under state constitutions of present systems of financing public education have been initiated or adjudicated in a number of states, and legislation has been introduced to effect changes in public school financing in some states. In other instances there have been lawsuits challenging the issuance of pollution control revenue bonds or the validity of their issuance under state or Federal law which could ultimately affect the validity of those Municipal Securities or the tax-free nature of the interest thereon. In addition, from time to time proposals have been introduced in Congress to restrict or eliminate the Federal income tax exemption for interest on Municipal Securities, and similar proposals may be introduced in the future. Some of the past proposals would have applied to interest on Municipal Securities issued before the date of enactment, which would have adversely affected their value to a material degree. If such proposals are enacted, the availability of Municipal 21 Securities for investment by the Funds and the value of the Funds' portfolios would be affected and, in such an event, the Funds would reevaluate their investment objectives and policies. Because the Funds may invest in industrial development bonds, the Funds' shares may not be an appropriate investment for "substantial users" of facilities financed by industrial development bonds or for "related persons of substantial users." In addition, the Funds invest in Municipal Securities issued after the effective date of the Tax Reform Act of 1986 (the "1986 Act"), which may be subject to retroactive taxation if they fail to continue to comply after issuance with certain requirements imposed by the 1986 Act. Although the banks and securities dealers from which a Fund may acquire repurchase agreements and standby commitments, and the entities from which a Fund may purchase participation interests in Municipal Securities, will be those that the Funds' Adviser believes to be financially sound, there can be no assurance that they will be able to honor their obligations to the Fund. PURCHASES AND REDEMPTIONS Purchases and redemptions are discussed in the Prospectus under the headings How to Purchase Shares, How to Redeem Shares, Net Asset Value, and Shareholder Services, and that information is incorporated herein by reference. The Prospectus discloses that you may purchase (or redeem) shares through investment dealers, banks, or other institutions. It is the responsibility of any such institution to establish procedures insuring the prompt transmission to the Trust of any such purchase order. The state of Texas has asked that the Trust disclose in its Statement of Additional Information, as a reminder to any such bank or institution, that it must be registered as a dealer in Texas. Each Fund's net asset value is determined on days on which the New York Stock Exchange (the "NYSE") is open for trading. The NYSE is regularly closed on Saturdays and Sundays and on New Year's Day, the third Monday in February, Good Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving, and Christmas. If one of these holidays falls on a Saturday or Sunday, the NYSE will be closed on the preceding Friday or the following Monday, respectively. Net asset value will not be determined on days when the NYSE is closed unless, in the judgment of the Board of Trustees, net asset value of a Fund should be determined on any such day, in which case the determination will be made at 3:00 p.m., Chicago time. Municipal 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. 22 Although Municipal Money Fund does not currently charge a fee to its shareholders for the use of the special Check-Writing Redemption Privilege offered by that Fund, described under How to Redeem Shares in the Prospectus, the Fund pays for the cost of printing and mailing checks to its shareholders and pays charges of the custodian for payment of each check. Municipal Trust reserves the right to establish a direct charge to shareholders for use of the Privilege and both the Trust and the custodian reserve the right to terminate this service. Municipal 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. Due to the relatively high cost of maintaining smaller accounts, Municipal Trust reserves the right to redeem shares in any account for their then-current value (which will be promptly paid to the investor) if at any time the shares in the account do not have a value of at least $1,000. An investor will be notified that the value of his account is less than that minimum and allowed at least 30 days to bring the value of the account up to at least $1,000 before the redemption is processed. The Agreement and Declaration of Trust also authorizes the Trust to redeem shares under certain other circumstances as may be specified by the Board of Trustees. MANAGEMENT The following table sets forth certain information with respect to the trustees and officers of Municipal Trust:
NAME POSITION(S) HELD WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS - ------ ------------------------------- ---------------------------------------------- Gary A. Anetsberger (5) Senior Vice-President; Vice-President of Stein Roe & Farnham Incorporated (the Controller "Adviser") since January, 1991; associate of the Adviser prior thereto Timothy K. Armour President; Trustee President of the Mutual Funds division of the Adviser and (1)(2)(4)(5) Director of the Adviser since June, 1992; senior vice president and director of marketing of Citibank Illinois prior thereto Jilaine Hummel Bauer (5) Executive Vice-President Senior Vice President (since April, 1992) and Assistant Secretary Secretary (since May, 1990) of the Adviser; vice president of the Adviser prior thereto Kenneth L. Block (3)(5) Trustee Chairman Emeritus of A. T. Kearney, Inc. (international management consultants) William W. Boyd (3)(4)(5) Trustee Chairman and Director of Sterling Plumbing Group, Inc. (manufacturer of plumbing products) since 1992; chairman, president, and chief executive officer of Sterling Plumbing Group, Inc. prior thereto 23 Thomas W. Butch Vice-President Senior Vice President of the Adviser since September, 1994; first vice president, corporate communications, of Mellon Bank Corporation prior thereto N. Bruce Callow(5) Executive Vice-President President of the Investment Counsel division of the Adviser since June, 1994; senior vice president of trust and financial services for The Northern Trust prior thereto Lindsay Cook (1)(5) Trustee Senior Vice President of Liberty Financial Companies, Inc. (the indirect parent of the Adviser) Joanne T. Costopoulos Vice-President Vice President of the Adviser since January, 1994; associate of the Adviser prior thereto Philip D. Hausken (5) Vice-President Corporate Counsel for the Adviser since July, 1994; assistant regional director, midwest regional office of the Securities and Exchange Commission prior thereto Kenneth A. Kalina (5) Treasurer Associate of the Adviser Stephen P. Lautz (5) Vice-President Vice President of the Adviser since May, 1994; associate of the Adviser prior thereto Lynn C. Maddox Vice-President Senior Vice President of the Adviser Anne E. Marcel Vice-President Manager, Mutual Fund Sales & Services of the Adviser since October, 1994; supervisor of the Counselor Department of the Adviser from October, 1992 to October, 1994; vice president of Selected Financial Services from May, 1990 to March, 1992 M. Jane McCart Vice-President Senior Vice President of the Adviser since January, 1991; vice president of the Adviser prior thereto Francis W. Morley Trustee Chairman of Employer Plan Administrators and Consultants Co. (2)(3)(5) (designer, administrator, and communicator of employee benefit plans) Charles R. Nelson (3)(4) Trustee Van Voorhis Professor of Political Economy of the University of (5) Washington Jill K. Netzel Vice-President Associate of the Adviser Nicolette D. Parrish (5) Vice-President; Assistant Associate of the Adviser Secretary Janet B. Rysz (5) Assistant Secretary Assistant Secretary of the Adviser Thomas P. Sorbo Vice-President Senior Vice President of the Adviser since January, 1994; vice president of the Adviser from September, 1992 to December, 1993; associate of Travelers Insurance Company prior thereto Gordon R. Worley (3)(5) Trustee Private investor 24 Hans P. Ziegler (5) Executive Vice-President Chief Executive Officer of the Adviser since May, 1994; president of the Investment Counsel division of the Adviser from July, 1993 to July, 1994; president and chief executive officer, Pitcairn Financial Management Group prior thereto Anthony G. Zulfer, Jr. Trustee Emeritus Senior Vice President of the Adviser _______________________ (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) Member of the Nominating Committee. (5) This person also holds the corresponding officer or trustee position with SR&F Base Trust.
Certain of the trustees and officers of Municipal Trust and of Base Trust are trustees or officers of other investment companies managed by the Adviser. Ms. Bauer and Mr. Cook are also vice presidents of the Funds' distributor, Liberty Securities Corporation. The address of Mr. Block is 11 Woodley Road, Winnetka, Illinois 60093; that of Mr. Boyd is 2900 Golf Road, Rolling Meadows, Illinois 60008; that of Mr. Cook is 600 Atlantic Avenue, Boston, MA 02210; that of Mr. Morley is 20 North Wacker Drive, Suite 2275, Chicago, Illinois 60606; that of Mr. Nelson is Department of Economics, University of Washington, Seattle, Washington 98195; that of Mr. Worley is 1407 Clinton Place, River Forest, Illinois 60305; and that of the officers is One South Wacker Drive, Chicago, Illinois 60606. The only compensation paid to the trustees and officers of Municipal Trust for their services as such consists of attendance fees paid to trustees who are not "interested persons" of the Trust or the Adviser. The fee schedule provides for an annual retainer of $8,000 (divided equally among the Funds of the Trust) plus an attendance fee from each Fund for each meeting of the Board or committee thereof attended at which business for that Fund is conducted. The attendance fees (other than for a Nominating Committee meeting) are based on each Fund's net assets as of the preceding December 31. For a Fund with net assets of less than $251 million, the fee is $200 per meeting; with $251 million to $500 million, $350; with $501 million to $750 million, $500; with $750 million to $1 billion, $650; and with over $1 billion in net assets, $800. Each non-interested trustee also receives an aggregate of $500 for attending each meeting of the Nominating Committee. The trustees received an aggregate of $71,000 in attendance fees for the fiscal year ended June 30, 1994. FINANCIAL STATEMENTS Please refer to the Funds' Financial Statements (balance sheets and schedules of investments as of June 30, 1994 and the statements of operations, changes in net assets, and notes thereto) and the report of independent auditors contained in the Funds' June 30, 1994 Annual Report and to the Funds' December 31, 1994 Financial Statements (unaudited balance sheets and schedules of investments as of December 31, 1994 and the statements of operations, changes in net assets, and notes thereto) contained in the December 31, 1994 semiannual report of the Funds. The Financial 25 Statements and the report (but no other material from the Annual Report and the Semiannual Report) are incorporated herein by reference. The Annual Report and the Semiannual Report may be obtained at no charge by telephoning 1-800-338-2550. PRINCIPAL SHAREHOLDERS As of August 1, 1994, the only person known by Municipal Trust to own of record or "beneficially" 5% or more of the outstanding shares of any Fund within the definition of that term as contained in Rule 13d-3 under the Securities Exchange Act of 1934, was Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, California 94104, which owned of record but not beneficially approximately 11.4% of the outstanding shares of Intermediate Municipals. The following table shows shares of the Funds held by the categories of persons indicated and in each case the approximate percentage of outstanding shares represented: CLIENTS OF THE ADVISER TRUSTEES AND IN THEIR CLIENT ACCOUNTS OFFICERS AS OF AS OF 7/31/94* 8/1/94 Shares Held Percent Shares Held Percent Municipal Money Fund 72,410,753 44.1% 2,571,403 ** Intermediate Municipals 9,871,301 45.8% 362,112 ** Managed Municipals 25,295,293 32.2% 497,216 ** High-Yield Municipals 9,886,118 35.8% 137,296 ** _________________ *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 (the "Adviser") serves as investment adviser to Intermediate Municipals, Managed Municipals, High-Yield Municipals and the Portfolio. Prior to August 7, 1995, the Adviser also served as investment adviser to Municipal Money Fund. On that date, however, the Fund began investing in the Portfolio and thereafter the Adviser no longer provided investment advisory services directly to the Fund. The Adviser is a wholly-owned subsidiary of SteinRoe Services Inc. ("SSI"), the Funds' transfer agent, which in turn is a wholly-owned indirect subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual"). Liberty Mutual is a mutual insurance company, principally in the property/casualty insurance field, organized under the laws of Massachusetts in 1912. The directors of the Adviser are Gary L. Countryman, Kenneth R. Leibler, Timothy K. Armour, N. Bruce Callow, and Hans P. Ziegler. Mr. Countryman is Chairman of Liberty Mutual Insurance Company; Mr. Leibler is President and Chief Executive Officer of Liberty Financial Companies; Mr. Armour is President of the Adviser's Mutual Funds division; Mr. Callow is President of the Adviser's Investment Counsel Division; and Mr. Ziegler is Chief Executive Officer of the Adviser. The business address of Mr. Countryman is 175 Berkeley Street, Boston, Massachusetts 02117; that of 26 Mr. Leibler is Federal Reserve Plaza, Boston, Massachusetts 02210; that of Messrs. Armour, Callow, and Ziegler is One South Wacker Drive, Chicago, Illinois 60606. The Adviser and its predecessor have been providing investment advisory services since 1932. The Adviser acts as investment adviser to wealthy individuals, trustees, pension and profit sharing plans, charitable organizations, and other institutional investors. As of December 31, 1994, the Adviser managed over $22.8 billion in assets: over $5.4 billion in equities and over $17.4 billion in fixed-income securities (including $2.3 billion in municipal securities). The $22.8 billion in managed assets included over $6.4 billion held by open-end mutual funds managed by the Adviser (approximately 25% of the mutual fund assets were held by clients of the Adviser). These mutual funds were owned by over 149,000 shareholders. The $6.4 billion in mutual fund assets included over $504 million in over 33,000 IRA accounts. In managing those assets, the Adviser utilizes a proprietary computer-based information system that maintains and regularly updates information for approximately 6,500 companies. The Adviser also monitors over 1,400 issues via a proprietary credit analysis system. At December 31, 1994, the Adviser employed 20 research analysts and 42 account managers. The average investment-related experience of these individuals was 19 years. SteinRoe Counselor [service mark] and SteinRoe Counselor Preferred [service mark] are professional investment advisory services offered by the Adviser to Fund shareholders. Each is designed to help shareholders construct Fund investment portfolios to suit their individual needs. Based on information shareholders provide about their financial goals and objectives in response to a questionnaire, the Adviser's investment professionals create customized portfolio recommendations. Shareholders participating in SteinRoe Counselor [service mark] are free to self direct their investments while considering the Adviser's recommendations; shareholders participating in SteinRoe Counselor Preferred [service mark] enjoy the added benefit of having the Adviser implement portfolio recommendations automatically for a fee of 1% or less, depending on the size of their portfolios. In addition to reviewing shareholders' goals and objectives periodically and updating portfolio recommendations to reflect any changes, the Adviser provides shareholders participating in these programs with a dedicated Counselor [service mark] representative. Other distinctive services include specially designed account statements with portfolio performance and transaction data, newsletters, and regular investment, economic, and market updates. A $50,000 minimum investment is required to participate in either program. Please refer to the description of the Adviser, advisory agreements, advisory fees, expense limitations, and transfer agency services under Management of the Funds in the Prospectus, which is incorporated herein by reference. The table below shows gross advisory fees paid by the Funds and any expense reimbursements by the Adviser to them. The Portfolio is not listed because it commenced operations after the most recent period shown. The fees and expense reimbursements of the Funds and the Portfolio are described in the Prospectus. 27 YEAR ENDED YEAR ENDED YEAR ENDED FUND TYPE OF PAYMENT 6/30/94 6/30/93 6/30/92 - --------------- --------------- ---------- ---------- --------- Municipal Money Fund Advisory fee $ 998,500 $1,072,504 $1,155,334 Intermediate Municipals Advisory fee 1,415,654 1,174,359 827,337 Managed Municipals Advisory fee 3,936,931 3,908,586 3,643,225 High-Yield Municipals Advisory fee 1,846,679 2,034,606 2,132,505 The Adviser provides office space and executive and other personnel to the Funds and the Portfolio and bears any sales or promotional expenses. Each Fund and the Portfolio pays all expenses other than those paid by the Adviser, including but not limited to printing and postage charges and securities registration and custodian fees and expenses incidental to its organization. Each advisory agreement (other than the agreement relating to the Portfolio) provides that the Adviser shall reimburse the Fund to the extent that total annual expenses of the Fund (including fees paid to the Adviser, but excluding taxes, interest, brokers' commissions and other normal charges incident to the purchase and sale of portfolio securities, and expenses of litigation to the extent permitted under applicable state law) exceed the applicable limits prescribed by any state in which the 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 the Fund under that agreement for such year. The administrative agreement relating to Municipal Money Fund contains a similar provision. The administrative agreement is described in the Prospectus. Municipal Trust believes that currently the most restrictive state limit on expenses is that of California, which limit currently is 2 1/2% of the first $30 million of average net assets, 2% of the next $70 million, and 1 1/2% thereafter. In addition, in the interest of further limiting expenses, from time to time, the Funds' Adviser may voluntarily waive its management fee and/or absorb certain expenses for a Fund. Each advisory agreement also provides that neither the Adviser nor any of its directors, officers, stockholders (or partners of stockholders), agents, or employees shall have any liability to the Trust or any shareholder of the Fund (or the Portfolio) for any error of judgment, mistake of law or any loss arising out of any investment, or for any other act or omission in the performance by the Adviser of its duties under the advisory agreement, except for liability resulting from willful misfeasance, bad faith or gross negligence on the Adviser's part in the performance of its duties or from reckless disregard by the Adviser of the Adviser's obligations and duties under the advisory agreement. Any expenses that are attributable solely to the organization, operation, or business of a Fund (or the Portfolio) shall be paid solely out of that Fund's (or the Portfolio's) assets. Any expenses incurred by the Trust that are not solely attributable to a particular Fund (or the Portfolio) are apportioned in such a 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 the Funds and the 28 Portfolio. For these services, the Adviser receives an annual fee of $25,000 per Fund plus .0025 of 1% of average net assets over $50 million. DISTRIBUTOR Shares of the Funds are distributed by Liberty Securities Corporation ("LSC") under a Distribution Agreement as described under Management of the Funds in the Prospectus, which is incorporated herein by reference. The Distribution Agreement continues in effect from year to year, provided such continuance is approved annually (i) by a majority of the trustees or by a majority of the outstanding voting securities of Municipal Trust, and (ii) by a majority of the trustees who are not parties to the Agreement or interested persons of any such party. Municipal Trust has agreed to pay all expenses in connection with registration of its shares with the Securities and Exchange Commission and auditing and filing fees in connection with registration of its shares under the various state blue sky laws and assumes the cost of preparation of prospectuses and other expenses. The Adviser bears all sales and promotional expenses, including payments to LSC for the sales of Fund shares. The Adviser also makes payments to other broker- dealers, banks, and institutions for the sales of Fund shares of 0.25% of the annual average value of accounts of such shares. As agent, LSC offers shares of the Funds to investors in states where the shares are qualified for sale, at net asset value, without sales commissions or other sales load to the investor. No sales commission or "12b-1" payment is paid by any Fund. LSC offers the Funds' shares only on a best-efforts basis. TRANSFER AGENT SSI performs certain transfer agency services for Municipal Trust, as described under Management of the Funds in the Prospectus. For performing these services, SSI receives payments from Municipal Money Fund of 0.150% of average daily net assets and payments from Intermediate Municipals, Managed Municipals, and High-Yield Municipals of 0.150% of average daily net assets. Through April 30, 1995, the schedule of fees paid to SSI by each Fund was a follows: (1) a fee of $4.00 for each new account opened; (2) monthly payments of $1.466 per open shareholder account; (3) payments of $0.611 per closed shareholder account for each month through June of the calendar year following the year in which the account is closed; (4) $0.3025 per shareholder account for each dividend paid; and (5) $1.415 for each shareholder-initiated transaction. In addition, each Fund reimburses SSI for any charges for certain services provided to it by DST Systems, Inc. in connection with transfer agency services to the Funds. The Board of Trustees believes the charges by SSI are comparable to those of other companies performing similar services. (See Investment Advisory Services.) CUSTODIAN State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02101, is the custodian for the Trusts. It is responsible for holding all securities and cash of the Funds, receiving and paying for securities purchased, delivering against payment securities sold, receiving and collecting income from investments, 29 making all payments covering expenses of the Funds, and performing other administrative duties, all as directed by authorized persons. The custodian does not exercise any supervisory function in such matters as purchase and sale of portfolio securities, payment of dividends, or payment of expenses of the Funds. The Trusts have authorized the custodian to deposit certain portfolio securities in central depository systems as permitted under Federal law. The Funds may invest in obligations of the custodian and may purchase or sell securities from or to the custodian. INDEPENDENT AUDITORS The independent auditors for the Trusts are Ernst & Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606. The independent auditors audit and report on the Funds' annual financial statements, review certain regulatory reports and the Funds' Federal income tax returns, and perform other professional accounting, auditing, tax and advisory services when engaged to do so by the Trusts. PORTFOLIO TRANSACTIONS The Adviser places the orders for the purchase and sale of portfolio securities for each Fund and the Portfolio and options and futures contracts entered into by Intermediate Municipals, Managed Municipals, and High-Yield Municipals. Portfolio securities are purchased both in underwritings and in the over-the-counter market. The following table shows any commissions paid by the Funds on futures transactions during the past three fiscal years. The Funds did not pay commissions on any other transactions. High-Yield Managed Intermediate Municipals Municipals Municipals ---------- --------- ----------- Total brokerage commissions paid during year ended 6/30/94 $110,292 $38,028 -0- Number of futures contracts 7,250 2,500 -0- Total brokerage commissions paid during year ended 6/30/93 $48,564 $29,904 -0- Total brokerage commissions paid during year ended 6/30/92 $8,390 -0- -0- Included in the price paid to an underwriter of a portfolio security is the spread between the price paid by the underwriter to the issuer and the price paid by the purchaser. Purchases and sales of portfolio securities in the over-the-counter market usually are transacted with a broker or dealer on a net basis, without any brokerage commission being paid by a Fund or Portfolio, but do reflect the spread between the bid and asked prices. The Adviser may also transact purchases of portfolio securities directly with the issuers. The Adviser's overriding objective in effecting portfolio transactions is to seek to obtain the best combination of price and execution. The best net price, giving effect to transaction charges and other costs, is normally an important factor in this decision, but a number of other judgmental factors may also enter into the decision. These include: the Adviser's knowledge of current transaction costs; the nature of the security 30 being traded; the size of the transaction; the desired timing of the trade; the activity existing and expected in the market for the particular security; confidentiality; the execution, clearance and settlement capabilities of the broker or dealer selected and others which are considered; the Adviser's knowledge of the financial stability of the broker or dealer selected and such other brokers or dealers; and the Adviser's knowledge of actual or apparent operational problems of any broker or dealer. Recognizing the value of these factors, a Fund or the Portfolio may pay a price in excess of that which another broker or dealer may have charged for effecting the same transaction or receive a price lower than that which another broker-dealer may have paid. Evaluations of the reasonableness of the costs of portfolio transactions, based on the foregoing factors, are made on an ongoing basis by the Adviser's staff while effecting portfolio transactions and reports are made annually to the Board of Trustees. With respect to issues of securities involving brokerage commissions, when more than one broker or dealer is believed to be capable of providing the best combination of price and execution with respect to a particular portfolio transaction for a Fund or the Portfolio, the Adviser often selects a broker or dealer that has furnished it with research products or services such as research reports, subscriptions to financial publications and research compilations, compilations of securities prices, earnings, dividends and similar data, and computer databases, quotation equipment and services, research-oriented computer software and services, and services of economic and other consultants. Selection of brokers or dealers is not made pursuant to an agreement or understanding with any of the brokers or dealers; however, the Adviser uses an internal allocation procedure to identify those brokers or dealers who provide it with research products or services and the amount of research products or services they provide, and endeavors to direct sufficient commissions generated by its clients' accounts in the aggregate, including the Funds and the Portfolio, to such brokers or dealers to ensure the continued receipt of research products or services the Adviser feels are useful. In certain instances, the Adviser receives from brokers and dealers products or services which are used both as investment research and for administrative, marketing, or other non- research purposes. In such instances, the Adviser makes a good faith effort to determine the relative proportions of such products or services which may be considered as investment research. The portion of the costs of such products or services attributable to research usage may be defrayed by the Adviser (without prior agreement or understanding, as noted above) through brokerage commissions generated by transactions of clients (including the Funds and the Portfolio), while the portion of the costs attributable to non-research usage of such products or services is paid by the Adviser in cash. No person acting on behalf of a Fund or the Portfolio is authorized, in recognition of the value of research products or services, to pay a price in excess of that which another broker or dealer might have charged for effecting the same transaction. Research products or services furnished by brokers and dealers through whom a Fund or the Portfolio effects transactions may be used in servicing any or all of the clients of the Adviser and not all such research products or services are used in connection with the management of such Fund or Portfolio. The Board of Trustees of each Trust has reviewed the legal aspects and the practicability of attempting to recapture underwriting discounts or selling concessions included in prices paid by the Funds and the Portfolio for purchases of Municipal 31 Securities in underwritten offerings. Each Fund and the Portfolio attempts to recapture selling concessions on purchases during underwritten offerings; however, the Adviser will not be able to negotiate discounts from the fixed offering price for those issues 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. Each Board periodically reviews efforts to recapture concessions and whether it is in the best interests of the Funds and the Portfolio to continue to attempt to recapture underwriting discounts or selling concessions. ADDITIONAL INCOME TAX CONSIDERATIONS Each Fund and the 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. Throughout this section, the term "Fund" also refers to the Portfolio. Each Fund intends to distribute substantially all of its income, tax- exempt and taxable, including any net realized capital gains, and thereby be relieved of any Federal income tax liability to the extent of such distributions. Each Fund intends to retain for its shareholders the tax- exempt status with respect to tax-exempt income received by the Fund. The distributions will be designated as "exempt-interest dividends," taxable ordinary income, and capital gains. The Funds may also invest in Municipal Securities the interest on which is subject to the Federal alternative minimum tax. The source of exempt-interest dividends on a state-by-state basis and the Federal income tax status of all distributions will be reported to shareholders annually. Such report will allocate income dividends between tax-exempt, taxable income, and alternative minimum taxable income in approximately the same proportions as that Fund's total income during the year. Accordingly, income derived from each of these sources by a Fund may vary substantially in any particular distribution period from the allocation reported to shareholders annually. The proportion of such dividends that constitutes taxable income will depend on the relative amounts of assets invested in taxable securities, the yield relationships between taxable and tax-exempt securities, and the period of time for which such securities are held. Each Fund may, under certain circumstances, temporarily invest its assets so that less than 80% of gross income during such temporary period will be exempt from Federal income taxes. (See Investment Policies above and How the Funds Invest in the Prospectus.) Because capital gain distributions reduce net asset value, if a shareholder purchases shares shortly before a record date he will, in effect, receive a return of a portion of his investment in such distribution. The distribution would nonetheless be taxable to him, even if the net asset value of shares were reduced below his cost. However, for Federal income tax purposes the shareholder's original cost would continue as his tax basis. Because the taxable portion of each Fund's investment income consists primarily of interest, none of its dividends, whether or not treated as "exempt-interest dividends," will qualify under the Internal Revenue Code for the dividends received deduction available to corporations. 32 Interest on indebtedness incurred or continued by shareholders to purchase or carry shares of a Fund is not deductible for Federal income tax purposes. Under rules applied by the Internal Revenue Service to determine whether borrowed funds are used for the purpose of purchasing or carrying particular assets, the purchase of shares may, depending upon the circumstances, be considered to have been made with borrowed funds even though the borrowed funds are not directly traceable to the purchase of shares. If you redeem at a loss shares of a Fund held for six months or less, that loss will not be recognized for Federal income tax purposes to the extent of exempt-interest dividends you have received with respect to those shares. If any such loss exceeds the amount of the exempt-interest dividends you received, that excess loss will be treated as a long-term capital loss to the extent you receive any long-term capital gain distribution with respect to those shares. Persons who are "substantial users" (or persons related thereto) of facilities financed by industrial development bonds should consult their own tax advisors before purchasing shares. Such persons may find investment in the Funds unsuitable for tax reasons. Corporate investors may also wish to consult their own tax advisers before purchasing shares. In addition, certain property and casualty insurance companies, financial institutions, and United States branches of foreign corporations may be adversely affected by the tax treatment of the interest on Municipal Securities. INVESTMENT PERFORMANCE MUNICIPAL MONEY FUND Municipal Money 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. A "Tax-Equivalent Yield" is computed by dividing the portion of the "Yield" that is tax-exempt by one minus a stated income tax rate and adding the product to that portion, if any, of the yield that is not tax-exempt. 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 33 For example, the yields of Municipal Money Fund for the seven-day period ended June 30, 1994 were: 0.000392458 365 ----------- --- Current Yield = $1.00 x 7 = 2.05% [1+$0.000392458]365/7 --------------------- Effective Yield = $1.00 - 1 = 2.07% Tax-Equivalent Current Yield = 3.39% (assuming 39.6% tax rate) Tax-Equivalent Effective Yield = 3.42% (assuming 39.6% tax rate) The average dollar-weighted portfolio maturity for the seven days ended June 30, 1994 was 45 days. In addition to fluctuations reflecting changes in net income of the Fund, resulting from changes in its proportionate share of the Portfolio's investment income and expenses, the Fund's yield also would be affected if the Fund or the Portfolio were to restrict or supplement their respective dividends in order to maintain a net asset value at $1.00 per share. (See Net Asset Value in the Prospectus.) Asset changes resulting from net purchases or net redemptions of Fund or Portfolio shares may affect yield. Accordingly, the Fund's yield may vary from day to day and the yield stated for a particular past period is not a representation as to its future yield. The Fund's yield is not assured and its principal is not insured; however, the Fund will attempt to maintain its net asset value per share at $1.00. Comparison of the Fund's yield with those of alternative investments (such as savings accounts, various types of bank deposits, and other money market funds) should be made with consideration of differences between the Fund and the alternative investments, differences in the periods and methods used in the calculation of the yields being compared, and the impact of income taxes on alternative investments. INTERMEDIATE MUNICIPALS, MANAGED MUNICIPALS, AND HIGH-YIELD MUNICIPALS Intermediate Municipals, Managed Municipals, and High-Yield Municipals may quote yield figures from time to time. The "Yield" of a Fund is computed by dividing the net investment income per share earned during a 30- day period (using the average number of shares entitled to receive dividends) by the net asset value per share on the last day of the period. The Yield formula provides for semiannual compounding which assumes that net investment income is earned and reinvested at a constant rate and annualized at the end of a six-month period. A "Tax-Equivalent Yield" is computed by dividing the portion of the Yield that is tax-exempt by one minus a stated income tax rate and adding the product to that portion, if any, of the Yield that is not tax-exempt. The Yield formula is as follows: YIELD = 2[((a-b/cd) +1)6 - 1]. Where: a = dividends and interest earned during the period. (For this purpose, the Fund will recalculate the yield to maturity based on market value of each portfolio security on each business day on which net asset value is calculated.) 34 b = expenses accrued for the period (net of reimbursements) c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = the net asset value of the Fund. For example, the Yields of the Funds for the 30-day period ended June 30, 1994 were: Intermediate Municipals Yield = 4.60% Tax-Equivalent Yield = 7.61% (assuming 39.6% tax rate) Managed Municipals Yield = 5.30% Tax-Equivalent Yield = 8.78% (assuming 39.6% tax rate) High-Yield Municipals Yield = 5.42% Tax-Equivalent Yield = 8.97% (assuming 39.6% tax rate) ALL FUNDS Each Fund may quote total return figures from time to time. A "Total Return" on a per share basis is the amount of dividends distributed per share plus or minus the change in the net asset value per share for a period. A "Total Return Percentage" may be calculated by dividing the value of a share at the end of a period (including reinvestment of distributions) by the value of the share at the beginning of the period and subtracting one. 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. A Fund may also quote tax-equivalent total return figures or other tax-equivalent measures of performance. Average Annual Total Return is computed as follows: ERV = P(1+T)n Where: P = a hypothetical initial payment of $1,000. T = average annual total return. n = number of years. ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period at the end of the period (or fractional portion thereof). For example, for a $1,000 investment in a Fund, the "Total Return," the "Total Return Percentage," and the "Average Annual Total Return" at June 30, 1994 were: TOTAL TOTAL RETURN AVERAGE ANNUAL FUND RETURN PERCENTAGE TOTAL RETURN - -------------------- ------ ------------ -------------- Municipal Money Fund 1 year $1,019 1.90% 1.90% 5 years 1,186 18.57 3.47 10 years 1,499 49.91 4.13 Intermediate Municipals 1 year 1,012 1.16 1.16 5 years 1,431 43.07 7.43 35 *Life of Fund 1,854 85.40 7.33 Managed Municipals 1 year 997 (0.29) (0.29) 5 years 1,430 43.00 7.42 10 years 2,849 184.85 11.04 High-Yield Municipals 1 year 1,010 0.95 0.95 5 years 1,390 38.96 6.80 10 years 2,705 170.54 10.46 _____________________ *Life of Fund is from commencement of operations on 10/9/85. Investment performance figures assume reinvestment of all dividends and distributions, and do not take into account any Federal, state, or local income taxes which shareholders must pay on a current basis. They are not necessarily indicative of future results. The performance of a Fund is a result of conditions in the securities markets, portfolio management, and operating expenses. Although investment performance information is useful in reviewing a Fund's performance and in providing some basis for comparison with other investment alternatives, it should not be used for comparison with other investments using different reinvestment assumptions or time periods. In advertising and sales literature, a Fund may compare its yield and performance with that of other mutual funds, indexes or averages of other mutual funds, indexes of related financial assets or data, and other competing investment and deposit products available from or through other financial institutions. The composition of these indexes or averages differs from that of the Funds. Comparison of a Fund to an alternative investment should be made with consideration of differences in features and expected performance. All of the indexes and averages noted below will be obtained from the indicated sources or reporting services, which the Funds believe to be generally accurate. A Fund may also note its mention in newspapers, magazines, or other media from time to time. However, the Funds assume no responsibility for the accuracy of such data. Newspapers and magazines that might mention the Funds include, but are not limited to, the following: Architectural Digest Arizona Republic Atlanta Constitution Barron's Boston Herald Business Week Chicago Tribune Chicago Sun-Times Cleveland Plain Dealer CNBC Crain's Chicago Business Consumer Reports Consumer Digest Financial World Forbes Fortune Fund Action Gourmet Investor's Business Daily Kiplinger's Personal Finance Magazine Knight-Ridder Los Angeles Times Money Mutual Fund Letter Mutual Fund News Service Mutual Fund Values (Morningstar) Newsweek The New York Times No-Load Fund Investor Pension World Pensions and Investment Personal Investor Physicians Financial News Jane Bryant Quinn (syndicated column) The San Francisco Chronicle Smart Money Smithsonian Stanger's Investment Adviser Time Travel & Leisure United Mutual Fund Selector USA Today U.S. News and World Report The Wall Street Journal Working Women Worth Your Money All of the Funds may compare their performance to the Consumer Price Index (All Urban), a widely-recognized measure of inflation. MUNICIPAL MONEY FUND Municipal Money Fund may compare its yield to the average yield of the following: Donoghue's Money Fund Averages [trademark]--Stockbroker and General Purpose and All Tax-Free [trademark] categories; ICD Money Market Tax Free Funds category; the Lipper General S-T Tax-Exempt Funds category; and the Lipper All Short-Term Tax-Free Categories [trademark]. Municipal Money Fund may also compare its tax-equivalent yield to the average rate for the taxable fund category for the aforementioned services. Should these services reclassify the Fund into a different category or develop (and place the Fund into) a new category, the Fund may compare its performance, rank, or yield with those of other funds in the newly-assigned category as published by the service. Investors may desire to compare Municipal Money Fund's performance and features to that of various bank products. The Fund may compare its tax- equivalent yield to the average rates of bank and thrift institution money market deposit accounts, Super N.O.W. accounts, and certificates of deposit. The rates published weekly by the BANK RATE MONITOR [copyright], a North Palm Beach (Florida) financial reporting service, in its BANK RATE MONITOR [copyright] National Index are averages of the personal account rates offered on the Wednesday prior to the date of publication by one hundred leading banks and thrift institutions in the top ten Consolidated Standard Metropolitan Statistical Areas. Account minimums range upward from $2,500 in each institution and compounding methods vary. Super N.O.W. accounts generally offer unlimited checking, while money market deposit accounts generally restrict the number of checks that may be written. If more than one rate is offered, the lowest rate is used. Rates are subject to change at any time specified by the institution. Bank account deposits may be insured. Shareholder accounts in the 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 the 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 37 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 the Fund are redeemable at the next determined net asset value (normally, $1.00 per share) after a request is received, without charge. INTERMEDIATE MUNICIPALS, MANAGED MUNICIPALS, AND HIGH-YIELD MUNICIPALS Intermediate Municipals, Managed Municipals, and High-Yield Municipals may compare performance to the following as indicated below:
BENCHMARK FUND(S) - --------- ------- Lipper Intermediate (5-10 year) Municipal Bond Funds Average Intermediate Municipals Lipper General Municipal Bond Funds Average Managed Municipals Lipper High-Yield Municipal Bond Funds Average High-Yield Municipals Lipper Municipal Bond Fund Average Intermediate Municipals, Managed Municipals, High-Yield Municipals ICD High-Quality Municipal Bond Funds Average Intermediate Municipals, Managed Municipals ICD High-Yield Municipals Bond Funds Average High-Yield Municipals ICD Tax-Free Fund Average High-Yield Municipals, Intermediate Municipals, Managed Municipals Morningstar Municipal Bond (General) Funds Average Managed Municipals, Intermediate Municipals Morningstar Municipal Bond (High-Yield) Funds Average High-Yield Municipals Morningstar Long-Term Tax-Exempt Fund Average High-Yield Municipals, Intermediate Municipals, Managed Municipals
The Lipper, ICD, and Morningstar averages are unweighted averages of total return performance of mutual funds as classified, calculated, and published by these independent services that monitor the performance of mutual funds. The Funds may also use comparative performance as computed in a ranking by those 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 with those of other funds in the newly-assigned category (or the average of such category) as published by the service. In advertising and sales literature, a Fund may also cite its rating, recognition, or other mention by Morningstar or any other entity. Morningstar's rating system is based on risk-adjusted total return performance and is expressed in a star-rating format. The risk-adjusted number is computed by subtracting a Fund's risk score (which is a function of the Fund's monthly returns less the 3-month T-bill return) from the Fund's load-adjusted total return score. This numerical score is then translated into 38 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. Investors may desire to compare a Fund's performance to that of various bank products. A Fund may compare its tax-equivalent yield to the average rates of bank and thrift institution certificates of deposit. The rates published weekly by the BANK RATE MONITOR [copyright], a North Palm Beach (Florida) financial reporting service, in its BANK RATE MONITOR [copyright] National Index are averages of the personal account rates offered on the Wednesday prior to the date of publication by one hundred leading banks and thrift institutions in the top ten Consolidated Standard Metropolitan Statistical Areas. Bank account minimums range upward from $2,500 in each institution and compounding methods vary. Rates are subject to change at any time specified by the institution. A Fund's net asset value and investment return will vary. Bank account deposits may be insured; Fund accounts are not insured. Bank certificates of deposit may offer fixed or variable rates for a set term. Withdrawal of these deposits prior to maturity will normally be subject to a penalty. In contrast, shares of the Fund are redeemable at the next determined net asset value after a request is received, without charge. Intermediate Municipals, Managed Municipals, and High-Yield Municipals may also compare their respective tax-equivalent yields to the average rate for the taxable fund category of the aforementioned services. 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 stock 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-exempt investing on a hypothetical investment. Tax-exempt income, however, may be subject to state and local taxes and the Federal alternative minimum tax. Marginal tax brackets are based on 1993 Federal tax rates and are subject to change. "Joint Return" is based on two exemptions and "Single return" is 39 based on one exemption. The results would differ for different numbers of exemptions. TAX-EQUIVALENT YIELDS A taxable investment must yield the following Taxable Income (thousands) Marginal to equal a tax-exempt yield of: - ----------------------------- Tax ----------------------------------- Joint Return Single Return Bracket 4% 5% 6% 7% 8% - -------------- ------------- -------- ---- ---- ---- ----- ------ $0.0 - 36.9 $0.0 - 22.1 15% 4.71 5.88 7.06 8.24 9.41 $36.9 - 89.2 $22.1 - 53.5 28% 5.56 6.94 8.33 9.72 11.11 $89.2 - 140.0 $53.5 - 115.0 31% 5.80 7.25 8.70 10.14 11.59 $140.0 - 250.0 $115.0 - 250.0 36% 6.25 7.81 9.38 10.94 12.50 $250.0+ $250.0+ 39.6% 6.62 8.28 9.93 11.59 13.25 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 SteinRoe Counselor [service mark] and the SteinRoe Counselor Preferred [service mark] programs and asset allocation and other investment strategies. ADDITIONAL INFORMATION ON NET ASSET VALUE--MUNICIPAL MONEY FUND AND THE PORTFOLIO Please refer to Net Asset Value in the Prospectus, which is incorporated herein by reference. The Portfolio values its portfolio by the "amortized cost method" by which it attempts to maintain its net asset value at $1.00 per share. This involves valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. Although this method provides certainty in valuation, it may result in periods during which value as determined by amortized cost is higher or lower than the price the Portfolio 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 Portfolio's use of amortized cost and the maintenance of its per share net asset value of $1.00, Base Trust has agreed, with respect to the Portfolio: (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 40 thirteen months (for this purpose the Portfolio considers that an instrument has a maturity of thirteen months or less if it is a "short-term" obligation as defined in the Glossary); 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. The Portfolio 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's portfolio holdings by the Board of Trustees, at such intervals as it deems appropriate, to determine whether the Portfolio's net asset value calculated by using available market quotations or market equivalents deviates 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 the Portfolio's investments based on methods which include consideration of: yields or prices of Municipal 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 the Portfolio's use of the amortized cost method of portfolio valuation to maintain its net asset value at $1.00 per share, the Portfolio 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 the Portfolio's net asset value based upon available market quotations or market equivalents and $1.00 per share based on amortized cost will be examined by the Board of Trustees of Base Trust 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. GLOSSARY IN-THE-MONEY. A call option on a futures contract is "in-the-money" if the value of the futures contract that is the subject of the option exceeds the exercise price. A put 41 option on a futures contract is "in-the-money" if the exercise price exceeds the value of the futures contract that is the subject of the option. ISSUER. For purposes of diversification under the Investment Company Act of 1940, identification of the issuer (or issuers) of a Municipal Security depends on the terms and conditions of the obligation. If the assets and revenues of an agency, authority, instrumentality or other political subdivision are separate from those of the government creating the subdivision and the obligation is backed only by the assets and revenues of the subdivision, such subdivision would be regarded as the sole issuer. Similarly, if the obligation is backed only by the assets and revenues of the non-governmental user, the non-governmental user would be deemed to be the sole issuer. In addition, if the bond is backed by the full faith and credit of the U.S. Government, agencies or instrumentalities of the U.S. Government or U.S. Government Securities, the U.S. Government or the appropriate agency or instrumentality would be deemed to be the sole issuer, and would not be subject to the 5% limitation applicable to investments in a single issuer as described under Restrictions on the Funds' Investments in the Prospectus and restriction number (i) under Investment Restrictions. If, in any case, the creating municipal government or another entity guarantees an obligation or issues a letter of credit to secure the obligation, the guarantee (or letter of credit) would be considered a separate security issued by such government or entity and would be separately valued and included in the issuer limitation. In the case of Municipal Money Fund, the Portfolio and Intermediate Municipals, guarantees and letters of credit described in this paragraph from banks whose credit is acceptable to these Funds are not restricted in amount by the restriction against investing more than 25% of their total assets in securities of non- governmental issuers whose principal business activities are in the same industry. MAJORITY OF THE OUTSTANDING VOTING SECURITIES. As used in the Prospectus and this Statement of Additional Information, this term means the lesser of (i) 67% or more of the shares at a meeting if the holders of more than 50% of the outstanding shares of the Fund are present or represented by proxy or (ii) more than 50% of the outstanding shares of the Fund. MUNICIPAL SECURITIES. Municipal Securities are debt obligations issued by or on behalf of the governments of states, territories or possessions of the United States, the District of Columbia and their political subdivisions, agencies and instrumentalities, the interest on which is generally exempt from the regular Federal income tax. The two principal classifications of Municipal Securities are "general obligation" and "revenue" bonds. "General obligation" bonds are secured by the issuer's pledge of its faith, credit, and taxing power for the payment of principal and interest. "Revenue" bonds are usually payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source. Industrial development bonds are usually revenue bonds, the credit quality of which is normally directly related to the credit standing of the industrial user involved. Municipal Securities may bear either fixed or variable rates of interest. Variable rate securities bear rates of interest that are adjusted 42 periodically according to formulae intended to minimize fluctuation in values of the instruments. Within the principal classifications of Municipal Securities, there are various types of instruments, including municipal bonds, municipal notes, municipal leases, custodial receipts, and participation certificates. Municipal notes include tax, revenue, and bond anticipation notes of short maturity, generally less than three years, which are issued to obtain temporary funds for various public purposes. Municipal lease securities, and participation certificates therein, evidence certain types of interests in lease or installment purchases contract obligations of a municipal authority or other entity. Custodial receipts represent ownership in future interest or principal payments (or both) on certain Municipal Securities and are underwritten by securities dealers or banks. Some Municipal Securities may not be backed by the faith, credit, and taxing power of the issuer and may involve "non-appropriation" clauses which provide that the municipal authority is not obligated to make lease or other contractual payments, unless specific annual appropriations are made by the municipality. Each Fund may invest more than 5% of its net assets in municipal bonds and notes, but does not expect to invest more than 5% of its net assets in the other Municipal Securities described in this paragraph. Some Municipal Securities are backed by (i) the full faith and credit of the U.S. Government, (ii) agencies or instrumentalities of the U.S. Government, or (iii) U.S. Government Securities. REPURCHASE AGREEMENT. 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, usually less than one week, but, on occasion, at a later time. In the event of a bankruptcy or other default of a seller of a repurchase agreement, the Fund could experience both delays in liquidating the underlying securities and losses, including: (a) possible decline in the value of the collateral during the period while the Fund seeks to enforce its rights thereto; (b) possible subnormal levels of income and lack of access to income during this period; and (c) expenses of enforcing its rights. REVERSE REPURCHASE AGREEMENT. A reverse repurchase agreement is a repurchase agreement in which the Fund is the seller of, rather than the investor in, securities and agrees to repurchase them at an agreed-upon time and price. SHORT-TERM. This term, as used with respect to Municipal Money Fund and the Portfolio, refers to an obligation of one of the following types, measured from the date of an investment by the Fund in the obligation (regardless of the duration of the obligation from the date of original issuance): 1. An obligation of the issuer to pay the entire principal and accrued interest in no more than thirteen months; 2. An obligation (regardless of the duration before its maturity) issued or guaranteed by the U.S. Government or by its agencies or instrumentalities, bearing a variable rate of interest providing for automatic establishment, no less frequently than 43 annually, of a new rate or successive new rates of interest by a formula, that can reasonably be expected to have a market value approximating its principal amount (a) whenever a new interest rate is established, in the case of an obligation having a variable rate of interest, or (b) at any time, in the case of an obligation having a "floating rate of interest" that changes concurrently with any change in an identified market interest rate to which it is pegged; 3. Any other obligation (regardless of the duration before its maturity) that: (a) has a demand feature entitling the holder to receive from an issuer the entire principal [or, under the circumstances described under Investment Policies--Municipal Money Fund above, the issuer of a guarantee or a letter of credit with respect to a participation interest in the obligation (acquired from such issuer)], (i) at any time upon no more than thirty days' notice or (ii) at specified intervals not exceeding thirteen months and upon no more than thirty days' notice, (b)(i) has a variable rate of interest that changes on set dates or (ii) has a floating rate of interest (as defined in 2 above), and (c) can reasonably be expected to have a market value approximating its principal amount (i) whenever a new rate of interest is established, in the case of an obligation having a variable rate of interest, or (ii) at any time, in the case of an obligation having a floating rate of interest; provided that, with respect to each such obligation that is not rated eligible quality by Moody's or S&P, the Board of Trustees has determined that the obligation is of eligible quality; or 4. A repurchase agreement that is to be fully performed (or that the Fund may require be performed) in not more than thirteen months (regardless of the maturity of the obligation to which the repurchase agreement relates). VARIABLE RATE DEMAND SECURITY. This type of security is a Variable Rate Security (as defined in the Prospectus under Municipal Securities) which has a demand feature entitling the purchaser to resell the security to the issuer of the demand feature at an amount approximately equal to amortized cost or the principal amount thereof, which may be more or less than the price the Fund paid for it. The interest rate on a Variable Rate Demand Security also varies either according to some objective standard, such as an index of short-term tax-exempt rates, or according to rates set by or on behalf of the issuer. APPENDIX--RATINGS OF MUNICIPAL SECURITIES 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 Municipal 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 44 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 Adviser, through independent analysis, attempts to discern variations in credit ratings of the published services, and to anticipate changes in credit ratings. The following is a description of the characteristics of certain ratings used by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P"). RATINGS BY MOODY'S MUNICIPAL BONDS: Aaa. Bonds rated Aaa are judged to be of 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 by an exceptionally stable margin and principal is secure. Although the various protective elements are likely to change, such changes as can be visualized are most 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 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. CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting condition attaches. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition. NOTE: Those bonds in the Aa, A, Baa, Ba, and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa 1, A 1, Baa 1, Ba 1, and B 1. MUNICIPAL NOTES: MIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. MIG 3. This designation denotes favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES: Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include: VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. VMIG 3. This designation denotes favorable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established. 46 COMMERCIAL PAPER: 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. CORPORATE BONDS: The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of its Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A classifications of 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: MUNICIPAL BONDS: AAA. Bonds rated AAA have the highest rating. Capacity to pay interest and repay principal is extremely strong. AA. Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from the higher rated issues only in small degree. A. Bonds rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher- rated categories. BBB. Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds 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 47 likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C1. The rating C1 is reserved for income bonds on which no interest is being paid. D. Debt rated D is in default, and payment of interest and/or repayment of principal is in arrears. The D rating also is issued upon the filing of a bankruptcy petition if debt service payments are jeopardized. NOTE: The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major ratings categories. PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk. MUNICIPAL NOTES: SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+. SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest. Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment: - Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note). - Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note). DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES: S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+). 48 COMMERCIAL PAPER: 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 to safety. A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+. CORPORATE BONDS: The description of the applicable rating symbols and their meanings is substantially the same as its Municipal Bond ratings set forth above. PART C. OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS. (a) 1. Financial statements included in Part A of this Amendment to the Registration Statement: Financial Highlights. 2. Financial statements included in Part B of this Amendment: Financial statements (investments as of 12/31/94, balance sheets as of 12/31/94, statements of operations for the year ended 12/31/94, statements of changes in net assets for each of the two years in the period ended 12/31/94, and notes thereto) and report of independent auditors are incorporated by reference to Registrant's 12/31/94 semiannual report. (b) Exhibits: [Note: As used herein, the term "Registration Statement" refers to the Registration Statement of the Registrant under the Securities Act of 1933, No. 2-99356. The terms "Pre-Effective Amendment" and "PEA" refer, respectively, to a pre-effective and a post-effective amendment to the Registration Statement.] 1. Agreement and Declaration of Trust of Registrant as amended through 10/25/94. 2. (a) By-Laws of Registrant as amended through 10/24/90. (Exhibit 2 to PEA #10.)* (b) Amendment to By-Laws dated 2/3/93. (Exhibit 2(b) to PEA #16.)* 3. None. 4. None. 5. (a) Investment advisory agreement dated 11/1/94 between Registrant and Stein Roe & Farnham Incorporated (the "Adviser") relating to the series SteinRoe Municipal Money Market Fund. (b) Investment advisory agreement dated 11/1/94 between Registrant and the Adviser relating to the series SteinRoe Intermediate Municipals. (c) Investment advisory agreement dated 11/1/94 between Registrant and the Adviser relating to the series SteinRoe Managed Municipals. (d) Investment advisory agreement dated 11/1/94 between Registrant and the Adviser relating to the series SteinRoe High-Yield Municipals. (e) Expense undertaking dated 10/31/94 relating to the series SteinRoe Municipal Money Market Fund and expense waiver dated 5/1/95 relating to the series SteinRoe Intermediate Municipals. 6. (a) Form of underwriting agreement between Registrant and Liberty Securities Corporation. (Exhibit 6(b) to PEA #3.)* (b) First amendment to underwriting agreement dated 10/25/89. (Exhibit 6(b) to PEA #9.)* (c) Second amendment to underwriting agreement dated 10/28/92. (Exhibit 6(c) to PEA #16.)* 7. None. 8. Custodian contract between Registrant and State Street Bank and Trust Company ("Bank") dated December 31, 1987 as amended through May 8, 1995. 9. (a) Transfer agency agreement between Registrant and SteinRoe Services Inc. as amended through 5/1/95. (b) Form of Accounting and Bookkeeping Agreement between the Registrant and the Adviser. (Exhibit 9(e) to PEA #17.)* 10. Opinions and consents of Bell, Boyd & Lloyd and Ropes & Gray with respect to the series of Registrant designated SteinRoe Municipal Money Market Fund, SteinRoe Intermediate Municipals, SteinRoe Managed Municipals, and SteinRoe High-Yield Municipals. (Exhibit 10(a) and 10(b) to PEA #4.)* 11. (a) Opinion and consent of Bell, Boyd & Lloyd regarding tax- exempt status of standby commitments. (Exhibit 11(a) to Pre-Effective Amendment.)* (b) Consent of Morningstar, Inc. (Exhibit 11(b) to PEA #13.)* 12. None. 13. Inapplicable. 14. None. 15. None. 16. (a) Schedule for computation of yield of SteinRoe Municipal Money Market Fund and schedules for computation of total return of SteinRoe Intermediate Municipals, SteinRoe Managed Municipals, and SteinRoe High-Yield Municipals. (Exhibit 16 to PEA #6.)* (b) Schedule for computation of total return of SteinRoe Municipal Money Market Fund and schedules for computation of yield of SteinRoe Intermediate Municipals, SteinRoe Managed Municipals, and SteinRoe High-Yield Municipals. (Exhibit 16(b) to PEA #7.)* 17. (a) Financial Data Schedule relating to the series SteinRoe Municipal Money Market Fund. (b) Financial Data schedule relating to the series SteinRoe Intermediate Municipals. (c) Financial Data schedule relating to the series SteinRoe Managed Municipals. (d) Financial Data schedule relating to the series SteinRoe High-Yield Municipals. 18. Inapplicable. 19. (Miscellaneous.) (a) Funds Application. (Exhibit 18(a) to PEA #17.)* (b) Funds-on-Call Application. (Exhibit 17(b) to PEA #15).* (c) Automatic Redemption Services Application. (Exhibit 17(c) to PEA #15).* _______________________________ *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 controlled by, or under common control with, other persons within the meaning of this Item. See "Investment Advisory Services," "Management," "Distributor," 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 Title of Series Holders as of May 25, 1995 SteinRoe Intermediate Municipals 3,055 SteinRoe High-Yield Municipals 6,459 SteinRoe Municipal Money Market Fund 3,565 SteinRoe Managed Municipals 11,030 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. To the extent required 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, Stein Roe & Farnham Incorporated (the "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 the 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 dated January 26, 1994, among the Registrant, its transfer agent and the Adviser, Registrant, its trustees, officers and employees, its transfer agent and the transfer agent's directors, officers and employees are indemnified by Registrant's 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 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 Adviser. Registrant, its trustees, officers, employees and representatives and each person, if any, who controls the Registrant within the meaning of Section 15 of the Securities Act of 1933 are indemnified by the distributor of Registrant's shares (the "distributor"), pursuant to the terms of the distribution agreement, which governs the distribution of Registrant's shares, against any and all losses, liabilities, damages, claims and expenses arising out of the acquisition of any shares of the Registrant by any person which (i) may be based upon any wrongful act by the distributor or any of the distributor's directors, officers, employees or representatives or (ii) may be based upon any untrue or alleged untrue statement of a material fact contained in a registration statement, prospectus, statement of additional information, shareholder report or other information covering shares of the Registrant filed or made public by the Registrant or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading if such statement or omission was made in reliance upon information furnished to the Registrant by the distributor in writing. In no case does the distributor's indemnity indemnify an indemnified party against any liability to which such indemnified party would otherwise be subject by reason of willful misfeasance, bad faith, or negligence in the performance of its or his duties or by reason of its or his reckless disregard of its or his obligations and duties under the distribution agreement. ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER. The Adviser is a wholly-owned subsidiary of SteinRoe Services Inc. ("SSI"), which in turn is a wholly-owned subsidiary of Liberty Financial Companies, Inc., which in turn is a subsidiary of Liberty Mutual Equity Corporation, which in turn is a subsidiary of Liberty Mutual Insurance Company. The Adviser acts as investment adviser to individuals, trustees, pension and profit-sharing plans, charitable organizations, and other investors. In addition to Registrant, it also acts as investment adviser to other no-load investment companies having different investment policies. During the past two years, neither the Adviser nor any of its directors or officers, except for Gary L. Countryman, Kenneth R. Leibler, Hans P. Ziegler, and N. Bruce Callow has been engaged in any business, profession, vocation, or employment of a substantial nature either on their own account or in the capacity of director, officer, partner, or trustee, other than as an officer or associate of the Adviser. Mr. Countryman is President of Liberty Mutual Insurance Company and Liberty Mutual Fire Insurance Company; Mr. Leibler is President and Chief Operating Officer of Liberty Financial Companies, Inc.; Mr. Ziegler was president and chief executive officer of the Pitcairn Financial Management Group to July, 1993; Mr. Callow was senior vice president of trust and financial services of The Northern Trust Company prior to June, 1994. Certain directors and officers of the Adviser also serve and have during the past two years served in various capacities as officers, directors, or trustees of SSI and of the Registrant, SteinRoe Income Trust, SteinRoe Investment Trust, SR&F Base Trust, SteinRoe Variable Investment Trust and Liberty Financial Trust, investment companies managed by the Adviser. A list of such capacities is given below. (The listed entities, except for SteinRoe Variable Investment Trust, are all located at One South Wacker Drive, Chicago, Illinois 60606; the address of SteinRoe Variable Investment Trust is Federal Reserve Plaza, 600 Atlantic Avenue, Boston, Massachusetts 02210.) POSITION FORMERLY HELD WITHIN PAST CURRENT POSITION TWO YEARS ----------------------- ------------------ STEINROE SERVICES INC. Gary A. Anetsberger Vice President Timothy K. Armour Vice President Jilaine Hummel Bauer Vice President; Secretary Gary L. Countryman Director; Chairman Kenneth J. Kozanda Vice President; Treasurer Alfred F. Kugel Vice President Kenneth R. Leibler Director Keith J. Rudolf Vice President Hans P. Ziegler Director, President, Vice Chairman SR&F BASE TRUST Gary A. Anetsberger Senior Vice-President; Controller Timothy K. Armour President; Trustee Jilaine Hummel Bauer Executive Vice-President; Vice-President Secretary Ann H. Benjamin Vice-President N. Bruce Callow Executive Vice-President Michael T. Kennedy Vice-President Stephen P. Lautz Vice-President Lynn C. Maddox Vice-President Jane M. Naeseth Vice-President Thomas P. Sorbo Vice-President Lisa N. Wilhelm Vice-President Hans P. Ziegler Executive Vice-President Anthony G. Zulfer, Jr. Trustee STEINROE INCOME TRUST Gary A. Anetsberger Senior Vice-President; Controller Timothy K. Armour President; Trustee Jilaine Hummel Bauer Executive Vice-President; Vice-President Secretary Ann H. Benjamin Vice-President Thomas W. Butch Vice-President N. Bruce Callow Executive Vice-President Michael T. Kennedy Vice-President Stephen P. Lautz Vice-President Steven P. Luetger Vice-President Lynn C. Maddox Vice-President Jane M. Naeseth Vice-President Thomas P. Sorbo Vice-President Lisa N. Wilhelm Vice-President Hans P. Ziegler Executive Vice-President Anthony G. Zulfer, Jr. Trustee STEINROE INVESTMENT TRUST Gary A. Anetsberger Senior Vice-President; Controller Timothy K. Armour President; Trustee Jilaine Hummel Bauer Executive Vice-President; Vice-President Secretary Thomas W. Butch Vice-President N. Bruce Callow Executive Vice-President Daniel K. Cantor Vice-President Robert A. Christensen Vice-President E. Bruce Dunn Vice-President Erik P. Gustafson Vice-President Harvey B. Hirschhorn Vice-President Alfred F. Kugel Trustee Stephen P. Lautz Vice-President Lynn C. Maddox Vice-President Richard B. Peterson Vice-President Gloria J. Santella Vice-President Thomas P. Sorbo Vice-President Hans P. Ziegler Executive Vice-President SteinRoe Municipal Trust Gary A. Anetsberger Senior Vice-President; Controller Timothy K. Armour President; Trustee Jilaine Hummel Bauer Executive Vice-President; Vice-President Secretary Thomas W. Butch Vice-President N. Bruce Callow Executive Vice-President Joanne T. Costopoulos Vice-President Stephen P. Lautz Vice-President Lynn C. Maddox Vice-President M. Jane McCart Vice-President Thomas P. Sorbo Vice-President Hans P. Ziegler Executive Vice-President Anthony G. Zulfer, Jr. Trustee SteinRoe Variable Investment Trust Gary A. Anetsberger Treasurer Timothy K. Armour Vice President Jilaine Hummel Bauer Vice President Ann H. Benjamin Vice President Robert A. Christensen Vice President E. Bruce Dunn Vice President Erik P. Gustafson Vice President Harvey B. Hirschhorn Vice President Michael T. Kennedy Vice President Jane M. Naeseth Vice President Richard B. Peterson Vice President ITEM 29. PRINCIPAL UNDERWRITERS. Registrant's principal underwriter, Liberty Securities Corporation, is a wholly-owned subsidiary of Liberty Investment Services, Inc., which in turn is a wholly-owned subsidiary of Liberty Financial Companies, Inc., which in turn is a subsidiary of Liberty Mutual Equity Corporation, which in turn is a subsidiary of Liberty Mutual Insurance Company. Liberty Securities Corporation is principal underwriter for the following investment companies: SteinRoe Income Trust SteinRoe Municipal Trust SteinRoe Investment Trust Liberty Growth Properties Limited Partnership Liberty Income Properties Limited Partnership Liberty/Heritage Limited Partnership II Liberty/Kuester Limited Partnership III Liberty/Manhattan Beach Limited Partnership Liberty/High Income Plus Limited Partnership Liberty/Overland Park Limited Partnership Set forth below is information concerning the directors and officers of Liberty Securities Corporation: Positions Positions and Offices and Offices Name with Underwriter with Registrant - ------ ----------------------------- -------------- Kenneth R. Leibler Chairman of the Board; Director None Ronald S. Robbins Executive Vice Chairman; Director None Alan H. Blank Vice Chairman None Ralph E. Nixon President None John T. Treece, Jr. Senior Vice President & Treasurer None John W. Reading Sr. Vice President & Assistant Secretary None Valerie A. Arendell Senior Vice President None Peter J. Babnis Senior Vice President None John B. Knight Senior Vice President None Stephen M. O'Neill Senior Vice President None Robert L. Spadafora Senior Vice President None Paul G. Martins Vice President & Chief Financial Officer None Diane L. Basler Vice President None Jilaine Hummel Bauer Vice President Exec. V-P & Secretary Lindsay Cook Vice President Trustee Patricia O. Baeckstrom Vice President None Susan Sweeney Vice President None Glenn E. Williams Assistant Vice President None John A. Benning Secretary None Charles A. Merritt Assistant Treasurer & Assistant Secretary None The principal business address of Ms. Bauer is One South Wacker Drive, Chicago, IL 60606; that of Mr. Williams is Two Righter Parkway, Wilmington, DE 19803; and that of the other officers is 600 Atlantic Avenue, Boston, MA 02210. ITEM 30. LOCATION OF ACCOUNTS AND RECORDS. Jilaine Hummel Bauer Executive Vice-President and Secretary One South Wacker Drive Chicago, Illinois 60606 ITEM 31. MANAGEMENT SERVICES. None. ITEM 32. UNDERTAKINGS. Since the information called for by Item 5A 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 Registrant's latest annual report to shareholders upon request and without charge. February 18, 1995 To Our Shareholders We are pleased to present this semiannual report for SteinRoe's Tax-Exempt Funds: Municipal Money Market Fund, Intermediate Municipals, Managed Municipals, and High-Yield Municipals. Market Review The year 1994 was not a kind one for stocks or for bonds. According to the Wall Street Journal, for the first time since 1974, both stock and bond funds declined in value during the same year.* The economy chugged along at a pace significantly stronger than most anyone had predicted. Consumer confidence was fairly strong, personal consumption spending was brisk in the last half of the year, and manufacturing trended higher. Bond market volatility during the year was fueled by the Federal Reserve Board, which raised rates six times during the year to keep inflation contained. The federal funds rate rose a total of 2.5 percentage points during the year. And in the equity arena, the S&P 500 fluctuated in a very narrow range for an unprecedented third consecutive year.(1) 1995 Outlook Although 1994 wasn't exactly a year of good investment news, 1995 should be a better, albeit an interesting, year. Although the year opened on a relatively weak note, we expect stronger performance to emerge later in the year. With the exception of a few cautious notes, the year 1995 could outshine 1994 for a number of reasons: * Reduced federal deficit. As a result of the new Republican leadership in Congress, we look for reductions in government expenditures, leading to an improved outlook for the federal deficit--and for the bond market. * Lower long-term interest rates. We believe long-term rates peaked in 1994, and despite some additional short-term volatility, we look for rates to trend down modestly in 1995 as the markets realize that growth is slowing and inflation fears have been exaggerated. * Short-term interest rates. Although further rate increases are expected during early 1995 (the Fed raised rates by .50 percent in late January), we believe rates will stabilize later in the year. * Stock market. Although we don't expect the onset of a traditional bear market, a cautious near-term attitude continues to seem warranted. We may see some additional short-term price volatility. * Higher demand for U.S. Exports. Growth should benefit from higher demand for U.S. exports as the economies of our trading partners improve in 1995. * Continued low inflation. The low value of the dollar and more open world trade should heighten price competition and help contain inflation. * Growth stocks favored. There may be a further shift in investor favor from cyclical stocks toward growth stocks, which have underperformed for much of the past three years. * Housing market. Higher mortgage rates will continue to depress the housing market and housing-purchase related consumption. Remember the Basics While the markets are experiencing the kind of short-term volatility we've seen over the last year or so, we believe it is wise to stick to the basics. Maintain a well-diversified portfolio. Take advantage of the power of time; long-term objectives give you time to ride out the markets' lows. Invest regularly. And, above all, don't panic. If you stick to a disciplined investment plan, you should find it easier to meet your financial goals. As always, we thank you for investing with SteinRoe. Sincerely, Timothy K. Armour President, SteinRoe Mutual Funds * Source: Wall Street Journal, Mutual Fund Quarterly, January 6, 1995, page R1. (1) The S&P 500 is not available for direct investment; it is an unmanaged index generally representative of the U.S. stock market. Reports from our portfolio managers follow. Municipal Money Market Fund As a result of the Federal Reserve Board's tightening actions, short-term rates increased substantially during the six-month period ended December 31, 1994. The seven-day yield on the Municipal Money Market Fund portfolio was 4.09 percent on December 31, 1994, up from 2.05 percent on June 30, reflecting the general rise in short-term rates. However, part of the increase in tax-exempt rates can also be attributed to year-end selling. For investors in the 39.6 percent income tax bracket, the December 31 taxable-equivalent yield was 6.77 percent; for the 31 percent tax bracket, the taxable equivalent yield was 5.93 percent.* Interest rate increases during the last half of 1994 resulted in a strong demand for money market instruments. Many investors sought the relative safety of short-term issues to reduce price volatility in their portfolios. During the last half of 1994, we increased the Fund's holdings of Alternative Minimum Tax (AMT) securities from 18 percent on June 30 to 38 percent on December 31 to capture the attractive yield differential between AMT and non-AMT paper. We also purchased tax and revenue anticipation notes, which were attractive on an after-tax basis, increasing our holdings from 1.8 percent to 14.5 percent. During the six-month period, we maintained a relatively low dollar-weighted average portfolio maturity, in light of the potential for additional rate increases by the Fed. Also, in anticipation of further tightening, we increased holdings of variable rate notes. Portfolio investment in these notes was 50.5 percent on June 30, but had risen to 62.7 percent by December 31. As a result of these moves, our dollar-weighted average portfolio maturity fell from 50 days on June 30, to 46 days on December 31. We anticipate additional interest rate increases early in 1995. Continued reductions in new issue supply--along with the significant amount of cash expected from coupon payments, pre-refunded bonds and maturities--should keep spreads at a rich premium to treasuries. We will continue to look for opportunities to increase holdings of AMT issues to take advantage of higher yields. Using the proceeds from maturing notes, we will selectively purchase a limited number of six-month and one-year notes. We currently hold a significant amount of variable rate paper in anticipation of additional Fed tightening and higher short-term rates. However, if rates stabilize, we plan to extend our average maturity. As always, we will continue to work closely with credit research to maintain high portfolio quality. Jill Netzel, portfolio manager * Current yield (annualized), which will fluctuate, is net of all fees and expenses and represents dividends payable to shareholders for the last seven days of the reporting period. Income may be subject to state and local taxes and federal alternative minimum tax. The maximum federal tax rate for individual and married taxpayers filing jointly is 39.6 percent for taxable income greater than $250,000; the federal tax rate of 31 percent applies to taxable income of $55,100--$115,000 for singles, $91,850--$140,000 for married taxpayers and $78,700--$127,500 for heads of households. The Fund strives to maintain a $1 per share net asset value. However, an investment in the Fund is neither insured nor guaranteed, and there is no assurance that the Fund will be able to maintain a stable net asset value of $1 per share. The Fund's adviser currently limits expenses to 0.70 percent of average net assets. Absent this limitation, the current seven-day tax--equivalent and tax-exempt yields would have been 6.72 percent and 4.06 percent, respectively, on December 31 and unchanged at June 30. Intermediate Municipals Municipal securities fell into disfavor among investors during the six-month period ended December 31, 1994, resulting in a severe erosion of tax-exempt asset levels. The municipal market started the period in good "technical" condition--low new-issue volume and strong demand. However, concerns about rising interest rates, price volatility, and the continued market erosion of "market discount" bonds (affected by the adverse tax treatment of a new law that treats gains earned on market discount bonds as ordinary income) caused many shareholders to abandon the municipal market. As a result, mutual funds were forced to liquidate portions of their holdings to meet significant shareholder redemptions. As Wall Street sought to minimize its inventories before year-end and rising interest rates continued to take their toll, the demand for municipal securities came to a standstill. By the end of the 6-month period, however, we began to see a reversal of sentiment towards municipals. Investors began to focus on the attractiveness of tax-exempts over taxables, particularly the attractive yield differential offered by municipal securities in the 10- to 15-year range. Intermediate Municipals' six-month return of -0.29 percent was slightly better than the -0.89 percent return for the Lehman Municipal 10-Year index, which consists of investment-grade municipal bonds with maturities of 1 to 10 years.** The Fund was able to outperform the index due to its lower duration (a measure of price volatility). In an attempt to lower the effects of market volatility on the Fund's portfolio, we maintained our defensive posture and shortened the Fund's duration from 6.03 years on June 30 to 5.5 years on December 31. When interest rates rise, portfolios with shorter durations generally perform better than portfolios with longer durations. When quality spreads widened and good values were available during the six-month period, we sold AA-rated issues and purchased A-rated and Baa-rated paper to take advantage of the significant yield differential. We continued to lower our exposure in the electric power sector given our concerns that this industry is under attack from the courts, Congress, environmental groups and certain state legislatures. We expect the municipal market may outperform the treasury market if investors continue to focus on the attractiveness of municipals on an after-tax basis. New issue volume is expected to remain low in 1995. If demand improves, the market should register good relative performance. We will cautiously look for opportunities to lengthen the Fund's duration and take advantage of best relative value situations. Joanne Costopoulos, portfolio manager Managed Municipals The fixed-income markets experienced extreme periods of volatility and a sharp increase in interest rates during the six-month period ended December 31, 1994. The municipal market fared poorly as the lack of a slowdown in the economy brought the 30-year U.S. Treasury bond to its 1994 peak yield of 8.17 percent. After the Fed tightened the fed funds rate in mid-November, investor anxiety seemed to abate and the market recovered from its lows. Nonetheless, municipal bond funds experienced large redemptions as investors booked tax losses in the wake of a very difficult year in the municipal markets. The Fund underperformed the Lehman Municipal Bond index with a return of -1.01 percent for the six-month period ended December 31, 1994, versus a -0.75 percent return for the index, which consists of investment-grade, long-term municipal bond issues larger than $50 million and dated since January, 1984.** The Fund underperformed the index due in part to its overweighting of shorter, pre-refunded issues. Since short-term interest rates increased more than long-term rates, short-term securities experienced greater price depreciation. Underperformance in the housing sector also affected the Fund's performance, since the Fund had a higher concentration of housing issues than the index. As a result of uncertainty in the fixed-income markets, the Fund continued to experience negative cash flows during the last half of 1994. In an attempt to maintain the Fund's duration, we liquidated positions across the maturity spectrum as we funded redemptions. Throughout the six-month period, we sold issues with low original issue yields that were subject to the adverse tax treatment of a new law (which treats gains earned on market discount municipal bonds as ordinary income). We used the proceeds from these sales to purchase securities with higher original issue yields that offered greater price stability. We are maintaining a cautious posture going into 1995. On the supply side, new issuance is expected to be even lower than 1994's volume. The supply picture would normally indicate an opportunity for municipal bonds to outperform the taxable fixed income markets. However, demand--which was very weak in the latter part of 1994--remains uncertain. The fixed income markets seem to be looking for confirmation of a slowdown in the economy. Until this occurs, the municipal market is vulnerable. Therefore, we plan to maintain our defensive strategy until an economic slowdown is clearly evident. Jane McCart, portfolio manager High-Yield Municipals The municipal markets finished one of the most tumultuous years on record with another six months of weak performance. Early in the six-month period, the dearth of new issue supply bolstered the performance of municipal securities. However, as interest rates continued to climb and the fixed-income markets experienced heightened volatility, many investors abandoned the municipal market. Following another rate increase in mid-November, investors' concerns about economic growth and inflation eased and municipals regained some ground. The Fund's return of -0.88 percent for the six-month period ended December 31, 1994, was slightly less than the -0.75 percent return for the Lehman Municipal Bond index, which consists of investment-grade, fixed-rate, long-term municipal bond issues larger than $50 million and dated since January 1984.** Underperformance in the hospital sector during the six-month period affected the Fund's performance, since the Fund was overweighted in that sector compared to the index. During the last six months of the year, our investment strategy focused on interest rate risk management. We made selective reductions in interest rate exposure, which helped to cushion the effects of interest rate increases on the portfolio. As the year came to a close, the Fund experienced a significant amount of tax-loss driven selling. As a result, we reduced our holdings of discount bonds to fund shareholder redemptions. Consequently, the size of the Fund was reduced, and the percentage of non-rated securities in the portfolio increased from 16.4 percent at the end of June to 19.3 percent at the end of December. As we begin 1995, there is continued concern over whether the Fed's tightening policy will sufficiently slow economic growth. At present, there is substantial optimism in the fixed-income markets that economic growth will slow as the year progresses. If, however, the pace of economic growth is not contained, the markets may have a difficult time maintaining their current placid conditions in the months ahead. Nevertheless, we anticipate good relative performance in the municipal market as the low level of new issue supply continues. James S. Grabovac, portfolio manager **Total return performance includes changes in share price and reinvestment of income and capital gain distributions. Past performance is no guarantee of future results. Share price and investment return will vary, so you may have a gain or loss when you sell shares. Capital gains are subject to local, state and federal taxes. Income may be subject to local and state taxes and federal alternative minimum tax. Lehman indices are unmanaged groups of municipal securities that differ from the composition of each SteinRoe fund; these indices are not available for direct investment. Investment Comparison Comparison of change in value of $10,000 investment for the years ended June 30 Intermediate Municipals This graph compares the performance of Intermediate Municipals to the Lehman Municipal 10-Year Bond Index, which shows returns for investment-grade municipal bonds with maturities of one to 10 years. Intermediate Municipals Line Chart:
Date Intermediate Municipals Lehman Municipal Index 10/31/85 10,000 10,000 1986 10,752 11,203 1987 11,446 12,351 1988 12,088 13,205 1989 12,916 14,475 1990 13,800 15,504 1991 14,929 16,937 1992 16,468 18,854 1993 18,267 21,227 1994 18,479 21,437 6 mos. ended 12/31/94 18,424 21,246 Average Annual Total Return (period ended 12/31/94) One Five From Year Year Inception* - -3.37% 6.57% 6.89% *From October 9, 1985 through December 31, 1994
Managed Municipals This graph compares the performance of Managed Municipals to the Lehman Municipal Bond Index, showing returns for investment-grade, fixed-rate, long-term (greater than two years) municipal bond issues larger than $50 million and dated since January 1984. Managed Municipals Line Chart:
Date Managed Municipals Lehman Municipal Index 1985 10,000 10,000 1986 12,071 11,650 1987 12,995 12,656 1988 13,976 13,594 1989 15,749 15,142 1990 16,718 16,173 1991 18,209 17,631 1992 20,385 19,706 1993 22,585 22,063 1994 22,519 22,100 6 mos. ended 12/31/94 22,287 21,934 Average Annual Total Return (period ended 12/31/94) One Five Ten Year Year Year - -5.39% 6.41% 9.66% Important: Lehman indices represent unmanaged groups of bonds that differ from the composition of each SteinRoe fund. Past performance is no guarantee of future results.
Investment Comparison Comparison of change in value of $10,000 investment for the years ended June 30 High-Yield Municipals This graph compares the performance of High-Yield Municipals to the Lehman Municipal Bond Index, showing returns for investment-grade, fixed-rate, long-term (greater than two years) municipal bond issues larger than $50 million and dated since January 1984. High-Yield Municipals
Line Chart: Date High-Yeild Municipals Lehman Municipal Index 1985 10,000 10,000 1986 11,824 11,650 1987 12,658 12,656 1988 13,755 13,594 1989 15,651 15,142 1990 16,839 16,173 1991 18,318 17,631 1992 19,969 19,706 1993 21,542 22,063 1994 21,748 22,100 6 mos. ended 12/31/94 21,554 21,934 Average Annual Total Return (period ended 12/31/94) One Five Ten Year Year Year - -4.04% 5.75% 9.15% Important: Lehman indices represent unmanaged groups of bonds that differ from the composition of each SteinRoe fund. Past performance is no guarantee of future results.
Summary of Credit Quality Ratings
Standard & Intermediate Managed High-Yield Moody's or Poor's Municipals Municipals Municipals Aaa AAA 60% 37% 20% Aa AA 14 35 14 A A 22 25 26 Baa BBB 4 2 17 Less Less -- -- 4 Not Rated Not Rated -- 1 19 ---- ---- ---- 100% 100% 100% ==== ==== ====
Portfolio breakdowns are stated as a percentage of total portfolio value, using the higher of Moody's or Standard & Poor's ratings. (The Statement of Additional Information provides a description of these ratings.) The AAA rating includes short-term holdings assigned a rating of MIG1, VMIG1, or P-1 by Moody's or a rating of SP-1 or A-1 by Standard & Poor's. Municipal Money Market Fund invests only in high quality securities, as rated by Moody's and Standard & Poor's, and unrated securities deemed high quality by the Board of Trustees. Maturity Profiles
Intermediate Managed High-Yield Maturity Municipals Municipals Municipals Less than one year 8% 3% 8% One to five years 13 14 4 Five to ten years 48 6 7 Ten to twenty years 27 36 25 Over twenty years 4 41 56 ---- ---- ---- 100% 100% 100% ==== ==== ==== Adjusted Duration* 5.50 7.80 8.15 Portfolio breakdowns are stated as a percentage of total portfolio value. At quarter-end, the weighted average maturity for Municipal Money Market Fund was 46 days. * Adjusted duration reflects an estimate of the percent the portfolio value could change for each 1% change in interest rates. A smaller number indicates less volatility; a larger number indicates more. This number has been adjusted to take call provisions and the possibility of principal prepayments into account. The adjusted duration taking into account the open futures positions at December 31, 1994 for Intermediate Municipals, Managed Municipals and High-Yield Municipals was 5.0, 7.3 and 7.0, respectively.
SteinRoe Municipal Trust Municipal Money Market Fund Investments as of December 31, 1994 (Dollar amounts in thousands) (Unaudited)
Principal Market Municipal Securities (100.5%) Amount Value Alabama (6.7%) Alabama Higher Education Loan Corp. (FSA Insured) Student Loan 3.600% 3/01/95 Series 1994 A $ 500 $ 500 3.800% 3/01/95 Series 1994 B 750 750 Alabama IDA Solid Waste Disposal Revenues (Pine City Fiber Company L.O.C. Barclays Bank Plc) V.R.D.B. 5.900% 7,750 7,750 Ardmore I.D.R (Group Dekko L.O.C. Bank One, Indianapolis) V.R.D.B. 5.750% 1,630 1,630 Phenix City Industrial Development Board Environmental Improvement Revenue (Mead Coated Board L.O.C. The Toronto Dominion Bank) V.R.D.B. 5.900% 1,000 1,000 ------- 11,630 Arkansas (4.4%) Clark County Solid Waste Disposal Revenue (Reynolds Metals Co. L.O.C. Trust Company Bank) V.R.D.B. 5.600% 7,600 7,600 California (2.0%) City of Orange T.R.A.N. 4.750% 8/01/95 2,000 2,007 Los Angeles School District Tax & Revenue T.R.A.N. Series 94-95 4.500% 7/10/95 1,400 1,406 ------- 3,413 Colorado (4.5%) Arapahoe County Series M (L.O.C. Societe General) Optional Put 2/28/95 3.900% 4,000 4,000 Colorado G.O. T.R.A.N. 4.500% 6/27/95 1,000 1,002 Colorado Student Obligation Bond Authority Student Loan Revenue (L.O.C. Student Loan Marketing Association) V.R.D.B. 5.050% 2,900 2,900 ------- 7,902 District of Columbia (1.8%) District of Columbia Revenue Series 1985 (American University L.O.C. National Westminster Bank) V.R.D.B. 5.550% 3,100 3,100 Florida (5.5%) Manatee County P.C.R. (Florida Power & Light Co.) Series 1994 V.R.D.B. 6.500% 1,400 1,400 Martin County P.C.R. (Florida Power & Light Co.) Series 1994 V.R.D.B. 6.500% 1,100 1,100 Orlando Utilities Commission Water & Electric Revenue (pre-refunded to 10/01/95) 8.100% 10/01/96 1,500 1,564 Principal Market Municipal Securities (Continued) Amount Value Florida (Continued) Putnam County Development Authority P.C.R. Series 1984 S (Seminole Electric Cooperative, Inc. gtd. by National Rural Utilities Cooperative Finance Corp.) V.R.D.B. 5.550% $2,950 $2,950 St. Lucie County P.C.R. Series 1993 (Florida Power and Light) V.R.D.B. 6.500% 2,600 2,600 ------- 9,614 Georgia (0.6%) Municipal Electric Authority of Georgia (Project One) Series 1985 A Mandatory Put 2/01/95 3.800% 1,000 1,000 Idaho (1.2%) Idaho T.A.N. 4.500% 6/29/95 2,000 2,007 Illinois (2.8%) Illinois Development Finance Authority Revenue Refunding (L.O.C. Swiss Bank Corporation) V.R.D.B. 5.100% (Brookdale) 1,000 1,000 5.100% (River Oaks) 865 865 Illinois Health Facilities Authority Revenue (University of Chicago Hospital) Optional Put 2/23/95 3.800% 3,000 3,000 ------- 4,865 Indiana (3.7%) Fort Wayne Hospital Authority Revenue (Parkview Memorial Hospital L.O.C. Fuji Bank, Ltd.) V.R.D.B. 5.650% Series B 3,000 3,000 5.650% Series C 2,300 2,300 Tipton Economic Development Revenue (Tipton Apartments Project L.O.C. Bank One, Indianapolis) V.R.B.D. 5.550% 1,120 1,120 ------- 6,420 Iowa (1.1%) Iowa School Corp. Iowa School Cash Series 1994 A (Capital Guaranty Insured) 4.250% 7/17/95 2,000 2,007 Kentucky (4.3%) Covington I.D.R. Series 1991 (White Castle Distributing L.O.C. Bank One, Columbus) V.R.D.B. 5.750% 4,515 4,515 The accompanying notes to financial statements are an integral part of this schedule. Municipal Money Market Fund Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value Kentucky (Continued) Pendelton County Multiple County Lease Revenue (Kentucky Association of Counties) 3.700% Mandatory Put 3/01/95 (L.O.C. Commonwealth Bank of Australia) $2,000 $ 2,000 3.750% Mandatory Put 7/01/95 (L.O.C. PNC of Kentucky) 1,000 1,000 ------- 7,515 Louisiana (0.2%) Parish of St. Charles P.C.R. (Shell Oil Co.) V.R.D.B. 5.650% 400 400 Maryland (0.6%) Ann Arundel County E.D.R. (Baltimore Gas and Electric Company) Mandatory Put 3/01/95 4.400% 1,000 1,000 Michigan (6.3%) Michigan Housing Development Authority Rental Housing Revenue Series 1993 B (L.O.C. Sumitomo Bank, Ltd.) V.R.D.B. 5.700% 2,400 2,400 Michigan Job Development Authority Series 1985 V.R.D.B. 5.650% I.D.R. (Michigan Sugar Co.-Sebewaing Project L.O.C. Trust Company Bank) 2,600 2,600 5.750% P.C.R. (Mazda Motor Manufacturing USA Corp. L.O.C. Sumitomo Bank, Ltd.) 4,000 4,000 Michigan Strategic Fund I.D.R. (Michigan Sugar Co.-Croswell Project L.O.C. Trust Company Bank) V.R.D.B. 5.650% 2,000 2,000 ------- 11,000 Minnesota (2.3%) Regents of the University of Minnesota Series G Optional Put 2/01/95 3.600% 4,000 4,000 Missouri (5.5%) Columbia Special Obligation Series 1988 A (L.O.C. Toronto Dominion Bank) V.R.D.B. 5.000% 5,100 5,100 Jefferson County (GHF Holdings L.O.C. Bank One, Indianapolis) V.R.D.B. 5.750% 4,500 4,500 ------- 9,600 New Hampshire (4.0%) New Hampshire I.D.R. (New England Power Co.) 4.300% Mandatory Put 2/01/95 3,000 3,000 4.450% Mandatory Put 2/02/95 1,000 1,000 3.750% Mandatory Put 2/24/95 3,000 3,000 ------- 7,000 Principal Market Municipal Securities (Continued) Amount Value New Mexico (4.9%) Albuquerque Hospital Revenue (Sisters of Charity-St. Joseph) V.R.D.B. 5.500% $1,000 $ 1,000 New Mexico Educational Assistance Foundation Student Loan Revenue Series I (L.O.C. Bayerishe Landesbank Girozantrale) V.R.D.B. 5.150% 7,500 7,500 ------- 8,500 New York (1.6%) New York City T.A.N. 4.250% 2/15/95 2,700 2,702 North Carolina (1.4%) Yancey County Industrial Facility and Pollution Control Finance Authority Revenue Series 1988 (Avondale Mills Inc. L.O.C. Trust Company Bank) V.R.D.B. 5.650% 2,495 2,495 Oregon (1.4%) Klamath Falls Electric Revenue Salt Caves Hydroelectricity Series D Mandatory Put 5/02/95 3.750% 2,360 2,360 Pennsylvania (9.4%) Carbon County I.D.R. Series B (Panther Crest Creek Partners L.O.C. National Westminster Bank) Mandatory Put 2/22/1995 4.450% 2,000 2,000 Pennsylvania Energy Development Authority (B&W Ebensburg Project L.O.C. Swiss Bank Corporation) Series 87 & 88 V.R.D.B. 5.100% 6,950 6,950 Pennsylvania T.A.N. 4.750% 6/30/95 4,000 4,009 Philadelphia T.R.A.N. Series D 4.750% 6/15/95 3,000 3,012 Schuykill County I.D.A. Resource Recovery Revenue (Westwood Energy Properties Limited Partnership L.O.C. Fuji Bank, Ltd.) V.R.D.B. 6.050% 300 300 ------- 16,271 South Carolina (2.3%) York County P.C.R. (Saluda River gtd. by National Rural Utilities Cooperative Finance Corp.) Mandatory Put 2/15/95 3.500% 4,000 4,000 Texas (7.8%) Greater East Texas Higher Education Authority Inc. Student Loan Revenue Series 1993 B (L.O.C. Student Loan Marketing Association) Mandatory Put 2/01/95 2.750% 3,000 3,000 Harris County Industrial Development Corp. (Exxon Corp.) V.R.D.B. 5.650% 2,900 2,900 The accompanying notes to financial statements are an integral part of this schedule. Municipal Money Market Fund Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value Texas (Continued) Texas Association of School Boards T.A.N. Series A 4.750% 8/31/95 $4,000 $ 4,015 Texas T.R.A.N. 5.000% 8/31/95 3,600 3,613 ------- 13,528 Virginia (1.4%) Colonial Heights I.D.A. Revenue Refunding (Philip Morris Companies) V.R.D.B. 5.650% 2,500 2,500 Wisconsin (11.4%) Carlton P.C.R. Series 1988 (Wisconsin Power and Light) V.R.D.B. 5.750% 7,600 7,600 Fond Du Lac I.D.R. (Brenner Tank Inc. L.O.C. Bank One, Milwaukee) V.R.D.B. 5.750% 4,250 4,250 Fox Lake I.D.A. Revenue Bonds Series 1994 (L.O.C. Bank One, Milwaukee) V.R.D.B. 5.750% 2,150 2,150 Principal Market Municipal Securities (Continued) Amount Value Wisconsin (Continued) Holland I.D.R. (White Clover Daily Inc. L.O.C. Bank One, Milwaukee) V.R.D.B. 5.750% $3,250 $ 3,250 Kenosha I.D.R. (Monarch Plastics Inc. L.O.C. Bank One, Milwaukee) V.R.D.B. 5.750% 2,600 2,600 --------- 19,850 Wyoming (1.4%) Lincoln County P.C.R. (Exxon Corp.) Mandatory Put 1/30/95 3.800% 2,500 2,500 -------- Total Municipal Securities (100.5%) (Amortized Cost $174,779) 174,779 Other Assets, Less Liabilities (-0.5%) (844) -------- Total Net Assets (100.0%) $173,935 ========
SteinRoe Municipal Trust Intermediate Municipals Investments as of December 31, 1994 (Dollar amounts in thousands) (Unaudited)
Principal Market Municipal Securities (99.0%) Amount Value Alaska (2.3%) Kenai Peninsula Borough G.O. Refunding (AMBAC Insured) 8.300% 1/01/99 $1,500 $1,635 North Slope Borough G.O. 8.350% 6/30/98 3,000 3,240 ------- 4,875 Arizona (7.1%) Arizona Transportation Board Highway Revenue Subordinated Series A 6.000% 7/01/00 1,000 1,019 Cochise County Unified School District No. 68 Series B (FGIC Insured) 9.000% 7/01/01 1,115 1,310 Flagstaff G.O. Series A (FGIC Insured) 6.250% 7/01/99 1,500 1,538 Maricopa County Refunding G.O. Unlimited Tax (FGIC Insured) 6.250% 7/01/00 2,000 2,051 Principal Market Municipal Securities (Continued) Amount Value Arizona (Continued) Maricopa County Hospital Revenue (Samaritan Health Services) (Escrowed in U.S. Treasury Securities) 7.625% 1/01/08 $2,050 $ 2,263 Maricopa County Unified School District Refunding 5.500% 7/01/05 No. 69 Paradise Valley (AMBAC Insured) 2,500 2,370 5.550% 7/01/04 No. 4 Mesa University (FGIC Insured) 1,500 1,443 Tempe Unified High School District No. 213 Refunding & Improvement (FGIC Insured) 7.000% 7/01/08 500 535 Pima County Refunding G.O. 6.300% 7/01/02 2,500 2,575 ------- 15,104 The accompanying notes to financial statements are an integral part of these schedules. Intermediate Municipals Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value Arkansas (1.2%) Beaver Water District Benton & Washington Counties Water Revenue Refunding (MBIA Insured) 6.000% 11/15/04 $2,580 $ 2,613 California (7.0%) California Housing Finance Agency Revenue Home Mortgage Series B-1 5.900% 2/01/04 1,000 963 Central Cost Water Authority Revenue (AMBAC Insured) 5.950% 10/01/03 2,000 2,001 *East Bay Municipal Utility District Water System Revenue (Escrowed in U.S. Treasury Securities) (AMBAC Insured) 7.000% 6/01/00 1,400 1,490 Los Angeles Department of Water & Power Electric Revenue Crossover Refunding 9.000% 9/01/03 2,500 2,982 Port of Oakland Port Revenue Series A (BIG) (MBIA Insured) 7.600% 11/01/16 1,900 2,576 San Jose Redevelopment Agency Refunding (Tax Allocation Merged Area Redevelopment Project) (MBIA Insured) 6.000% 8/01/06 3,000 2,937 Vallejo Revenue Series B (Water Improvement Project) (FGIC Insured) 6.000% 11/01/01 2,030 2,045 ------- 14,994 Colorado (0.5%) Eagle County School District No. 50 (FGIC Insured) 5.400% 12/01/00 1,000 995 Delaware (0.5%) Delaware Economic Development Authority Water Development Revenue Refunding (General Waterworks Corp.-Wilmington Suburban Water Corp.) 6.450% 12/01/07 1,165 1,149 Florida (3.6%) Florida Division Board Finance Department of General Services Revenues Department of Natural Resources Revenue (MBIA Insured) 6.000% 7/01/03 1,000 1,017 Greater Orlando Aviation Authority Airport Facilities Revenue 8.250% 10/01/08 2,480 2,642 8.250% 10/01/08 (Escrowed in U.S. Treasury Securities) (pre-refunded to 10/01/98) 270 297 Manatee County P.C.R. (Florida Power & Light) Series 1994 V.R.D.B. 6.500% 1,000 1,000 St. Lucie County P.C.R. Series 1993 (Florida Power and Light) V.R.D.B. 6.500% 2,700 2,700 ------- 7,656 Principal Market Municipal Securities (Continued) Amount Value Georgia (5.3%) Atlanta Airport Facilities Revenue Refunding Series A (AMBAC Insured) 5.500% 1/01/05 $2,000 $ 1,947 6.500% 1/01/07 1,000 1,038 Cobb County & Marietta Water Authority Revenue Refunding Series B 6.900% 11/01/98 1,000 1,061 Fayette County School District G.O. Series 1994 A 6.250% 3/01/07 950 957 Fulton County Water & Sewer Revenue Refunding (FGIC Insured) 5.265% 1/01/01 1,000 1,008 Georgia G.O. Series C 7.700% 4/01/00 1,250 1,377 Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue Refunding (AMBAC Insured) 6.050% 7/01/01 1,600 1,625 5.800% 7/01/02 1,000 997 Municipal Electric Authority of Georgia Power Revenue (Escrowed in U.S. Treasury Securities) (pre-refunded to 1/01/98) 8.200% 1/01/04 1,250 1,369 ------- 11,379 Hawaii (0.5%) Honolulu (City & County) Refunding G.O. Series 1990 A 7.350% 7/01/06 1,000 1,086 Illinois (8.9%) Chicago Midway Airport Revenue Series A (MBIA Insured) 5.500% 1/01/02 1,000 952 5.700% 1/01/04 1,000 943 Chicago Public Building Commission Building Revenue Series A (MBIA Insured) 5.250% 12/01/03 3,700 3,453 Chicago Skyway Toll Bridge Revenue Refunding Series 1994 6.750% 1/01/17 1,500 1,393 Chicago Water Revenue Refunding (FGIC Insured) 6.500% 11/01/09 2,130 2,129 Cook County Community College District #508 (FGIC Insured) 8.750% 01/01/03 1,000 1,166 DuPage County Forest Preserve District G.O. 8.650% 11/01/97 1,000 1,087 Illinois Development Financial Authority 7.875% 09/01/14 I.D.R. (Church Road Partnership L.O.C. American National Bank) 1,775 1,825 10.625% 03/01/15 (ComEd) 1,240 1,274 Metropolitan Pier & Exposition Authority Dedicated State Tax Revenue Series 1992 A (McCormick Place Expansion Project) 5.050% 6/15/98 1,425 1,403 The accompanying notes to financial statements are an integral part of this schedule. Intermediate Municipals Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value Illinois (Continued) Metropolitan Pier & Exposition Authority Dedicated State Tax Revenue Series 1992 A (McCormick Place Expansion Project) 5.050% 6/15/98 (Escrowed in U.S. Treasury Securities) (pre-refunded to 6/15/98) $ 60 $ 59 5.900% 6/15/03 1,500 1,478 7.250% 6/15/05 1,750 1,887 ------- 19,049 Indiana (4.7%) Indiana Toll Road Commission Toll Road Revenue (Escrowed in U.S. Treasury Securities) 9.000% 1/01/15 2,655 3,336 Indiana Transportation Finance Authority Airport Facilities Lease Revenue Series A (United Airlines) 5.600% 11/01/99 1,125 1,123 6.500% 11/01/07 2,250 2,260 Indiana Transportation Finance Authority Highway Revenue Series A 5.750% 12/01/99 1,145 1,153 Indianapolis Local Public Improvement Bond Bank 6.500% 2/01/06 Series 1992 D 2,100 2,118 ------- 9,990 Kentucky (1.1%) Kentucky Turnpike Authority Economic Development Revenue Refunding (Revitalization Projects) 5.800% 1/01/04 2,500 2,435 Louisiana (3.1%) Lafayette Public Power Authority Electric Revenue 9.000% 11/01/96 1,000 1,058 Louisiana Public Facilities Authority Student Loan Revenue Series A-1 5.900% 9/01/99 2,000 2,017 Parish of St. Charles P.C.R. (Shell Oil Co.) V.R.D.B. 5.650% 3,600 3,600 ------- 6,675 Massachusetts (5.8%) Massachusetts Bay Transportation Authority Mass Refunding General Transportation System 7.000% 3/01/07 Series A 2,250 2,378 5.500% 3/01/06 (FGIC Insured) 1,500 1,395 Massachusetts Health and Educational Facilities Authority Revenue (Daughters of Charity Carney Hospital) 7.250% 7/01/00 Series C 1,200 1,227 6.000% 7/01/09 Series D 1,000 941 Massachusetts Housing Finance Agency Housing Revenue Series A (AMBAC Insured) 6.000% 01/01/04 1,300 1,279 Principal Market Municipal Securities (Continued) Amount Value Massachusetts (Continued) Massachusetts Water Resources Authority Refunding Series C 6.000% 12/01/11 $3,410 $ 3,206 New England Educational Loan Marketing Corp. Student Loan Revenue Refunding Series 1985 A 5.800% 3/01/02 2,000 1,976 ------- 12,402 Michigan (1.7%) Detroit Sewer Disposal Revenue (FGIC Insured) 6.100% 7/01/01 1,200 1,219 Michigan Hospital Finance Authority Revenue (Daughters of Charity) 6.500% 11/01/01 (Providence Hospital) 1,780 1,801 10.000% 11/01/15 (St. Mary's Hospital) 500 530 ------- 3,550 Minnesota (1.3%) Minneapolis St. Paul Metropolitan Airport G.O. Common Series 7.800% 1/01/03 685 745 Minnesota G.O. 5.600% 10/01/03 2,150 2,108 ------- 2,853 Mississippi (0.6%) Mississippi Higher Education Assistance Corp. Student Loan Revenue Series C 6.050% 9/01/07 1,470 1,355 Missouri (0.4%) Missouri Regional Convention & Sports Complex Authority 6.600% 8/15/03 830 845 Nevada (1.9%) Clark County P.C.R. Series 1990 A (Southern California Edison Co.) 7.125% 6/01/09 1,500 1,505 Clark County Passenger Facility Charge Revenue Series A (McCarran International Airport) (AMBAC Insured) 5.700% 7/01/02 1,500 1,486 Las Vegas Valley Water District G.O. Limited Tax (AMBAC Insured) (Escrowed in U.S. Treasury Securities) (pre-refunded to 8/01/00) 7.000% 8/01/08 1,000 1,078 ------- 4,069 New Jersey (1.0%) New Jersey G.O. 7.000% 4/01/05 (Escrowed in U.S. Treasury Securities) (pre-refunded to 4/01/01) 1,050 1,122 New Jersey Health Care Facilities Finance Authority Revenue (Hackensack Medical Center) (FGIC Insured) 6.100% 7/01/01 1,000 1,016 The accompanying notes to financial statements are an integral part of this schedule. Intermediate Municipals Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value New Jersey (Continued) New Jersey Health Care Facilities Finance Authority Revenue (Christ Hospital Group Connie Lee Insured) 7.000% 7/01/03 $1,730 $ 1,854 ------- 3,992 New Mexico (0.9%) Gallup P.C.R. (Plains Electric Transmission & Generating Cooperative Inc.) (MBIA Insured) 6.100% 8/15/02 2,000 2,029 New York (7.2%) New York City Industrial Development Agency Special Facility Revenue (Terminal One Group Association Project) 5.700% 1/01/04 Series 1994 2,170 2,034 5.600% 1/01/03 1,000 942 New York City Municipal Water Finance Authority Water & Sewer Systems Revenue Refunding (MBIA Insured) 5.125% 6/15/04 2,000 1,836 New York Dorm Authority Revenue (City University) 8.125% 7/01/08 5,000 5,379 New York Environmental Facility Corp. P.C.R. State Water Series D 6.300% 5/15/05 5,000 5,131 ------- 15,322 North Carolina (2.3%) North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue Refunding 5.900% 1/01/03 1,500 1,468 6.000% 1/01/04 3,600 3,518 ------- 4,986 Ohio (3.2%) Columbus G.O. Sewer Improvement No. 26 6.750% 9/15/04 1,000 1,046 Hamilton County Sewer System Revenue Refunding and Improvement Series A 6.300% 12/01/01 1,000 1,041 Ohio Building Authority State Facilities Administrative Building Revenue Series A (MBIA Insured) 5.850% 10/01/07 3,000 2,884 The Student Loan Funding Corp. Cincinnati Student Loan Revenue Refunding Series 93A 5.750% 8/01/03 2,000 1,923 ------- 6,894 Oklahoma (0.5%) Oklahoma Baptist University Authority Revenue Refunding (FGIC Insured) 6.300% 12/01/01 1,030 1,066 Principal Market Municipal Securities (Continued) Amount Value Oregon (2.9%) Portland Sewer System Revenue Refunding Series B (FGIC Insured) 5.400% 4/01/02 $2,500 $2,450 Port of Morrow Revenue (Portland General Electric-Boardman Project L.O.C. Industrial Bank of Japan) V.R.D.B. 5.300% 3,700 3,700 ------- 6,150 Pennsylvania (4.4%) Dauphin County Hospital Authority Revenue Refunding Series B (Hapsco Group Inc.) (MBIA Insured) 5.800% 7/01/02 1,600 1,607 Pennsylvania Higher Education Assistance Agency Student Loan Revenue Refunding Series 1985 A (FGIC Insured) 6.800% 12/01/00 2,110 2,195 Pennsylvania T.A.N. 4.750% 6/30/95 2,000 2,001 Schuykill County I.D.A. Resource Recovery Revenue (Westwood Energy Properties Limited Partnership L.O.C. Fuji Bank, Ltd.) V.R.D.B. 6.050% 1,400 1,400 Washington County Hospital Authority Lease Revenue (Escrowed in U.S. Treasury Securities) (pre-refunded to 6/15/00) 7.450% 12/15/18 2,000 2,216 ------- 9,419 South Carolina (3.3%) Piedmont Municipal Power Agency Electric Revenue (FGIC Insured) 6.125% 1/01/07 2,065 2,041 South Carolina Education Assistance Authority Revenue 5.900% 9/01/07 2,040 1,884 South Carolina Ports Authority Revenue (AMBAC Insured) 6.200% 7/01/01 1,000 1,023 Sumter County Hospital Facilities Revenue Refunding (Tuomey Regional Medical Center) (MBIA Insured) 6.625% 11/15/04 2,000 2,100 ------- 7,048 Tennessee (1.3%) Metropolitan Nashville & Davidson County Water & Sewer Revenue (FGIC Insured) 6.500% 1/01/10 2,750 2,783 Texas (9.4%) Alief Independent School District G.O. (gtd. by Permanent School Funding) 8.000% 2/15/99 1,305 1,420 Dallas-Fort Worth Regional Airport Joint Revenue Refunding Series B 5.750% 11/01/99 1,000 1,009 Dallas Waterworks & Sewer System Revenue Refunding Series 1988 7.000% 4/01/98 2,000 2,090 Fort Bend Independent School District Unlimited Tax (gtd. by Permanent School Funding) 7.500% 2/15/00 1,010 1,094 The accompanying notes to financial statements are an integral part of this schedule. Intermediate Municipals Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value Texas (Continued) Fort Worth Limited Tax 8.350% 3/01/00 $1,250 $ 1,399 Houston Water Conveyance System Contract Certificates of Participation Series C (AMBAC Insured) 7.000% 12/15/03 1,000 1,073 Lake Travis Independent School District Refunding G.O. Unlimited Tax (MBIA Insured) 6.100% 2/01/98 1,550 1,583 Northside Independent School District G.O. 9.400% 4/01/98 1,850 2,068 Pasadena Water & Sewer Revenue Refunding (MBIA Insured) 6.000% 10/01/01 500 508 Plano Independent School District G.O. Unlimited Tax (FGIC Insured) 8.625% 2/15/99 1,900 2,113 Round Rock Independent School District G.O. Unlimited Tax School Building and Refunding Series 1991 (MBIA Insured) 8.625% 8/15/00 1,270 1,450 San Antonio Electric & Gas Revenue Refunding Series 1983 A (Escrowed in U.S. Treasury Securities) (pre-refunded to 2/01/98) 10.500% 2/01/13 1,000 1,159 San Antonio Water System Revenue Refunding (FGIC Insured) 6.000% 5/15/01 3,000 3,031 ------- 19,997 Utah (0.6%) Utah Housing Finance Agency Single Family Mortgage Issue E Series 1986 A 8.300% 7/01/00 515 530 8.400% 7/01/01 655 677 ------- 1,207 Principal Market Municipal Securities (Continued) Amount Value Washington (3.1%) Snohomish County School District No. 2 Refunding G.O. (MBIA Insured) 7.250% 12/01/00 $2,540 $ 2,727 7.000% 12/01/01 2,230 2,373 7.000% 12/01/02 1,500 1,598 ------- 6,698 Wisconsin (1.0%) Carlton P.C.R. Series 1991 (Wisconsin Power & Light) V.R.D.B. 5.950% 800 800 Wisconsin Clean Water Revenue Series 1 6.400% 6/01/01 1,400 1,433 -------- 2,233 Wyoming (0.4%) Lincoln County P.C.R. (Exxon County) V.R.D.B. 6.000% 900 900 -------- Total Municipal Securities (99.0%) (Amortized Cost $215,014) 213,798 Other Assets, Less Liabilities (1.0%) 2,232 -------- Total Net Assets (100%) $216,030 ======== *Security was pledged to cover margin requirements for open futures contracts. Futures contracts which were open at December 31, 1994 were as follows: Unrealized Number of Contract Loss Type Contracts Value Expiration at 12/31/94 U.S. Treasury Bond Futures (Short) 100 $9,916 March, 1995 $61 The accompanying notes to financial statements are an integral part of this schedule.
SteinRoe Municipal Trust Managed Municipals Investments as of December 31, 1994 (Dollar amounts in thousands) (Unaudited)
Principal Market Municipal Securities (98.0%) Amount Value Arkansas (0.5%) Arkansas Development Financing Authority Single Family Mortgage Revenue Series A (FHA Insured) 8.125% 8/01/14 $2,965 $ 2,972 California (2.3%) California Health Facilities Finance Authority Revenue (Daughters of Charity) 9.250% 11/01/15 2,000 2,124 Central Contra Costa Sanitation District Revenue Waste Water Facilities Improvement Project (MBIA Insured) 6.250% 9/01/13 2,025 1,926 6.250% 9/01/14 1,295 1,230 Los Angeles Regional Airports Improvement Corporate Lease Revenue (Laxfuel Corporation) 6.700% 1/01/22 3,550 3,199 Northern California Power Agency Public Power Revenue Refunding Series B-1 (Hydroelectric Project #1) (Escrowed in U.S. Treasury Securities) (pre-refunded to 7/01/98) 8.000% 7/01/24 2,000 2,164 Southern California Public Power Authority Revenue Refunding 5.000% 7/01/17 Series A (Power Project) 2,500 1,930 5.500% 7/01/23 (Transmission Project) 1,490 1,209 -------- 13,782 Colorado (1.6%) Colorado G.O. T.R.A.N. 4.500% 6/27/95 1,000 999 Colorado Housing Finance Authority Multifamily Mortgage Revenue 6.000% 10/01/09 1,490 1,393 6.000% 10/01/10 1,590 1,476 6.000% 10/01/11 1,715 1,580 6.000% 10/01/12 1,835 1,677 Municipal Subdistrict Northern Colorado Water Conservancy District Revenue Series D 6.000% 12/01/15 2,500 2,309 -------- 9,434 Connecticut (0.5%) Connecticut Special Tax Obligation Revenue (Transportation Infrastructure Project) 6.125% 9/01/12 Series 1992 B 3,000 2,851 Delaware (0.7%) Delaware Economic Development Authority Water Development Revenue Refunding (General Waterworks Corp.-Wilmington Suburban Water Corp.) 6.450% 12/01/07 Series 1992 B 1,160 1,144 6.500% 12/01/23 Series 1992 A 3,500 3,322 -------- 4,466 Principal Market Municipal Securities (Continued) Amount Value Florida (2.7%) Broward County Public Improvement Revenue Refunding G.O. Series 1986 12.500% 1/01/03 $ 1,000 $ 1,406 12.500% 1/01/04 1,195 1,716 12.500% 1/01/05 2,000 2,924 Florida Board of Education Capital Outlay Public Education Series A 5.875% 6/01/16 5,000 4,591 *Florida G.O. (Jacksonville Transportation Authority Project) (Escrowed in U.S. Treasury Securities) 9.200% 1/01/15 2,000 2,583 Jacksonville Water and Sewer Development Revenue (Jacksonville Suburban Utilities- General Waterworks Corp.) 6.750% 6/01/22 1,500 1,461 Manatee County P.C.R. (Florida Power & Light) Series 1994 V.R.D.B. 6.500% 410 410 Martin County P.C.R. (Florida Power & Light) Series 1994 V.R.D.B. 6.500% 400 400 Putnam County Development Authority P.C.R. (Florida Power & Light) V.R.D.B. 6.500% 900 900 -------- 16,391 Georgia (9.9%) Atlanta Airport Facility Revenue Series 1994 A (AMBAC Insured) 6.500% 1/01/08 2,750 2,834 6.500% 1/01/10 2,000 2,038 Cartersville Development Authority Revenue Water & Waste Works Facilities (Anheuser- Busch) 7.375% 5/01/09 9,000 9,584 Columbia County School District G.O. (MBIA Insured) 6.750% 4/01/09 1,900 1,986 7.000% 4/01/10 2,125 2,266 7.000% 4/01/11 2,370 2,521 Fulton County Water & Sewer Revenue Refunding (FGIC Insured) 6.250% 1/01/08 2,100 2,118 6.250% 1/01/09 2,460 2,459 6.375% 1/01/14 13,700 13,512 Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue Refunding Series P (AMBAC Insured) 6.250% 7/01/20 4,000 3,800 Municipal Electric Authority of Georgia Power Revenue Series V 6.600% 1/01/18 14,100 13,629 Municipal Electric Authority of Georgia Special Obligation First Crossover Series (Crossover refunded to 1/01/98) 8.125% 1/01/17 3,100 3,329 -------- 60,076 The accompanying notes to financial statements are an integral part of this schedule. Managed Municipals Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value Idaho (0.4%) Idaho Housing Agency Single Family Mortgage Revenue (FHA/VA Insured) 7.875% 7/01/24 $ 2,165 $ 2,194 Illinois (10.7%) Chicago Board of Education Refunding G.O. Lease Certificates Series A (MBIA Insured) 6.000% 1/01/16 5,000 4,554 Chicago (City of) Gas Supply Revenue Series 1985 D (Peoples Gas Light & Coke Company) 10.250% 3/01/15 550 564 Chicago (City of) Skyway Toll Bridge Revenue Series 1994 6.750% 1/01/17 1,500 1,393 Illinois Development Finance Authority 10.625% 3/01/15 P.C.R. (Commonwealth Edison Company) 4,750 4,881 5.950% 1/01/09 (Catholic Charities Housing Development) 1,450 1,295 Illinois Health Facilities Authority Revenue Refunding Series 1992 A (Evangelical Hospitals) 6.250% 4/15/22 1,000 881 Illinois Housing Development Authority Series A (FHA Insured) 7.800% 12/01/12 2,000 2,004 8.000% 6/01/26 15,000 15,168 Illinois Sales Tax Revenue Refunding Series Q 6.000% 6/15/12 10,000 9,300 Illinois Toll Highway Authority Priority Revenue Series A 6.300% 1/01/11 7,500 7,178 Metropolitan Fair & Exposition Authority Dedicated State Tax Revenue (Escrowed in U.S. Treasury Securities) (pre-refunded to 6/01/96) 8.000% 6/01/10 16,600 17,564 -------- 64,782 Indiana (5.2%) Hammond Sewer & Solid Waste Disposal Revenue (American Maize Products Co.) 8.000% 12/01/24 5,000 5,020 Indiana Transportation Finance Authority Airport Facilities Lease Revenue Series A 6.250% 11/01/16 10,950 10,012 Indianapolis Local Public Improvement Bond Bank Series 1991 C 6.700% 1/01/17 8,285 7,969 Michigan City P.C.R. (Northern Indiana Public Service Company) 5.700% 10/01/03 8,795 8,263 ------- 31,264 Principal Market Municipal Securities (Continued) Amount Value Iowa (0.2%) Iowa Finance Authority Single Family Mortgage Revenue Series B (collateralized by Government & Federal National Mortgage Association Securities) 7.450% 7/01/23 $ 1,255 $ 1,274 Kansas (0.5%) Kansas Department of Transportation Highway Revenue (Escrowed in U.S. Treasury Securities) (pre-refunded to 3/01/02) 6.500% 3/01/12 3,000 3,134 Kentucky (3.2%) Kentucky Housing Corp. Revenue Series C (FHA/VA Insured) 8.100% 1/01/22 2,855 2,930 Kentucky Turnpike Authority Economic Development Revenue Refunding (Revitalization Project) (FGIC Insured) Zero Coupon (Effective Yield 6.600%) 1/01/10 Series 1992 13,500 4,971 Kentucky Turnpike Authority Revenue (Escrowed in U.S. Treasury Securities) (pre-refunded to 7/01/97) 13.125% 7/01/09 2,425 2,858 Trimble County P.C.R. Series A (Louisville Gas & Electric Co.) 7.625% 11/01/20 6,670 6,965 7.625% 11/01/20 (Escrowed in U.S. Treasury Securities) (pre-refunded to 11/01/00) 1,330 1,460 -------- 19,184 Louisiana (2.6%) De Soto Parish Environmental Impact Revenue (International Paper Co.) Series A 7.700% 11/01/18 3,250 3,341 Louisiana G.O. Series 1994 A (AMBAC Insured) 6.000% 5/01/13 7,250 6,729 Louisiana Public Facility Authority Hospital Revenue (Hotel Dieu Daughters of Charity Health System) (Escrowed in U.S. Treasury Securities) (pre-refunded to 2/01/96) 9.750% 2/01/15 1,000 1,067 Parish of St. Charles P.C.R. (Shell Oil Co.) V.R.D.B. 5.650% 1,100 1,100 Shreveport Water & Sewer Revenue Series 1994 A (FGIC Insured) 5.250% 12/01/12 2,005 1,713 5.250% 12/01/13 2,115 1,798 -------- 15,748 The accompanying notes to financial statements are an integral part of this schedule. Managed Municipals Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value Maine (1.8%) Maine Educational Loan Marketing Corporation Student Loan Revenue 5.850% 11/01/02 Series 1994 A-4 $1,000 $ 975 5.950% 11/01/03 Series 1994 A-4 2,955 2,874 6.500% 11/01/09 Series 1994 B-1 3,000 2,805 Maine Housing Authority Mortgage Revenue 7.550% 11/15/19 Series D-5 2,520 2,510 7.550% 11/15/22 Series D-5 1,750 1,743 -------- 10,907 Maryland (1.1%) Washington Suburban Sanitation District G.O. 6.600% 6/01/16 2,795 2,811 6.625% 6/01/17 1,660 1,667 6.625% 6/01/19 2,320 2,329 -------- 6,807 Massachusetts (6.1%) Massachusetts Bay Transportation Authority Refunding 7.000% 3/01/14 Series 1994 A 3,150 3,260 6.200% 3/01/16 Series 1992 B 9,825 9,217 7.000% 3/01/19 Series 1994 A 2,500 2,583 Massachusetts College Building Authority Project Refunding Series A 7.500% 5/01/11 1,500 1,638 7.500% 5/01/14 3,500 3,812 Massachusetts G.O. Refunding Series A (MBIA Insured) Zero Coupon (Effective Yield 6.550%) 8/01/03 3,100 1,876 Massachusetts Health & Educational Facilities Authority Revenue 6.250% 7/01/12 (Massachusetts General Hospital Project) (AMBAC Insured) 5,750 5,511 6.750% 7/01/24 (Brigham & Women's Hospital) 7,365 7,004 Massachusetts Water Resources Authority Refunding 5.500% 11/01/15 Series 1992 B 2,000 1,696 -------- 36,597 Michigan (1.8%) Michigan Hospital Finance Authority Providence Hospital Revenue Refunding (Daughters of Charity Health Systems Inc.) 10.000% 11/01/15 7,260 7,690 7.000% 11/01/21 3,000 2,998 -------- 10,688 Principal Market Municipal Securities (Continued) Amount Value Minnesota (2.4%) Minneapolis St. Paul Housing Finance Board Single Family Mortgage Revenue (collateralized by Government National Mortgage Association Securities) 7.250% 8/01/21 $2,705 $ 2,657 7.300% 8/01/31 4,000 4,100 Minnesota Housing Finance Agency Single Family Mortgage Series A 7.450% 7/01/22 3,990 4,145 Southern Minnesota Municipal Power Agency Power Supply System Revenue Series C (Escrowed in U.S. Treasury Securities) (pre-refunded to 1/01/96) 9.000% 1/01/04 2,000 2,116 Western Minnesota Municipal Power Agency Supply Revenue (Escrowed in U.S. Treasury Securities) (pre-refunded to 1/01/96) 9.500% 1/01/13 1,500 1,594 -------- 14,612 Mississippi (0.5%) Biloxi Mortgage Revenue Refunding Series 1987 (Biloxi Regional Medical Center) (Escrowed in U.S. Treasury Securities) 19.000% 8/15/98 2,000 2,818 Missouri (0.3%) Little Blue Valley Sewer District Revenue Refunding (AMBAC Insured) (Escrowed in U.S. Treasury Securities) (pre-refunded to 10/01/98) 9.000% 10/01/07 1,000 1,119 Missouri Housing Community Development Single Family Mortgage Revenue 9.375% 4/01/16 125 126 St. Louis County Single Family Mortgage Revenue (MBIA Insured) 9.750% 4/01/10 10 10 Springfield School District Refunding G.O. Series B (FGIC Insured) 9.500% 3/01/07 600 760 -------- 2,015 Nevada (0.7%) Nevada Housing Division Single Family Mortgage (FHA/VA Insured) 7.750% 4/01/22 4,050 4,050 New Jersey (2.1%) Bergen County Utilities Authority Solid Waste System Revenue Refunding Series A (FGIC Insured) 6.250% 6/15/06 2,000 2,022 6.250% 6/15/07 3,000 3,009 New Jersey G.O. Series D 6.000% 2/15/11 5,150 4,927 New Jersey Turnpike Authority Turnpike Revenue Refunding Series C 6.500% 1/01/09 2,900 2,934 -------- 12,892 The accompanying notes to financial statements are an integral part of this schedule. Managed Municipals Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value New Mexico (0.4%) Albuquerque I.D.R. (Motorola Inc.) 10.000% 6/01/13 $1,000 $ 1,038 University of New Mexico Systems Revenue Refunding Series 1992 A 6.000% 6/01/21 1,400 1,279 -------- 2,317 New York (7.8%) Erie County Water Authority Water Revenue Refunding Series 1992 (AMBAC Insured) Zero Coupon (Effective Yield 7.300%) 12/01/17 660 128 New York City G.O. Series A (Escrowed in U.S. Treasury Securities) (pre-refunded to 11/01/97) 8.750% 11/01/17 1,000 1,102 New York City Industrial Development Agency Civic Facilities Revenue (U.S.T.A. National Tennis Center) (FSA Insured) 6.375% 11/15/14 1,000 971 New York Environmental Facilities Corporation State Water P.C.R. Revolving Fund Revenue Series 1991 E (New York City Municipal Water Finance Authority Project) 6.500% 6/15/14 5,000 4,864 New York I.D.A. Special Facility Revenue Series 1994 (Terminal One Grove, Associate L.P. Project) 6.000% 1/01/15 8,340 7,382 6.000% 1/01/19 4,500 3,919 New York Thruway Authority Highway & Br SA 6.000% 4/01/14 5,000 4,553 Port Authority of New York & New Jersey Consolidated Bonds Ninety-Third Series 6.125% 6/01/2094 3,500 3,125 Triborough Bridge & Tunnel Authority General Purpose Revenue 6.625% 1/01/12 Series X 8,715 8,797 8.375% 1/01/16 Series H (Escrowed in U.S. Treasury Securities) (pre-refunded to 1/01/96) 5,900 6,207 6.125% 1/01/21 Series Y 6,890 6,381 -------- 47,429 North Carolina (2.0%) North Carolina Eastern Municipal Power Agency Power Systems Revenue 6.500% 1/01/18 Series 1991 A (Escrowed in U.S. Treasury Securities) 4,315 4,335 6.500% 1/01/18 Series 1991 A 2,185 2,018 8.000% 1/01/21 (Escrowed in U.S. Treasury Securities) (pre-refunded to 1/01/98) 240 262 North Carolina Municipal Power Agency No. 1 Catawba Electric Revenue Series B (Escrowed in U.S. Treasury Securities) (pre-refunded to 1/01/96) 8.500% 1/01/17 5,000 5,266 -------- 11,881 Principal Market Municipal Securities (Continued) Amount Value North Dakota (0.0%) North Dakota Housing Finance Agency Single Family Program Revenue 9.125% 7/01/16 $ 500 $ 52 Ohio (2.9%) Cincinnati Student Loan Funding Corp. Student Loan Revenue Series 1993 A 5.750% 8/01/03 5,000 4,807 Franklin County Hospital Revenue Refunding and Improvement (Riverside Hospital) (Escrowed in U.S. Treasury Securities) (pre-refunded to 5/15/00) 7.600% 5/15/20 3,900 4,314 Greater Ohio Housing Assistance Corporation Mortgage Revenue Refunding (FHA Insured- Section 8) (Escrowed in U.S. Treasury Securities) (pre-refunded to 8/01/95) 10.430% 7/01/22 3,381 3,588 Ohio Building Authority Facilities Revenue Series C (Columbus State Office Building) 7.350% 10/01/04 4,160 4,554 Ohio Water Development Facilities Authority P.C.R. Series A (Duquesne Light Company) 11.125% 2/01/15 495 511 ------- 17,774 Oklahoma (0.3%) Tulsa County Home Finance Authority Mortgage Revenue Series 1991 B (collateralized by Government National Mortgage Association Securities) 7.550% 5/01/23 1,825 1,858 Oregon (0.2%) Port of Morrow Revenue (Portland General Electric-Boardman Project L.O.C. Industrial Bank of Japan) V.R.D.B. 5.300% 1,000 1,000 Pennsylvania (1.5%) Allegheny County Sanitation Authority Sewer Revenue (FGIC Insured) Zero Coupon (Effective Yield 6.800%) 6/01/07 2,370 1,074 Dauphin County I.D.A. Water Development Revenue (Dauphin Consolidated Water Supply General Waterworks Corp.) 6.900% 6/01/24 2,400 2,281 Pennsylvania I.D.A. Economic Development Revenue (AMBAC Insured) Series 1994 7.000% 1/01/06 1,795 1,922 7.000% 7/01/07 1,185 1,266 Schuykill County I.D.A. Resource Recovery Revenue (Westwood Energy Properties Limited Partnership L.O.C. Fuji Bank, Ltd.) V.R.D.B. 6.050% 2,285 2,285 -------- 8,828 The accompanying notes to financial statements are an integral part of this schedule. Managed Municipals Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value Puerto Rico (0.3%) Puerto Rico Electric Power Authority Revenue Series S 7.000% 7/01/07 $ 2,000 $ 2,076 Rhode Island (0.9%) Rhode Island Housing & Mortgage Finance Corporation 7.550% 10/01/22 5,650 5,674 South Carolina (1.6%) Richland County Solid Waste Disposal Facilities Revenue Series 1991 B (Union Camp Corp.) 7.125% 9/01/21 5,000 4,972 South Carolina Housing Finance Agency Single Family Mortgage Revenue Series C 7.750% 7/01/22 4,775 4,858 -------- 9,830 South Dakota (1.1%) Heartland Consumers Power District Electric Revenue Refunding (FSA Insured) 6.000% 1/01/17 7,000 6,394 Tennessee (1.7%) Tennessee Housing Development Agency (Homeownership Project) 7.300% 7/01/11 10,000 10,050 Texas (12.3%) Dallas-Fort Worth Regional Airport Joint Revenue Refunding 9.125% 11/01/15 1,000 1,055 Harris County Industrial Development Corp. (Exxon Corp.) Series A V.R.D.B. 6.000% 1,200 1,200 Houston Water Conveyance System Contract (AMBAC Insured) 6.375% 12/15/06 1,000 1,012 6.375% 12/15/07 3,500 3,515 Houston Water & Sewer Systems Revenue Refunding Zero Coupon (Effective Yield 6.800%) 12/01/08 (AMBAC Insured) 4,000 1,600 Zero Coupon (Effective Yield 6.8125%) 12/01/09 (AMBAC Insured) 4,000 1,490 Zero Coupon (Effective Yield 6.850%) 12/01/10 (AMBAC Insured) 3,750 1,297 8.200% 12/01/15 (Escrowed in U.S. Treasury Securities) (pre-refunded to 12/01/96) 2,915 3,127 8.200% 12/01/16 (Escrowed in U.S. Treasury Securities) (pre-refunded to 12/01/96) 4,500 4,828 Hurst Euless Bedford Independent School District Refunding (PSF guaranteed) 6.500% 8/15/24 7,825 7,565 Principal Market Municipal Securities (Continued) Amount Value Texas (Continued) Lower Colorado River Authority Revenue (Escrowed in U.S. Treasury Securities) (pre-refunded to 1/01/96) 9.000% 1/01/09 $ 3,150 $ 3,331 Sabine River Authority P.C.R. (Southwestern Electric Power Company) Series 1986 8.200% 7/01/14 6,000 6,327 San Antonio Electric & Gas Revenue Series B (FGIC Insured) Zero Coupon (Effective Yield 6.050%) 2/01/05 5,000 2,678 Southwest Higher Education Authority Revenue (Southern Methodist University L.O.C. Morgan Guaranty) V.R.D.B. 5.300% 1,700 1,700 Texas G.O. Veteran's Welfare Fund 8.300% 12/01/16 (Escrowed in U.S. Treasury Securities) (pre-refunded to 12/01/99) 15,275 17,032 8.300% 12/01/16 9,725 10,150 Texas Municipal Power Agency Revenue Refunding (AMBAC Insured) Zero Coupon (Effective Yield 6.840%) 9/01/07 9,435 4,134 Zero Coupon (Effective Yield 6.900%) 9/01/08 1,475 598 Travis County Housing Finance Agency Single Family Mortgage (collateralized by Government National Mortgage Association Securities) (FGIC Insured) 8.000% 9/01/10 1,560 1,585 -------- 74,224 Vermont (0.2%) Vermont Housing Finance Agency Single Family Mortgage Revenue Series A 8.150% 5/01/25 1,095 1,124 Virginia (0.5%) Virginia Beach G.O. Refunding Series B 12.750% 7/15/01 2,000 2,744 Washington (5.1%) Port of Longview Industrial Development Corporation Solid Waste Disposal Revenue (Weyerhaeuser Company) 6.875% 10/01/08 8,250 8,225 Washington G.O. 5.750% 9/01/10 Refunding Series R 3,000 2,759 6.000% 6/01/13 Series B 7,280 6,763 Washington Public Power Supply Systems Revenue Refunding Zero Coupon (Effective Yield 6.700%) 7/01/05 Series 1991 B (FGIC Insured) (Nuclear Project #3) 5,000 2,547 Zero Coupon (Effective Yield 6.950%) 7/01/08 Series B (Nuclear Project #3) 7,000 2,782 6.300% 7/01/12 Series 1992 A (Nuclear Project #2) 3,500 3,304 The accompanying notes to financial statements are an integral part of this schedule. Managed Municipals Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value Washington (Continued) Washington Public Power Supply Systems Revenue Refunding 6.500% 7/01/18 Series 1991 C (Nuclear Project #3) $5,000 $ 4,701 -------- 31,081 Wisconsin (1.4%) Carlton P.C.R. Series 1991 (Wisconsin Power & Light) V.R.D.B. 5.950% 400 400 Wisconsin G.O. Series G (Escrowed in U.S. Treasury Securities) (pre-refunded to 5/01/99) 6.750% 5/01/11 5,000 5,266 Wisconsin Housing and Economic Development Authority Revenue 7.750% 9/01/10 2,985 3,056 -------- 8,722 Wyoming (0.0%) Sublette County P.C.R. (Exxon Corp.) V.R.D.B. 5.200% 100 100 Market Municipal Securities (Continued) Value Total Municipal Securities (98.0%) (Amortized Cost $591,849) $592,096 Other Assets, Less Liabilities (2.0%) 12,280 -------- Total Net Assets (100%) $604,376 ======== *Security was pledged to cover margin requirements for open futures contracts. Futures contracts which were open at December 31, 1994 were as follows: Unrealized Number of Contract Loss Type Contracts Value Expiration at 12/31/94 U.S. Treasury Bond Futures (Short) 300 $29,747 March, 1995 $180
SteinRoe Municipal Trust High-Yield Municipals Investments as of December 31, 1994 (Dollar amounts in thousands) (Unaudited)
Principal Market Municipal Securities (98.1%) Amount Value Alabama (0.5%) Citronelle Utilities Board Water Sewer and Gas Revenue 11.000% 5/01/13 $1,250 $1,339 Arizona (0.9%) Arizona Health Facilities Hospital System Revenue Refunding (Phoenix Memorial Hospital) 8.125% 6/01/12 2,500 2,532 Arkansas (0.4%) Conway Hospital Revenue (Conway Memorial Hospital) (Escrowed in U.S. Treasury Securities) (pre-refunded to 7/01/95) 11.750% 7/01/11 1,000 1,066 Principal Market Municipal Securities (Continued) Amount Value Colorado (3.2%) Adams County Single Family Mortgage Revenue Series B (Escrowed in U.S. Treasury Securities) **11.250% 9/01/11 (pre-refunded to 9/01/09) $ 325 $ 471 **11.250% 9/01/11 (pre-refunded to 9/01/10) 360 526 **11.250% 9/01/11 220 324 11.250% 9/01/12 1,440 2,120 *Briargate Public Building Authority Landowner's Assessment Lien Revenue 10.250% 12/15/00 Series 1985 A 623 199 9.500% 12/15/07 Series 1986 A 2,295 734 Colorado Health Facilities Authority Revenue 7.250% 4/01/11 (Birchwood Manor Apartments) (collateralized by Government National Mortgage Association Securities) 745 752 8.500% 2/15/21 Series B (PSL Health Systems) 3,250 3,414 -------- 8,540 The accompanying notes to financial statements are an integral part of these schedules. High-Yield Municipals Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value Florida (3.0%) *Florida Housing Finance Agency Multi-Family Housing Revenue (Palm-Aire) 10.000% 1/01/20 $3,000 $ 1,800 Leesburg Capital Improvement Hospital Revenue Series 1991 A (Leesburg Regional Medical Center) (Escrowed in U.S. Treasury Securities) (pre-refunded to 7/01/01) 7.375% 7/01/11 775 853 Putnam County Development Authority P.C.R. (Florida Power & Light) V.R.D.B. 6.500% 1,000 1,000 Saint Lucie County P.C.R. Series 1993 (Florida Power and Light) V.R.D.B. 6.500% 700 700 *Sarasota County Health Facilities Authority Revenue (North Trail Retirement Center) 9.250% 10/01/21 2,950 841 Tavares First Mortgage Revenue Refunding (Friendly Center of Tavares) 9.250% 10/01/21 3,250 2,762 -------- 7,956 Georgia (4.9%) Cartersville Development Authority Water and Waste Water Facilities Revenue (Anheuser Busch) 7.375% 5/01/09 5,000 5,324 Municipal Electric Authority of Georgia Power Revenue 6.600% 1/01/18 6,065 5,863 Savannah Hospital Authority Revenue Refunding and Improvement (Candler Hospital) 7.000% 1/01/23 2,000 1,799 -------- 12,986 Guam (0.3%) Guam Airport Authority General Revenue Series 1993 B 6.700% 10/01/23 1,000 928 Idaho (1.4%) Idaho Housing Agency Single Family Mortgage Revenue Series B (FHA Insured) 7.500% 7/01/24 3,780 3,822 Illinois (3.2%) Chicago (City of) Skyway Toll Bridge Revenue Series 1994 6.750% 1/01/17 1,500 1,393 Illinois Development Finance Authority (Catholic Charities Housing Development) 5.950% 1/01/09 1,400 1,250 Illinois Health Facilities Authority Revenue Refunding 8.125% 7/01/06 Series 1991 (United Medical Center) 2,910 3,257 7.000% 2/15/22 Series 1992 (Edward Hospital Association) 685 669 Principal Market Municipal Securities (Continued) Amount Value Illinois (Continued) Illinois Housing Development Authority Multi- Family Housing Series C 7.400% 7/01/23 $ 140 $ 142 Regional Transportation Authority Series A (AMBAC Insured) 8.000% 6/01/17 1,500 1,717 -------- 8,428 Indiana (13.4%) East Chicago P.C.R. (Inland Steel Company) Series B (Project #8) 10.750% 12/01/12 425 447 Hammond Sewer & Solid Waste Disposal Revenue (American Maize Products Co.) 8.000% 12/01/24 4,000 4,016 Indiana Health Facilities Financing Authority Hospital Revenue Refunding 6.875% 8/01/17 (Riverview Hospital) Series 1993 1,500 1,318 7.000% 10/01/17 Series A (St. Anthony Medical Center) 1,000 957 7.200% 10/01/22 (Fayette Memorial Hospital) 2,200 2,003 Indiana Transportation Finance Authority Airport Facilities Lease Revenue Series A 6.250% 11/01/16 9,500 8,686 Indianapolis Airport Authority Revenue Special Facilities (Federal Express Corp.) 7.100% 1/15/17 1,500 1,427 Indianapolis Economic Development Revenue First Lien *9.375% 8/01/19 (The Home Place I Project) 1,530 688 *9.500% 2/01/21 (The Home Place II Project) 825 371 Indianapolis Local Public Improvement Bond Bank Series 1991 C 6.700% 1/01/17 8,900 8,561 Marion County Hospital Authority (Daughters of Charity Health System St. Vincent's Hospital and Health Care Center, Inc.) 10.125% 11/01/15 2,125 2,242 New Castle Economic Development Revenue (Raintree Square Project) 8.650% 4/01/17 Series 1988 A (FHA Insured) 2,860 3,127 *Zero Coupon 3/01/18 Series 1988 B 30,655 77 *Westfield Economic Development Revenue First Lien (Sanders Glen Project) 9.375% 8/01/19 2,455 1,719 -------- 35,639 Iowa (1.5%) Iowa Housing Finance Authority Single Family Housing Revenue Zero Coupon (Effective Yield 10.262%) 9/01/16 43,655 3,921 The accompanying notes to financial statements are an integral part of this schedule. High-Yield Municipals Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value Kansas (0.7%) CSJ Health Systems of Wichita Revenue 7.000% 11/15/18 $2,000 $1,910 Louisiana (3.3%) De Soto Parish Environmental Impact Revenue (International Paper Co.) Series A 7.700% 11/01/18 2,500 2,570 Louisiana Public Facilities Authority Hospital Revenue (Women's Hospital Foundation) 7.250% 10/01/22 2,300 2,127 Louisiana Public Facilities Authority Student Loan Revenue Series A-2 6.750% 9/01/06 2,000 1,965 Parish of St. Charles P.C.R. (Shell Oil Co.) V.R.D.B. 5.650% 2,200 2,200 -------- 8,862 Massachusetts (7.8%) Massachusetts Bay Transportation Authority Refunding Series B 6.200% 3/01/16 5,825 5,464 Massachusetts G.O. Refunding Series A 6.500% 8/01/11 3,000 2,959 Massachusetts Housing Finance Agency Series A 9.000% 12/01/18 850 886 Massachusetts Industrial Finance Agency Resource Recovery Revenue Series B (Southeastern Massachusetts Waste Disposal) 9.250% 7/01/15 6,000 6,507 Massachusetts Municipal Wholesale Electric Company Power Supply System Revenue Series 1985 A 13.625% Mandatory Put 1/01/95 5 5 13.625% Mandatory Put 7/01/95 5 5 Massachusetts Water Resources Authority Series A 5.500% 7/15/22 6,000 4,951 -------- 20,777 Michigan (0.3%) Michigan Hospital Finance Authority Revenue Series A (Brighton Hospital) 8.625% 10/01/18 850 853 Mississippi (2.8%) Adams County Hospital Revenue (Jefferson Davis Memorial Hospital) 7.900% 10/01/08 750 770 Claiborne County P.C.R. (Systems Energy) 9.500% 12/01/13 Series A 750 826 9.875% 12/01/14 Series C 1,000 1,114 Lowndes County Solid Waste Disposal & P.C.R. Refunding (Weyerhaeuser Company) 6.800% 4/01/22 4,995 4,785 ------- 7,495 Principal Market Municipal Securities (Continued) Amount Value Missouri (1.9%) Nevada Environmental Treatment Waterworks and Sewer System Revenue 10.000% 3/01/04 $2,000 $2,060 St. Louis I.D.A. Revenue Refunding (Kiel Center Multipurpose Arena) 7.875% 12/01/24 3,000 2,923 -------- 4,983 Montana (0.4%) Montana Board of Housing Single Family Mortgage Revenue (FHA/VA Insured) 7.300% 10/01/17 Series B-1 480 483 7.500% 4/01/23 Series B-2 525 522 -------- 1,005 Nevada (0.8%) Humboldt County P.C.R. (Idaho Power Company) 8.300% 12/01/14 2,000 2,206 New Hampshire (0.9%) New Hampshire Higher Educational & Health Facilities (Franklin Pierce College) 6.000% 10/01/18 3,000 2,526 New Jersey (1.9%) New Jersey Health Care Facilities Financing Authority Revenue (Passaic-General Hospital Center) (Escrowed in U.S. Treasury Securities) (pre-refunded to 7/01/95) 10.125% 7/01/02 600 633 10.375% 7/01/14 2,440 2,553 New Jersey Health Care Facilities Financing Authority Revenue Refunding (Raritan Bay Medical Center) 7.250% 7/01/27 2,200 1,935 -------- 5,121 New York (1.7%) Erie County Water Authority Revenue Refunding (AMBAC Insured) Zero Coupon (Effective Yield 7.300%) 12/01/17 660 128 Port Authority New York and New Jersey Construction Ninety Third Series 6.125% 5/31/2094 2,500 2,232 Triborough Bridge & Tunnel Authority General Purpose Revenue Series E 7.250% 1/01/10 2,000 2,052 -------- 4,412 North Carolina (1.8%) North Carolina Eastern Municipal Power Agency Power Systems Revenue 6.125% 1/01/09 Series 1993 B 1,680 1,552 6.500% 1/01/18 Series 1991 A (Escrowed in U.S. Treasury Securities) 3,320 3,335 ------- 4,887 The accompanying notes to financial statements are an integral part of this schedule. High-Yield Municipals Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value Ohio (5.0%) Cleveland G.O. (Escrowed in U.S. Treasury Securities) (pre-refunded to 11/01/95) 9.875% 11/01/02 $ 950 $ 1,013 9.875% 11/01/04 100 107 Greater Allen County Housing Development Corp. Revenue First Lien (Steiner-McBride Apartments Project) 10.250% 9/01/03 1,385 1,399 Ohio Building Authority Correctional Facilities Series A 7.350% 8/01/03 2,000 2,170 7.350% 3/01/04 1,000 1,082 Ohio Water Development Facilities Authority P.C.R. (Cleveland Electric Illuminating Company) Mandatory Put 11/01/97 9.750% 5,060 5,381 Oxford Hospital Facilities Revenue Series 1986 (McCullough-Hyde Memorial Hospital) 8.000% 5/01/17 1,000 1,018 -------- 12,170 Oregon (1.2%) Port of Morrow Revenue (Portland General Electric-Boardman Project L.O.C. Industrial Bank of Japan) V.R.D.B. 5.300% 3,300 3,300 Pennsylvania (9.0%) Allentown Area Hospital Authority Revenue (Sacred Heart Hospital of Allentown) 7.500% 7/01/06 3,460 3,402 Dauphin County I.D.A. Revenue Series A (Dauphin Consolidated Water Supply General Waterworks Corp.) 6.900% 6/01/24 2,700 2,566 Delaware County Hospital Authority Revenue Series A (Mercy Catholic Medical Center) (Escrowed in U.S. Treasury Securities) (pre-refunded to 11/01/97) 7.375% 11/01/12 1,100 1,179 Montgomery County Higher Education & Health Authority Hospital Revenue 8.750% 7/01/20 (Jeanes Health Systems) (Escrowed in U.S. Treasury Securities) (pre-refunded to 7/01/00) 3,200 3,696 6.875% 11/15/20 (Pottstown Memorial Medical Center) 1,000 880 North Hampton County I.D.A. P.C.R. Series A (Metropolitan Edison Company) 10.500% 9/01/95 1,500 1,551 Philadelphia Municipal Lease Revenue Refunding Series 1993 D 6.250% 7/15/13 2,500 2,147 Philadelphia Water & Sewer Revenue Tenth Series 7.350% 9/01/04 (Escrowed in U.S. Treasury Securities) 4,155 4,524 Principal Market Municipal Securities (Continued) Amount Value Pennsylvania (Continued) Schuykill County I.D.A. Resource Recovery Revenue (Westwood Energy Properties L.O.C. Fuji Bank Ltd.) V.R.D.B. 6.050% $3,800 $ 3,800 -------- 23,745 Puerto Rico (2.3%) Puerto Rico Highway & Transportation Authority Highway Revenue Refunding 6.250% 7/01/08 (pre-refunded to 9/01/02) 800 799 6.625% 7/01/12 Series V 2,000 1,980 6.625% 7/01/18 Series T 3,200 3,198 -------- 5,977 Tennessee (0.8%) Knox County Health, Educational and Housing Facilities Revenue (Baptist Health Systems of East Tennessee) 8.600% 4/15/16 2,005 2,049 Texas (14.1%) Alliance Airport Authority Special Facilities Revenue Series 1991 (American Airlines) 7.000% 12/01/11 4,000 3,664 **Austin Combined Utility Systems Revenue Refunding (Escrowed in U.S. Treasury Securities) (pre-refunded to 11/15/95) 10.250% 11/15/12 1,000 1,066 Austin Utility System Revenue (AMBAC Insured) Zero Coupon (Effective Yield 6.450%) 11/15/09 5,000 1,881 Bexar County Housing Financing Corp Revenue Series B (collateralized by Government National Mortgage Association Securities) 9.250% 4/01/16 545 545 Harris County Housing Finance Corp. Single Family Housing Revenue Series 1983 9.200% 3/15/95 240 240 9.250% 3/15/96 225 224 9.625% 3/15/03 395 388 Houston Independent School District Refunding G.O. (AMBAC Insured) Zero Coupon (Effective Yield 6.450%) 8/15/09 4,390 1,653 Houston Water & Sewer Systems Revenue Refunding Series C (AMBAC Insured) Zero Coupon (Effective Yield 6.400%) 12/01/08 9,260 3,705 Montgomery County Health Facilities Development Corp. Hospital Mortgage Revenue Refunding (Woodlands Medical Center) 8.850% 8/15/14 2,555 2,688 North Central Health Facilities Development Corporation Hospital Revenue (Tri-City Health Center) 9.500% 5/01/21 8,300 8,770 Port Corpus Christi Industrial Development Corporation Revenue Series A (Valero Refining & Marketing) 10.250% 6/01/17 4,280 4,695 The accompanying notes to financial statements are an integral part of this schedule. High-Yield Municipals Investments (Continued) (Dollar amounts in thousands) (Unaudited) Principal Market Municipal Securities (Continued) Amount Value Texas (Continued) Sam Rayburn Municipal Power Agency Power Supply Systems Revenue Refunding Series 1985 A (pre-refunded to 9/01/95) 9.625% 9/01/04 $ 750 $ 789 San Antonio Electric & Gas Revenue Refunding Series B (FGIC Insured) Zero Coupon (Effective Yield 6.100%) 2/01/05 12,325 6,601 Texas Housing Agency Residential Mortgage Revenue Series D 8.400% 1/01/21 360 375 -------- 37,284 Utah (0.8%) Utah Housing Finance Agency Single Family Mortgage 7.550% 7/01/23 Series C-3 (FHA/VA Insured) 845 858 7.750% 1/01/23 Series B-2 (FHA Insured) 1,170 1,182 -------- 2,040 Washington (6.1%) Quincy Water and Sewer Revenue Series I 9.250% 11/01/10 2,735 3,212 Washington G.O. Series B 6.400% 6/01/17 5,000 4,814 Washington Health Care Facilities Authority Revenue (Sacred Heart Medical Center, Spokane) 6.875% 2/15/12 1,500 1,478 Washington Housing Finance Commission Single Family Mortgage Revenue Series C (collateralized by Government and Federal National Mortgage Association Securities) Zero Coupon (Effective Yield 7.750%) 1/01/22 1,745 221 Zero Coupon (Effective Yield 7.750%) 7/01/22 1,935 236 Zero Coupon (Effective Yield 7.750%) 1/01/23 1,935 227 Zero Coupon (Effective Yield 7.750%) 7/01/23 1,940 219 Zero Coupon (Effective Yield 7.750%) 1/01/24 1,950 212 Zero Coupon (Effective Yield 7.750%) 7/01/24 1,940 203 Principal Market Municipal Securities (Continued) Amount Value Washington (Continued) Washington Public Power Supply Systems Revenue (Nuclear Project #2) Zero Coupon (Effective Yield 6.888% ) 7/01/07 $6,945 $ 2,992 6.300% 7/01/12 Series 1992 A 2,500 2,360 -------- 16,174 Wisconsin (1.1%) Wisconsin Housing and Economic Development Authority Revenue 7.850% 3/01/24 2,950 3,016 Wyoming (0.7%) Lincoln County P.C.R. (Exxon County) V.R.D.B. 6.000% 100 100 Wyoming Community Development Authority Single Family Mortgage Revenue Series A (FHA Insured) 7.375% 6/01/17 1,730 1,751 -------- 1,851 -------- Total Municipal Securities (98.1%) (Amortized Cost $275,783) 259,800 Other Assets, Less Liabilities (1.9%) 5,001 -------- Total Net Assets (100.0%) $264,801 ======== *Non-income producing securities. **Securities were pledged to cover margin requirements for open futures contracts. Futures contracts which were open at December 31, 1994 were as follows: Unrealized Number of Contract Loss Type Contracts Value Expiration at 12/31/94 U.S. Treasury Bond Futures (Short) 300 $29,747 March, 1995 $180 The accompanying notes to financial statements are an integral part of this schedule.
SteinRoe Municipal Trust Balance Sheets December 31, 1994 (All amounts in thousands) (Unaudited)
Municipal Money Intermediate Managed High-Yield Market Fund Municipals Municipals Municipals Assets Investments, at value $174,779 $213,798 $592,096 $259,800 Receivable for investments sold -- -- 225 1,982 Receivable for fund shares sold 1,523 1,107 179 183 Accrued interest receivable 1,191 4,403 12,074 5,059 Cash and other assets 590 941 1,997 360 -------- -------- -------- -------- Total Assets $178,083 $220,249 $606,571 $267,384 ======== ======== ======== ======== Liabilities Payable for investments purchased $ 1,595 $ 3,234 $ -- $ -- Payable for fund shares repurchased 2,406 632 1,162 2,081 Dividends payable 24 143 426 195 Payable to investment adviser and transfer agent 69 125 356 190 Other liabilities 54 85 251 117 -------- -------- -------- -------- Total Liabilities 4,148 4,219 2,195 2,583 -------- -------- -------- -------- Capital Paid-in capital 173,864 219,153 614,255 285,81 Net unrealized appreciation (depreciation) of investments -- (1,277) 67 (16,163) Accumulated net realized gains (losses) on investments 71 (1,846) (9,946) (4,848) -------- -------- -------- -------- Total Capital (Net Assets) 173,935 216,030 604,376 264,801 -------- -------- -------- -------- Total Liabilities and Capital $178,083 $220,249 $606,571 $267,384 ======== ======== ======== ======== Shares Outstanding (Unlimited Number Authorized) 173,864 20,200 72,291 24,882 ======== ======== ======== ======== Net Asset Value (Capital) Per Share $ 1.00 $ 10.70 $ 8.36 $ 10.64 ======== ======== ======== ======== The accompanying notes to financial statements are an integral part of these statements.
SteinRoe Municipal Trust Statements of Operations for the Six Months Ended December 31, 1994 (All amounts in thousands) (Unaudited)
Municipal Money Intermediate Managed High-Yield Market Fund Municipals Municipals Municipals Investment Income Tax-exempt interest $2,717 $6,433 $21,843 $10,055 -------- -------- -------- -------- Expenses Management fees 411 642 1,739 811 Transfer agent fees 104 89 251 156 Printing and postage 20 22 64 40 Custodian fees 27 27 41 23 Registration fees 15 12 13 12 Legal and audit fees 13 13 13 186 Trustees' fees 7 8 11 9 Accounting fees 2 2 3 3 Other expenses 17 34 73 77 -------- -------- -------- -------- 616 849 2,208 1,317 Reimbursement of expenses by investment adviser (41) -- -- -- -------- -------- -------- -------- Total Expenses 575 849 2,208 1,317 -------- -------- -------- -------- Net Investment Income 2,142 5,584 19,635 8,738 -------- -------- -------- -------- Realized and Unrealized Losses on Investments Net realized losses on investments (2) (1,180) (4,483) (2,103) Net realized losses on futures transactions -- (593) (575) (575) Net change in unrealized appreciation or depreciation of investments -- (4,656) (21,451) (8,924) -------- -------- -------- -------- Net Losses on Investments (2) (6,429) (26,509) (11,602) -------- -------- -------- -------- Net Increase (Decrease) in Net Assets Resulting from Operations $2,140 $ (845) $ (6,874) $(2,864) ======== ======== ========= ======== The accompanying notes to financial statements are an integral part of these statements.
SteinRoe Municipal Trust Statements of Changes in Net Assets (All amounts in thousands) (Unaudited)
Municipal Money Market Fund Intermediate Municipals Year Ended Six Months Ended Year Ended Six Months Ended June 30, Dec. 31, June 30, Dec. 31, 1994 1994 1994 1994 Operations Net investment income $ 3,754 $ 2,142 $ 11,722 $ 5,584 Net realized gains (losses) on investments (15) (2) 59 (1,773) Net change in unrealized appreciation or depreciation of investments -- -- (8,963) (4,656) --------- --------- --------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations 3,739 2,140 2,818 (845) --------- --------- --------- --------- Distributions To Shareholders Dividends from net investment income (3,754) (2,142) (11,722) (5,584) Distributions from realized gains -- -- (3,978) -- Distributions in excess of realized gains -- -- (74) -- --------- --------- --------- --------- Total Distributions to Shareholders (3,754) (2,142) (15,774) (5,584) Share Transactions Subscriptions of fund shares 316,484 133,860 84,781 37,571 Investment income dividends reinvested 3,276 1,930 7,601 3,665 Capital gain distributions reinvested -- -- 3,393 -- Redemptions of fund shares (349,812) (127,673) (90,207) (56,830) --------- --------- --------- --------- Net Increase (Decrease) from Share Transactions (30,052) 8,117 5,568 (15,594) --------- --------- --------- --------- Net Increase (Decrease) in Net Assets (30,067) 8,115 (7,388) (22,023) Total Net Assets Beginning of period 195,887 165,820 245,441 238,053 --------- --------- --------- --------- End of period $165,820 $173,935 $238,053 $216,030 ========= ========= ========= ========= Analyses of Changes in Shares of Beneficial Interest Subscriptions of fund shares 316,484 133,860 7,360 3,490 Investment income dividends reinvested 3,276 1,930 663 338 Capital gain distributions reinvested -- -- 293 -- --------- --------- --------- --------- 319,760 135,790 8,316 3,828 --------- --------- --------- --------- Redemptions of fund shares (349,813) (127,673) (7,882) (5,271) Net increase (decrease) in fund shares (30,053) 8,117 434 (1,443) Shares outstanding at beginning of period 195,800 165,747 21,209 21,643 --------- --------- --------- --------- Shares outstanding at end of period 165,747 173,864 21,643 20,200 ========= ========= ========= ========= The accompanying notes to financial statements are an integral part of these statements.
SteinRoe Municipal Trust Statements of Changes in Net Assets (All amounts in thousands) (Unaudited)
Managed Municipals High-Yield Municipals Year Ended Six Months Ended Year Ended Six Months Ended June 30, Dec. 31, June 30, Dec. 31, 1994 1994 1994 1994 Operations Net investment income $ 41,313 $ 19,635 $ 19,543 $ 8,738 Net realized gains (losses) on investments (800) (5,058) 631 (2,678) Net change in unrealized appreciation or depreciation of investments (41,521) (21,451) (15,935) (8,924) --------- --------- --------- --------- Net Increase (Decrease) in Net Assets Resulting from Operations (1,008) (6,874) 4,239 (2,864) --------- --------- --------- --------- Distributions To Shareholders Dividends from net investment income (41,313) (19,635) (19,543) (8,738) Distributions from realized gains (8,848) -- (4,738) -- Distributions in excess of realized gains (4,888) -- (2,171) -- --------- --------- --------- --------- Total Distributions to Shareholders (55,049) (19,635) (26,452) (8,738) --------- --------- --------- --------- Share Transactions Subscriptions of fund shares 66,157 40,272 36,146 35,336 Investment income dividends reinvested 24,661 11,970 11,040 5,113 Capital gain distributions reinvested 11,376 -- 5,379 -- Redemptions of fund shares (135,579) (108,609) (81,274) (72,227) --------- --------- --------- --------- Net Increase (Decrease) from Share Transactions (33,385) (56,367) (28,709) (31,778) Net Increase (Decrease) in Net Assets (89,442) (82,876) (50,922) (43,380) Total Net Assets Beginning of period 776,694 687,252 359,103 308,181 --------- --------- --------- --------- End of period $687,252 $604,376 $308,181 $264,801 ========= ========= ========= ========= Analyses of Changes in Shares of Beneficial Interest Subscriptions of fund shares 7,135 4,755 3,124 3,301 Investment income dividends reinvested 2,676 1,406 950 472 Capital gain distributions reinvested 1,221 -- 458 -- --------- --------- --------- --------- 11,032 6,161 4,532 3,773 Redemptions of fund shares (14,771) (12,892) (7,011) (6,746) --------- --------- --------- --------- Net increase (decrease) in fund shares (3,739) (6,731) (2,479) (2,973) Shares outstanding at beginning of period 82,761 79,022 30,334 27,855 --------- --------- --------- --------- Shares outstanding at end of period 79,022 72,291 27,855 24,882 ========= ========= ========= ========= The accompanying notes to financial statements are an integral part of these statements.
SteinRoe Municipal Trust Notes to Financial Statements (Unaudited) Note 1. Significant Accounting Policies The following are the significant accounting policies of SteinRoe Municipal Money Market Fund, SteinRoe Intermediate Municipals, SteinRoe Managed Municipals, and SteinRoe High-Yield Municipals (the "Funds"), each a series of SteinRoe Municipal Trust (a Massachusetts business trust). Security Valuations All securities are valued as of December 30, 1994, the last business day of the period. Municipal securities are valued at a fair value using a procedure determined in good faith by the Board of Trustees which has authorized the use of bid valuations provided by a pricing service except for the Municipal Money Market Fund. Municipal securities of the Municipal Money Market Fund are valued at amortized cost. This method involves valuing an instrument at cost on the purchase date 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 and does not take into account unrealized securities gains or losses. Other securities and assets of the Funds are valued by a method that the Board of Trustees believes represents a fair value. Futures Contracts During the six months ended December 31, 1994, Intermediate Municipals, Managed Municipals and High-Yield Municipals entered into futures contracts to either hedge against expected declines in the market value of its portfolio securities or as a temporary substitute for the purchase of individual bonds. Risks of entering into futures contracts include the possibility that there may be an illiquid market at the time the Fund seeks to close out a contract and changes in the value of the futures contract may not correlate with changes in the value of the portfolio securities being hedged. Upon entering into a futures contract, the Fund deposits with its custodian cash or securities in an amount sufficient to meet the initial margin requirement. Subsequent payments are made or received by the Fund equal to the daily change in the contract value and are recorded as unrealized gains or losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. Federal Income Taxes No provision is made for Federal income taxes since the Funds elect to be taxed as "regulated investment companies" and make such distributions to their shareholders as to be relieved of all Federal income taxes under provisions of current Federal tax law. All dividends paid from net investment income by the Funds constitute tax-exempt interest that is not taxable for federal income tax purposes; however, a portion of the dividends paid may be includable in the alternative minimum tax calculation. Distributions to Shareholders Dividends from net investment income are declared daily and paid monthly. Capital gain distributions, if any, are distributed annually. Effective July 1, 1993, the Funds adopted Statement of Position 93-2 "Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain and Return of Capital Distributions by Investment Companies." The Statement distinguishes between distributions on a tax basis and a financial reporting basis and requires that only distributions in excess of tax basis earnings be reported in the financial statements as a return of capital. It also requires that differences in the recognition or classification of income between the financial statements and tax earnings which result in temporary over-distributions be classified as distributions in excess of net investment income or net realized gains. None of the Funds had distributions in excess of net investment income or net realized gains for the six months ended December 31, 1994. Other Information Realized gains or losses from sales of securities are determined on the specific identified cost basis. The Municipal Money Market Fund attempts to maintain its net asset value per share at $1.00, which it believes will be possible under most conditions. Original issue discounts and premiums on municipal securities of Intermediate Municipals, Managed Municipals, and High-Yield Municipals are amortized. A maturity date is not shown for municipal securities bearing variable or floating interest rates that are adjusted periodically to minimize fluctuations in the value of such securities. All amounts, except per share amounts, are shown in thousands. Note 2. Trustees' Fees and Transactions with Affiliates The Funds pay a monthly management fee to Stein Roe & Farnham Incorporated (the "Adviser"), an indirect wholly owned subsidiary of Liberty Mutual Insurance Company, for its services as investment adviser and manager. The management fee is computed at an annual rate for the Municipal Money Market Fund of .50 of 1% of average daily net assets and for Intermediate Municipals and High-Yield Municipals at .60 of 1% of the first $100 million of average daily net assets, .55 of 1% of the next $100 million, and .50 of 1% thereafter. For Managed Municipals, the management fee is computed at an annual rate of .60 of 1% of the first $100 million of average daily net assets, .55 of 1% of the next $100 million, .50 of 1% of the next $800 million, and .45 of 1% thereafter. The investment advisory agreements of the Funds provide that the Adviser will reimburse each Fund to the extent that its annual expenses, excluding certain expenses, exceed the applicable limits prescribed by any state in which each Fund's shares are offered for sale. In addition, the Adviser has agreed to reimburse Municipal Money Market Fund for expenses in excess of .70 of 1% of average daily net assets. This expense limitation expires on October 31, 1995, subject to earlier termination by the Adviser on 30 days notice. The transfer agent fees of the Funds are paid to SteinRoe Services, Inc., an indirect wholly owned subsidiary of Liberty Mutual Insurance Company. Pursuant to an agreement which became effective November 1, 1994, the Adviser provides the Funds with certain fund accounting services. For the six months ended December 31, 1994, Municipal Money Market, Intermediate Municipals, Managed Municipals and High-Yield Municipals incurred fees of $2, $2, $3 and $3, respectively. Certain officers and trustees of the Trust are also officers of the Adviser. The compensation of trustees not affiliated with the Adviser for Municipal Money Market Fund, Intermediate Municipals, Managed Municipals and High-Yield Municipals for the six months ended December 31, 1994 was $7, $8, $11 and $9, respectively. No remuneration was paid to any other trustee or officer of the Trust. Note 3. Short-Term Debt To facilitate portfolio liquidity, Intermediate Municipals, Managed Municipals and High-Yield Municipals maintain borrowing arrangements under which they can borrow against portfolio securities. There were no borrowings for any of these Funds during the six months ended December 31, 1994. Note 4. Investment Transactions The aggregate cost of purchases and proceeds from sales or maturities of securities (excluding short-term obligations for Intermediate Municipals, Managed Municipals and High-Yield Municipals) for the six months ended December 31, 1994 were as follows:
Fund Purchases Sales Municipal Money Market Fund $218,616 $152,374 Intermediate Municipals 56,091 80,272 Managed Municipals 60,877 128,620 High-Yield Municipals 20,202 54,883 At December 31, 1994, unrealized appreciation and depreciation of investments on a tax basis and the cost of investments for financial reporting purposes and for Federal income tax purposes were as follows: Cost of Investments Net Federal Appreciation Financial Income Fund Appreciation Depreciation (Depreciation) Reporting Tax Municipal Money Market Fund $ -- $ -- $ -- $174,779 $174,779 Intermediate Municipals 2,378 3,594 (1,216) 215,014 215,014 Managed Municipals 12,296 12,049 247) 591,849 591,849 High-Yield Municipals 6,113 22,096 (15,983) 275,783 275,783
Note 5. Portfolio Composition The Funds invest in municipal securities including, but not limited to, general obligation bonds, revenue bonds and escrowed bonds (which are bonds that have been refinanced, the proceeds of which have been invested in U.S. Government or agency obligations and set aside to pay off the original issue at the first call date or maturity). At December 31, 1994, the percentage of each Fund's portfolio by bond type was as follows:
Municipal Money Intermediate Managed High-Yield Bond Type Market Fund Municipals Municipals Municipals General Obligation 5% 23% 16% 6% Revenue: Airport -- 8 3 1 Education 5 1 1 -- Hospital 5 5 4 19 Industrial 23 3 3 8 Mortgage 3 2 14 13 Municipal Electric 4 5 9 8 Public Utility 18 7 7 7 Toll 2 5 7 4 Water & Sewer -- 17 7 4 Oil 3 -- -- 2 Other Revenue 14 10 5 9 Paper -- -- 3 2 Sales Tax -- 2 2 -- Student Loan 8 5 2 1 Waste Disposal 9 -- -- 3 Escrowed 1 7 17 13 ---- ---- ---- ---- Total 100% 100% 100% 100% ==== ==== ==== ====
The Funds' investments include certain municipal securities that are insured by private insurers who guarantee the payment of principal and interest in the event of default. At December 31, 1994, investments in these securities for Intermediate Municipals and Managed Municipals represented 41% and 16% of the portfolio, respectively. Municipal Money Market Fund's investments include certain short-term securities that are backed by bank letters of credit used to provide liquidity to the issuer and/or additional security in the event of default by the issuer. At December 31, 1994, 57% of the portfolio was backed by bank letters of credit. See each Fund's schedule of investments for additional information on portfolio composition and page 8 for a summary of credit quality ratings. Financial Highlights (Unaudited) Selected per share data (for a share outstanding throughout each period), ratios and supplemental data.
Six Months Ended Municipal Money Years Ended Dec. 31, June 30, Market Fund 1985 1986 1987 1988 Net Asset Value, Beginning of Period $1.000 $1.000 $1.000 $1.000 ------ ------ ------ ------ Net investment income .047 .041 .040 .021 Distributions from net investment income (.047) (.041) (.040) (.021) ------ ------ ------ ------ Net Asset Value, End of Period $1.000 $1.000 $1.000 $1.000 ====== ====== ====== ====== Ratio of net expenses to average net assets (a) 0.60% 0.60% 0.69% 0.67%* Ratio of net investment income to average net assets (b) 4.74% 4.05% 4.08% 4.25%* Total return 4.82% 4.22% 4.11% 4.29%* Net assets, end of period $152,277 $251,465 $306,971 $294,116 Six Months Ended Municipal Money Years Ended June 30, Dec. 31, Market Fund 1989 1990 1991 1992 1993 1994 1994 Net Asset Value, Beginning of Period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 ------ ------ ------ ------ ------ ------ ------ Net investment income .056 .054 .046 .032 .020 .019 .013 Distributions from net investment income (.056) (.054) (.046) (.032) (.020) (.019) (.013) ------ ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 ====== ====== ====== ====== ====== ====== ====== Ratio of net expenses to average net assets (a) 0.67% 0.67% 0.68% 0.70% 0.70% 0.70% 0.70%* Ratio of net investment income to average net assets (b) 5.57% 5.40% 4.66% 3.19% 1.96% 1.88% 2.61%* Total return 5.74% 5.52% 4.74% 3.25% 1.97% 1.90% 2.61%* Net assets, end of period $254,261 $255,953 $237,403 $199,037 $195,887 $165,820 $173,935 * Annualized (a) If the Fund had paid all of its expenses and there had been no reimbursement of expenses by the investment adviser, this ratio would have been 0.72% and 0.70% for the years ended December 31, 1985 and 1986, respectively and 0.75% for the six months ended December 31, 1994. (b) Computed giving effect to investment adviser's expense limitation undertaking.
Financial Highlights (Continued) (Unaudited) Selected per share data (for a share outstanding throughout each period), ratios and supplemental data.
Six Period Months Ended Years Ended Ended Dec. 31, December 31, June 30, Intermediate Municipals 1985(a) 1986 1987 1988 Net Asset Value, Beginning of Period $10.00 $10.14 $10.76 $10.37 ------ ------ ------ ------ Income From Investment Operations Net investment income .12 .58 .57 .29 Net realized and unrealized gains (losses) on investments .14 .62 (.38) .06 ------ ------ ------ ------ Total from investment operations .26 1.20 .19 .35 Distributions Net investment income (.12) (.58) (.57) (.29) Net realized gains -- -- (.01) -- In excess of realized gains -- -- -- -- ------ ------ ------ ------ Total distributions (.12) (.58) (.58) (.29) ------ ------ ------ ------ Net Asset Value, End of Period $10.14 $10.76 $10.37 $10.43 ====== ====== ====== ====== Ratio of net expenses to average net assets (b) 0.80%* 0.80% 0.80% 0.80%* Ratio of net investment income to average net assets (c) 5.82%* 5.45% 5.47% 5.66%* Portfolio turnover rate 0% 10% 49% 22%** Total return 2.61%** 12.09% 1.93% 3.45%** Net assets, end of period $22,973 $104,750 $96,143 $97,308 Six Months Ended Years Ended June 30, Dec. 31, Intermediate Municipals 1989 1990 1991 1992 1993 1994 1994 Net Asset Value, Beginning of Period $10.43 $10.50 $10.54 $10.73 $11.06 $11.57 $11.00 ------ ------ ------ ------ ------ ------ ------ Income From Investment Operations Net investment income .62 .63 .62 .57 .54 .53 .26 Net realized and unrealized gains (losses) on investments .07 .07 .22 .50 .63 (.39) (.30) ------ ------ ------ ------ ------ ------ ------ Total from investment operations .69 .70 .84 1.07 1.17 .14 (.04) Distributions Net investment income (.62) (.63) (.62) (.57) (.54) (.53) (.26) Net realized gains -- (.03) (.03) (.17) (.12) (.17) -- In excess of realized gains -- -- -- -- -- (.01) -- ------ ------ ------ ------ ------ ------ ------ Total distributions (.62) (.66) (.65) (.74) (.66) (.71) (.26) ------ ------ ------ ------ ------ ------ ------ Net Asset Value, End of Period $10.50 $10.54 $10.73 $11.06 $11.57 $11.00 $10.70 ====== ====== ====== ====== ====== ====== ====== Ratio of net expenses to average net assets (b) 0.80% 0.80% 0.80% 0.79% 0.72% 0.71% 0.75%* Ratio of net investment income to average net assets (c) 5.96% 5.96% 5.79% 5.23% 4.79% 4.63% 4.95%* Portfolio turnover rate 83% 141% 96% 109% 96% 55% 26%** Total return 6.85% 6.85% 8.18% 10.31% 10.92% 1.16% (0.29%)** Net assets, end of period $91,304 $98,918 $118,651 $165,401 $245,441 $238,053 $216,030 * Annualized ** Not annualized a) The Fund commenced operations on October 9, 1985. b) If the Fund had paid all of its expenses and there had been no reimbursement of expenses by the investment adviser in connection with the expense limitation which expired October 31, 1993, this ratio would have been 2.38% for the period ended December 31, 1985, 0.94% and 0.83% for the years ended December 31, 1986 and 1987, respectively, 0.87% for the six months ended June 30, 1988, 0.82%, 0.81% and 0.81% for the years ended June 30, 1989 through 1991, respectively. c) Computed giving effect to investment adviser's expense limitation undertaking.
Financial Highlights (Continued) (Unaudited) Selected per share data (for a share outstanding throughout each period), ratios and supplemental data.
Six Months Ended Years Ended Dec. 31, June 30, Managed Municipals 1985 1986 1987 1988 Net Asset Value, Beginning of Period $7.89 $8.93 $9.22 $8.50 ------ ------ ------ ------ Income From Investment Operations Net investment income .68 .67 .61 .30 Net realized and unrealize gains (losses) on investments 1.07 1.21 (.59) .11 ------ ------ ------ ------ Total from investment operations 1.75 1.88 .02 .41 Distributions Net investment income (.68) (.67) (.61) (.30) Net realized gains (.03) (.92) (.13) -- In excess of realized gains -- -- -- -- ------ ------ ------ ------ Total distributions (.71) (1.59) (.74) (.30) ------ ------ ------ ------ Net Asset Value, End of Period $8.93 $9.22 $8.50 $8.61 ====== ====== ====== ====== Ratio of expenses to average net assets 0.65% 0.65% 0.65% 0.65%* Ratio of net investment income to average net assets 8.11% 7.04% 6.99% 7.03%* Portfolio turnover rate 113% 92% 113% 28%** Total return 23.00% 21.70% 0.39% 4.90%** Net assets, end of period $357,360 $523,947 $458,170 $467,595 Six Months Ended Years Ended June 30, Dec. 31, Managed Municipals 1989 1990 1991 1992 1993 1994 1994 Net Asset Value, Beginning of Period $8.61 $9.02 $8.71 $8.85 $9.11 $9.38 $8.70 ------ ------ ------ ------- ------ ------ ------ Income From Investment Operations Net investment income .61 .59 .56 .55 .52 .50 .25 Net realized and unrealized gains (losses) on investments .44 (.06) .19 .46 .42 (.51) (.34) ------ ------ ------ ------- ------ ------ ------ Total from investment operations 1.05 .53 .75 1.01 .94 (.01) (.09) Distributions Net investment income (.61) (.59) (.56) (.55) (.52) (.50) (.25) Net realized gains (.03) (.25) (.05) (.20) (.15) (.11) -- In excess of realized gains -- -- -- -- -- (.06) -- ------ ------ ------ ------- ------ ------ ------ Total distributions (.64) (.84) (.61) (.75) (.67) (.67) (.25) ------ ------ ------ ------- ------ ------ ------ Net Asset Value, End of Period $9.02 $8.71 $8.85 $9.11 $9.38 $8.70 $8.36 ====== ====== ====== ====== ====== ====== ====== Ratio of expenses to average net assets 0.65% 0.66% 0.66% 0.64% 0.64% 0.65% 0.66%* Ratio of net investment income to average net assets 7.00% 6.66% 6.39% 6.17% 5.65% 5.45% 5.90%* Portfolio turnover rate 102% 95% 203% 94% 63% 36% 9%** Total return 12.69% 6.15% 8.92% 11.95% 10.79% (0.29%) (1.01%)** Net assets, end of period $514,898 $584,081 $655,930 $725,472 $776,694 $687,252 $604,376 * Annualized ** Not annualized
Financial Highlights (Continued) (Unaudited) Selected per share data (for a share outstanding throughout each period), ratios and supplemental data.
Six Months Ended High-Yield Years Ended Dec. 31, June 30, Municipals 1985 1986 1987 1988 Net Asset Value, Beginning of Period $10.02 $11.10 $12.06 $11.06 ------ ------ ------ ------ Income From Investment Operations Net investment income .94 .90 .87 .44 Net realized and unrealized gains (losses) on investments 1.08 1.11 (.89) .31 ------ ------ ------ ------ Total from investment operations 2.02 2.01 (.02) .75 Distributions Net investment income (.94) (.90) (.87) (.44) Net realized gains -- (.15) (.11) -- In excess of realized gains -- -- -- -- ------ ------ ------ ------ Total distributions (.94) (1.05) (.98) (.44) ------ ------ ------ ------ Net Asset Value, End of Period $11.10 $12.06 $11.06 $11.37 ====== ====== ====== ====== Ratio of net expenses to average net assets (a) 0.80% 0.76% 0.73% 0.76%* Ratio of net investment income to average net assets (b) 8.89% 7.77% 8.20% 7.87%* Portfolio turnover rate 46% 34% 110% 53%** Total return 20.96% 18.64% (0.16%) 6.89%** Net assets, end of period $99,796 $225,883 $181,600 $201,274 Six Months Ended High-Yield Years Ended June 30, Dec. 31, Municipals 1989 1990 1991 1992 1993 1994 1994 Net Asset Value, Beginning of Period $11.37 $11.97 $11.78 $11.79 $11.83 $11.84 $11.06 ------ ------ ------ ------- ------ ------ ------ Income From Investment Operations Net investment income .88 .85 .82 .80 .71 .67 .33 Net realized and unrealized gains (losses) on investments .63 .02 .17 .22 .18 (.54) (.42) ------ ------ ------ ------- ------ ------ ------ Total from investment operations 1.51 .87 .99 1.02 .89 .13 (.09) Distributions Net investment income (.88) (.85) (.82) (.80) (.71) (.67) (.33) Net realized gains (.03) (.21) (.16) (.18) (.17) (.17) -- In excess of realized gains -- -- -- -- -- (.07) -- ------ ------ ------ ------- ------ ------ ------ Total distributions (.91) (1.06) (.98) (.98) (.88) (.91) (.33) ------ ------ ------ ------- ------ ------ ------ Net Asset Value, End of Period $11.97 $11.78 $11.79 $11.83 $11.84 $11.06 $10.64 ====== ====== ====== ====== ====== ====== ====== Ratio of net expenses to average net assets (a) 0.73% 0.71% 0.71% 0.69% 0.73% 0.76% 0.89%* Ratio of net investment income to average net assets (b) 7.54% 7.22% 7.00% 6.75% 6.04% 5.76% 5.94%** Portfolio turnover rate 208% 261% 195% 88% 75% 36% 7%** Total return 13.79% 7.59% 8.79% 9.01% 7.88% 0.95% (0.88%)** Net assets, end of period $277,620 $310,582 $373,948 $410,613 $359,103 $308,181 $264,801 * Annualized ** Not annualized a) If the Fund had paid all of its expenses and there had been no reimbursement of expenses by the investment adviser in connection with the expense limitation which expired December 31, 1986, this ratio would have been 0.81% for the year ended December 31, 1985. b) Computed giving effect to investment adviser's expense limitation undertaking.
A Guide to SteinRoe Services We encourage you to take advantage of our free shareholder services. If you would like additional information about how to establish or use a SteinRoe service, just call us at 1-800-338-2550. Purchases In addition to sending us a check or wire to purchase additional fund shares, you can take advantage of these convenient automatic services. - - Automatic Investment Plan--Make regular investments ($50 minimum) in your SteinRoe account directly from your bank checking account. You select monthly, quarterly, semiannual or annual purchases. - - Special Investments--Purchase shares by telephone and pay for them by electronic transfer from your bank checking account. Exchanges - - Telephone Exchange--Call us to exchange $1,000 or more from your account in one SteinRoe Fund to an identically registered account in another SteinRoe Fund. You receive this service when you open a SteinRoe Fund account, unless you elect not to.* - - Automatic Exchange--SteinRoe will regularly exchange shares from your account in one SteinRoe Fund to your account in another. You select twice-monthly, monthly, quarterly, semiannual or annual exchanges. Redemptions - - Telephone Redemption by Check--Call to redeem $1,000 or more from your account. A check will be sent to your registered address. You automatically receive this service when you open a SteinRoe account, unless you elect not to. - - Telephone Redemption by Wire--Redeem shares by phone from your Money Market Fund account ($1,000 minimum) and wire the proceeds to your bank checking account. A small fee for wiring proceeds will be deducted from the amount wired. - - Special Redemption Option--If you do not want to pre-schedule your redemptions, you can redeem shares by telephone ($50 minimum/$50,000 maximum) and have the proceeds sent directly to your bank checking account. - - Automatic Redemption Plan--Redeem either a fixed dollar or share amount, or a fixed percentage of your account automatically on a schedule you establish. You select monthly, quarterly, semiannual or annual withdrawals ($50 minimum/$50,000 maximum), and the proceeds are sent either to your bank checking account or to an address you specify. - - Money Market Fund Check Writing--Write checks for $50 or more on your Money Market Fund account. Distributions Most investors like to reinvest their dividends and capital gain distributions and put them back to work. However, if you do not want them reinvested, consider these alternatives: - - Dividend Purchase Option--Use the distributions from one SteinRoe Fund account ($25 minimum) to automatically purchase shares in your account with another SteinRoe Fund. - - Automatic Dividend Deposit--Instead of receiving your dividends by check, your distributions are deposited automatically into your bank checking account. Recordkeeping - - Summary of Investments -- Consolidates quarterly transaction and investment information for any or all of your household's SteinRoe accounts on one easy-to-read statement. At year-end, provides a complete summary of all account activity for the year. * SteinRoe reserves the right to discontinue or modify the exchange privilege, and certain restrictions apply. Please refer to your prospectus for details. SteinRoe Municipal Trust Trustees Timothy K. Armour President of the Mutual Funds Division and Director of Stein Roe & Farnham Incorporated Kenneth L. Block Chairman Emeritus, A. T. Kearney, Inc. William W. Boyd Chairman and Director of Sterling Plumbing Group, Inc. Lindsay Cook Senior Vice-President of Liberty Financial Companies, Inc. Francis W. Morley Chairman, Employer Plan Administrators and Consultants Co. Charles R. Nelson Professor, Department of Economics, University of Washington Gordon R. Worley Private investor Officers Timothy K. Armour, President Jilaine H. Bauer, Executive Vice-President, Secretary N. Bruce Callow, Executive Vice-President Hans P. Ziegler, Executive Vice-President Gary A. Anetsberger, Senior Vice-President, Controller Joanne T. Costopoulos, Vice-President Philip D. Hausken, Vice-President Stephen P. Lautz, Vice-President Lynn C. Maddox, Vice-President Anne E. Marcel, Vice-President M. Jane McCart, Vice President Jill K. Netzel, Vice-President Nicolette D. Parrish, Vice-President, Assistant Secretary Thomas P. Sorbo, Vice-President Shary Risting Stadler, Vice-President Kenneth A. Kalina, Treasurer Janet B. Rysz, Assistant Secretary Agents and Advisers Stein Roe & Farnham Incorporated Investment Adviser State Street Bank and Trust Company Custodian SteinRoe Services Inc. Transfer Agent Bell, Boyd & Lloyd Legal Counsel to the Trust To Contact Us. . . By Phone 1-800-338-2550 Relationship Managers If you'd like to discuss your investment questions with a relationship manager, please call our toll-free number weekdays between 7 a.m. and 7 p.m. (Central Time). Our managers will be happy to answer questions about your current account, or to provide you with information about opening a new SteinRoe Fund account, including SteinRoe IRAs, or other retirement plans. SteinRoe's Funds-on-Call(R) 24-Hour Service Line Using a touch-tone phone, call our toll-free number anytime, day or night, for your current account balance, the latest SteinRoe fund prices and yields, and other information. In addition, if you have a Personal Identification Number (PIN), you may place the following transaction orders 24 hours a day: * Exchange shares between your SteinRoe accounts * Purchase fund shares by electronic transfer * Order additional account statements and money market fund checks * Redeem shares by check, wire or electronic transfer. Please contact a shareholder representative if you would like to apply for a PIN. By Mail If you prefer to contact us by mail or are requesting information about opening a new account, please write to us at: P.O. Box 804058, Chicago, IL 60680-4058. In Person If you are in the Chicago area, please visit our Fund Center located in downtown Chicago at One South Wacker Drive, 32nd floor. Our managers can answer questions about your current Fund investments or provide you information about any of the SteinRoe Funds and retirement plans. Stop by anytime between 8 a.m. and 5:15 p.m. This report must be preceded or accompanied by a prospectus. Tax-Exempt Funds Semiannual Report December 31, 1994 Municipal Money Market Fund Intermediate Municipals Managed Municipals High-Yield Municipals Graphic of building. P.O. Box 804058 Chicago, Illinois 60680-4058 1-800-338-2550 In Chicago, visit our Fund Center at One South Wacker Drive Liberty Securities Corporation, Distributor 2/95 20054 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on the 7th day of June, 1995 STEINROE MUNICIPAL TRUST By TIMOTHY K. ARMOUR Timothy K. Armour, President Pursuant to the requirements of the Securities Act of 1933, this amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated: Signature Title Date - --------- ------- -------- TIMOTHY K. ARMOUR President June 7, 1995 Timothy K. Armour, Principal Executive Officer GARY A. ANETSBERGER Senior Vice-President June 7, 1995 Gary A. Anetsberger, and Controller Principal Financial and Accounting Officer KENNETH L. BLOCK Trustee June 7, 1995 Kenneth L. Block WILLIAM W. BOYD Trustee June 7, 1995 William W. Boyd LINDSAY COOK Trustee June 7, 1995 Lindsay Cook FRANCIS W. MORLEY Trustee June 7, 1995 Francis W. Morley CHARLES R. NELSON Trustee June 7, 1995 Charles R. Nelson GORDON R. WORLEY Trustee June 7, 1995 Gordon R. Worley STEINROE MUNICIPAL TRUST INDEX TO EXHIBITS FILED WITH THIS AMENDMENT Exhibit Number Description - ------- ---------------------------------------------------------- 1 Agreement and Declaration of Trust as amended 5(a) Investment advisory agreement for SteinRoe Municipal Money Market Fund 5(b) Investment advisory agreement for SteinRoe Intermediate Municipals 5(c) Investment advisory agreement for SteinRoe Managed Municipals 5(d) Investment advisory agreement for SteinRoe High-Yield Municipals 5(e) Expense undertaking for SteinRoe Municipal Money Market Fund and expense waiver for SteinRoe Intermediate Municipals 8 Custodian contract, as amended 9(a) Transfer agency agreement, as amended 17(a) Financial Data Schedule for SteinRoe Municipal Money Market Fund 17(b) Financial Data Schedule for SteinRoe Intermediate Municipals 17(c) Financial Data Schedule for SteinRoe Managed Municipals 17(d) Financial Data Schedule for SteinRoe High-Yield Municipals EX-99 2 EX-99-B1.CHARTER Exhibit 1 STEINROE TAX-EXEMPT INCOME TRUST AGREEMENT AND DECLARATION OF TRUST TABLE OF CONTENTS First: Name.............................................................1 Second: Purposes........................................................1 Third: Address and Resident Agent.......................................3 Fourth: Shares..........................................................3 A. Definition......................................................3 B. Division of Beneficial Interest.................................3 C. Ownership of Shares.............................................3 D. Status of Shares and Limitations of Personal Liability..........4 Fifth: No Preemptive Rights.............................................4 Sixth: Issue, Redemption, and Repurchase of Shares......................4 Section I. Issue of the Trust's Shares.............................4 1.01 General...................................................4 1.02 Price.....................................................4 1.03 Fractional Shares.........................................5 1.04 Assets of a Series........................................5 Section II. Redemption and Repurchase of the Trust's Shares........5 2.01 Redemption of Shares......................................5 2.02 Price.....................................................5 2.03 Payment...................................................6 2.04 Effect of Suspension of Determination of Net Asset Value..6 2.05 Repurchase by Agreement...................................6 2.06 Redemption of Shareholder's Interest......................6 2.07 Additional Provisions Relating to Redemptions and Repurchases.........................................7 Section III. Net Asset Value of Shares.............................7 3.01 By Whom Determined........................................7 3.02 When Determined...........................................7 3.03 Suspension of Determination of Net Asset Value............7 3.04 Computation of Per Share Net Asset Value..................8 3.05 Miscellaneous.............................................8 Section IV. Compliance with Investment Company Act of 1940.........9 Seventh: Board of Trustees..............................................9 A. Election........................................................9 B. Effect of Death, Resignation, Etc. of a Trustee................10 C. Powers.........................................................10 D. Payment of Expenses by Trust...................................12 E. Ownership of Assets of the Trust...............................12 F. Advisory, Management and Distribution..........................12 Eighth: Liability......................................................13 A. Trustees, Shareholders, Etc. Not Personally Liable; Notice.....13 B. Trustee's Good Faith Action; Expert Advice; No Bond or Surety..14 C. Liability of Third Persons Dealing with Trustees...............14 Ninth: Determination of Net Profits, Etc.; Dividends...................14 Tenth: Indemnification.................................................15 A. Indemnification Generally......................................15 B. Determination of Eligibility...................................15 C. Indemnification Not Exclusive..................................16 D. Shareholders...................................................17 E. Contractual Rights.............................................17 F. Protection of Rights...........................................17 Eleventh: Reservation of Right to Amend................................17 A. By Board of Trustees...........................................17 B. By Shareholders................................................18 Twelfth: Shareholders' Voting Powers and Meetings......................18 A. Shareholders' Voting Powers....................................18 B. Meetings.......................................................18 C. Quorum and Required Vote.......................................19 D. Place of Meeting...............................................19 E. Notice of Meetings; Adjournment................................19 F. Share Ledger...................................................20 G. Action by Written Consent......................................20 Thirteenth: Use of Name................................................20 Fourteenth: Miscellaneous..............................................20 A. Duration and Termination of Trust..............................20 B. Filing of Copies; References; Headings.........................20 C. Applicable Law.................................................21 D. Severability...................................................21 1 AGREEMENT AND DECLARATION OF TRUST THIS AGREEMENT AND DECLARATION OF TRUST ("Declaration of Trust") is made at Boston, Massachusetts, this 6th day of October, 1987, by the Trustee hereunder, and by the holders of shares of beneficial interest to be issued hereunder as hereinafter provided. WITNESSETH that WHEREAS, this Trust has been formed as a voluntary association with transferable shares under the laws of the Commonwealth of Massachusetts to carry on the business of an investment company; and WHEREAS, the Trustee has agreed to manage all property coming into his hands as Trustee of a voluntary association in the form of a Massachusetts business trust in accordance with the provisions hereinafter set forth. NOW THEREFORE, the Trustee hereby declares that he will hold all cash, securities and other assets that he may from time to time acquire in any manner as Trustee hereunder in Trust to manage and dispose of the same upon the following terms and conditions for the pro rata benefit of the holders from time to time of shares of the applicable series in this Trust as hereinafter set forth. FIRST: NAME. The name of this Trust is SteinRoe Tax-Exempt Income Trust (the "Trust"). SECOND: PURPOSES. The purposes for which the Trust is formed are: 1 To engage in the business of a management investment company; 2 To invest and reinvest in, to buy or otherwise acquire, to hold, for investment or otherwise, to sell or otherwise dispose of, to lend or to pledge, to trade in or deal in, securities or interests of all kinds, or obligations of all kinds, or rights, warrants, or contracts, and to acquire such securities, interests, or obligations, of or guaranteed by any private or public company, corporation, association, general or limited partnership, trust or other enterprise or organization, foreign or domestic, or of or guaranteed by any national, state or local government, foreign or domestic, or their agencies, instrumentalities or subdivisions, including but not limited to bonds, debentures, preferred stocks, common stocks, convertible securities, bills, time notes and all other evidences of indebtedness; negotiable or non-negotiable instruments; options; futures contracts and options on futures contracts; government securities; and money market instruments, including but not limited to bank certificates of deposit, finance paper, commercial paper, bankers' 2 acceptances, and all kinds of repurchase agreements, of any corporation, company, trust, association, firm or other business organization, however established, and of any county, state, municipality or other political subdivision, or of any other governmental or quasi- governmental agency or instrumentality; 3 To invest and reinvest in, to buy or otherwise acquire, to hold, for investment or otherwise, to sell or otherwise dispose of, foreign currencies, funds, and exchange, and to make deposits in banks, savings banks, trust companies, and savings and loan associations, foreign or domestic; 4 To exercise all rights, powers, and privileges as owner of any securities, property, or assets which might be exercised by any individual owning such securities, property, or assets in his own right; 5 To acquire (by purchase, lease, or otherwise) and to hold, use, maintain, develop, and dispose of (by sale or otherwise) any property, real or personal, and any interest therein; 6 To aid by further investment any corporation, company, trust, association, or firm, any obligation of or interest in which is held by the Trust or in the affairs of which the Trust has any direct or indirect interest; to do all acts and things designed to protect, preserve, improve, or enhance the value of such obligation or interest; to guarantee or become surety on any or all of the contracts, stocks, bonds, notes, debentures, and other obligations of any such corporation, company, trust, association, or firm; and 7 In general, to carry on any other business in connection with or incidental to any of the foregoing objects and purposes, and to engage in any and all lawful business except as may be prohibited to be engaged in by a business trust organized under the laws of the Commonwealth of Massachusetts as in force from time to time, to do everything necessary, suitable, or proper for the accomplishment of any purpose or the attainment of any object or the furtherance of any power hereinbefore set forth, either alone or in association with others, and to do every other act or thing incidental or appurtenant to or growing out of or connected with the aforesaid business or purposes, objects, or powers. The Trust shall have the power to conduct and carry on its business, or any part thereof, and to have one or more offices, and to exercise any or all of its trust powers and rights, in the Commonwealth of Massachusetts, in any other states, territories, districts, colonies, and dependencies of the United States, and in any or all foreign countries. The foregoing clauses shall be construed both as objects and powers, and the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the general powers of the Trust. 3 THIRD: ADDRESS AND RESIDENT AGENT. The post office address of the principal office of the Trust in the Commonwealth of Massachusetts is: c/o CT Corporation System 2 Oliver Street Boston, Massachusetts 02109 or such other office as the Board of Trustees may from time to time designate. The name and post office address of the resident agent of the Trust in the Commonwealth of Massachusetts is: CT Corporation System 2 Oliver Street Boston, Massachusetts 02109 or such other person as the Board of Trustees may from time to time designate. Such resident agent is a Massachusetts corporation. FOURTH: SHARES. A. Definition. "Shares" means the equal proportionate transferable units of interest into which the beneficial interest in the Trust shall be divided from time to time or, if more than one series of shares is authorized by the Board of Trustees, the equal proportionate units into which each series shall be divided from time to time. B. Division of Beneficial Interest. The shares of the Trust shall be issued in one or more series as the Board of Trustees may, without shareholder approval, authorize. Each series shall be preferred over all other series with respect to the assets allocated to that series. The beneficial interest in each series shall at all times be divided into shares, with or without par value as the Board of Trustees shall determine, each of which shall represent an equal proportionate interest in the series with each other share of the same series, none having priority or preference over another. The number of shares authorized shall be unlimited, and the shares so authorized may be represented in part by fractional shares. The Board of Trustees may from time to time divide or combine the shares of any series into a greater or lesser number without thereby changing the proportionate beneficial interests in the series. C. Ownership of Shares. The ownership of shares shall be recorded on the books of the Trust or its transfer or similar agent. No certificates certifying the ownership of shares shall be issued except as the Board of Trustees may otherwise determine from time to time. The Board of Trustees may make such rules as it considers appropriate for the issuance of share certificates, the transfer of shares and similar matters. The record books of the Trust as kept by the Trust or any transfer or similar agent of the Trust, as the case may be, shall be conclusive as to who are the shareholders of each series and as to the number of shares of each series held from time to time by each shareholder. 4 D. Status of Shares and Limitation of Personal Liability. Shares shall be deemed to be personal property giving only the rights provided in this instrument. Every shareholder by virtue of having become a shareholder shall be deemed to have expressly assented to and agreed to be bound by the terms hereof and to have become a party hereto. The death of a shareholder during the continuance of the Trust shall not operate to terminate the same nor entitle the representative of such deceased shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Board of Trustees, but only to the rights of said decedent under this Trust. Ownership of shares shall not entitle the shareholder to any title in or to the whole or any part of the Trust property or right to call for a partition or division of the same or for an accounting, nor shall the ownership of shares constitute the shareholders to be partners. Neither the Trust nor the Board of Trustees, nor any officer, employee or agent of the Trust shall have any power to bind personally any shareholder, nor, except as specifically provided herein, to call upon any shareholder for the payment of any sum of money or assessment whatsoever other than such as the shareholder may at any time personally agree to pay. FIFTH: NO PREEMPTIVE RIGHTS. Shareholders shall have no preemptive or other right to receive, purchase, or subscribe for any additional shares or other securities issued by the Trust. SIXTH: ISSUE, REDEMPTION, AND REPURCHASE OF SHARES. SECTION I. ISSUE OF THE TRUST'S SHARES 1.01. General. The Board of Trustees may from time to time issue, reissue, sell or cause to be issued and sold any of the Trust's shares in one or more series as the Board of Trustees may, without shareholder approval, authorize, including any shares redeemed or repurchased by the Trust, for a consideration determined in accordance with Section 1.02 hereof; except that only shares previously contracted to be sold may be issued during any period when the determination of net asset value is suspended pursuant to the provisions of Section III hereof. 1.02. Price. No shares of a series shall be issued or sold by the Trust, except as a share dividend distributed to shareholders of such series, for less than an amount which would result in proceeds to the Trust, in connection with such transaction, of at least the net asset value per share of such series, determined as set forth in Section III hereof. The net asset value per share applicable to any such transaction shall be the net asset value per share of such series next determined after receipt of an unconditional order for purchase of shares of such series; except that, subject to applicable rules and regulations, if any, of the Securities and Exchange Commission or any other governmental body having similar jurisdiction over the Trust (the "SEC"), the Board of Trustees may prescribe that requests for purchase received prior to a time of day (the "cutoff time") preceding the time of day prescribed for determination of net asset value per share of such series shall be transacted at the net asset value per share next determined and that requests for purchase received after the cutoff time and before the time for determination of the next net asset value per share shall 5 be transacted at the net asset value per share next determined after the next net asset value per share of such series. The criteria for determining what constitutes an unconditional order for purchase of shares of a series and the receipt of such an order shall be prescribed by the Board of Trustees. All shares, when issued in accordance with the terms of this Section I, shall be fully paid and nonassessable. 1.03. Fractional Shares. The Trust may issue and sell or cause to be issued and sold fractions of shares of a series having pro rata all the rights of full shares of such series, including, without limitation, the right to vote and to receive dividends. 1.04. Assets of a Series. All consideration received by the Trust for the issue or sale of shares of each series authorized by the Board of Trustees, together with all income, earnings, profits, and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation thereof, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the series of shares with respect to which the same were received by the Trust for all purposes, subject only to the rights of creditors of Trust assets allocated to such series, and shall be so recorded upon the books of account of the Trust and are herein referred to as "assets of" such series. SECTION II. REDEMPTION AND REPURCHASE OF THE TRUST'S SHARES 2.01. Redemption of Shares. Any shares of any series of the Trust may be redeemed at the option of the holder of such shares and, to the extent permitted in Section 2.06 hereof, at the option of the Trust, at the redemption price for such shares, determined in the manner set out in this Declaration of Trust or in any amendment hereto. Unless otherwise provided by resolution of the Board of Trustees, shares redeemed shall be cancelled. Redeemed shares which have not been cancelled may be resold by the Trust. The Trust shall redeem shares subject to the conditions and at the price determined as hereinafter set forth. 2.02. Price. Shares shall be redeemed at the net asset value per share of the appropriate series, determined as set forth in Section III hereof. The net asset value per share of such series applicable to any such redemption of shares shall be the net asset value per share next determined after receipt of a request for redemption of such shares in proper form, except that, subject to applicable rules and regulations, if any, of the SEC, the Board of Trustees may prescribe that requests for redemption received prior to the cutoff time preceding the time of day prescribed for determination of net asset value per share of such series shall be transacted at the net asset value per share next determined and that requests for redemption after the cutoff time and before the time for determination of the next net asset value per share shall be transacted at the net asset value per share next determined after the next net asset value per share. The criteria for determining what constitutes a proper request for redemption of shares of a series and the receipt of such request for redemption shall be prescribed by the Board of Trustees. 6 2.03. Payment. Subject to the provisions of Section 2.04 hereof, payment for shares of a series shall be made in cash to, or upon the direction of, the shareholder of record within seven calendar days after the date of receipt of (a) a written, unconditional and irrevocable instruction of the shareholder to redeem, in a form acceptable to the Trust or its designated agent, together with any certificates which may have been issued therefor, endorsed or accompanied by proper instrument of transfer, and such other documents as the Trust or its designated agent may require or (b) such other direction or authorization of redemption by the shareholder as the Board of Trustees shall authorize. Subject to applicable rules and regulations, if any, of the SEC, the Trust may pay the redemption price for such shares of a series in whole or in part by a distribution in kind of securities from the portfolio of the Trust allocated to such series, in lieu of money, valuing such securities at their value employed for determining the net asset value governing such redemption price, and selecting the securities in such manner as the Board of Trustees may determine to be fair and equitable. 2.04. Effect of Suspension of Determination of Net Asset Value. If, pursuant to Section 3.03 hereof, the Board of Trustees shall declare a suspension of the determination of net asset value of a particular series, (a) the rights of shareholders (including those who shall have requested redemption pursuant to Sections 2.01, 2.02, and 2.03 hereof but for whom the redemption price shall not yet have been determined) to have shares redeemed and paid for by the Trust, and (b) the obligation of the Trust to pay for shares previously redeemed, shall be suspended until the termination of such suspension. Any record holder of shares not previously redeemed who shall have his redemption right so suspended may, during the period of such suspension, by appropriate written notice of revocation at the office or agency where request for redemption was made, revoke any request or instruction for redemption not honored and withdraw any certificates tendered for redemption. The redemption price of shares for which redemption requests have been made and not revoked shall be the net asset value of such shares next determined as set forth in Section III hereof after the termination of such suspension, and payment shall be made within seven days after the date upon which the requirements of Section 2.03 were met plus the period during which the determination of net asset value was suspended. 2.05. Repurchase by Agreement. The Trust may repurchase shares of the Trust directly, or through a principal underwriter, if any, or another agent designated for the purpose, by agreement with the owner thereof at a price not exceeding the net asset value per share of the appropriate series determined as of the time when the purchase or contract of purchase is made or the net asset value as of any time which may be later determined pursuant to Section III hereof, provided payment is not made for the shares prior to the time as of which such net asset value is determined. Repurchased shares may be resold by the Trust. 2.06. Redemption of Shareholder's Interest. The Trust shall have the right at its option and at any time to redeem shares of any shareholder at the net asset value thereof determined in accordance with Section III hereof: (i) if at such time such shareholder owns fewer shares than, or shares having an aggregate net asset value of less than, an amount determined from time to time by the Board of Trustees; or (ii) to the extent that such shareholder owns shares of a particular series of shares equal to or in excess of a percentage 7 of the outstanding shares of that series determined from time to time by the Board of Trustees; or (iii) to the extent that such shareholder owns shares of the Trust representing a percentage equal to or in excess of a percentage of the aggregate number of outstanding shares of the Trust or the aggregate net asset value of the Trust determined from time to time by the Board of Trustees, and subject to the Trust's giving general notice to all shareholders of its intention to avail itself of such right, either by publication in the Trust's prospectus, if any, or by such other means as the Board of Trustees may determine. Subject to the same terms and conditions, the Trust shall also have the right to redeem shares of the Trust, or a particular series, owned by any shareholder if, in the opinion of the Board of Trustees, ownership of shares of the Trust or series, respectively, has or may become concentrated to an extent which could cause the Trust to become a personal holding company within the meaning of the Internal Revenue Code. 2.07. Additional Provisions Relating to Redemptions and Repurchases. The completion of redemption of shares shall constitute a full discharge of the Trust and the Trustees with respect to such shares, and the Trustees may require that any certificate or certificates issued by the Trust to evidence the ownership of such shares shall be surrendered to the Trustees for cancellation or notation. SECTION III. NET ASSET VALUE OF SHARES 3.01. By Whom Determined. Subject to the provisions of Section 3.04 of this Article SIXTH, the Board of Trustees shall have the power and duty to determine from time to time the net asset value per share of the outstanding shares of each series authorized by the Board of Trustees and any such determination shall be binding on all parties. 3.02. When Determined. The net asset value of a series shall be determined at such times as the Board of Trustees, subject to applicable rules and regulations, if any, of the SEC, shall prescribe, provided that such net asset value shall be determined at least once each week. In the absence of a resolution of the Board of Trustees, the net asset value of a series shall be determined as of the close of trading on the New York Stock Exchange on each business day. 3.03. Suspension of Determination of Net Asset Value. The Board of Trustees may declare a suspension of the determination of net asset value of a series (a) for any period during which trading on the New York Stock Exchange is restricted, as determined by the SEC, or that Exchange is closed (other than customary weekend and holiday closings), (b) for any period during which an emergency exists as a result of which disposal of the investments held by that series or determination of net asset value of that series is not reasonably practicable, or (c) for such period as the SEC by order may permit. Such suspension shall take effect at such time as the Board of Trustees shall specify and thereafter there shall be no determination of net asset value until the Board of Trustees shall declare the suspension terminated, except that the suspension shall terminate in any event on the first day on which (1) the condition giving rise to the suspension shall have ceased to exist and (2) no other condition exists under which suspension is authorized under this 8 Section 3.03. Each declaration by the Board of Trustees pursuant to this Section 3.03 shall be consistent with such official rules and regulations, if any, relating to the subject matter thereof as shall have been promulgated by the SEC. To the extent not inconsistent with such official rules and regulations, the determination of the Board of Trustees shall be conclusive. 3.04. Computation of Per Share Net Asset Value. (a) Net Asset Value Per Share. The net asset value of each share of a series as of any particular time shall be the quotient obtained by dividing the value of the net assets of the Trust allocated to such series by the total number of shares of such series outstanding, rounded to such extent as the Board of Trustees shall determine from time to time. (b) Value of Trust's Net Assets. The value of the net assets of the Trust allocated to any series as of any particular time shall be the value of the assets so allocated less the liabilities of the Trust so allocated, determined as follows: (1) each security for which market quotations are readily available shall be valued at current market value determined by methods specified by the Board of Trustees; (2) each other security, including any security within (1) for which the specified price does not appear to represent a dependable quotation for such security as of the time of valuation, shall be valued at a fair value as determined in good faith by the Board of Trustees; (3) any cash on hand shall be valued at the face amount thereof; (4) any cash on deposit, accounts receivable, and cash dividends and interest declared or accrued and not yet received, any prepaid expenses, and any other current asset shall be valued at the face amount thereof, unless the Board of Trustees shall determine that any such item is not worth its face amount, in which case such asset shall be valued at a fair value determined in good faith by the Board of Trustees; and (5) any other asset shall be valued at a fair value determined in good faith by the Board of Trustees. Notwithstanding the foregoing, short-term debt obligations, commercial paper and repurchase agreements may be, but need not be, valued on the basis of quoted yields for securities of comparable maturity, quality and type, or on the basis of amortized cost. The Board of Trustees may appoint persons to assist it in the determination of the value of assets, liabilities and net asset value per share of any series and to make the actual calculations pursuant to the direction of the Board of Trustees. 3.05. Miscellaneous. For the purposes of this Section III: a. Shares of any series issued shall be deemed to be outstanding commencing immediately after the time for determination of net asset value per share for purposes of determining their sales price, pursuant to Section 1.02 9 hereof, and the net sale price thereof shall thereupon be deemed an asset of that series. b. Shares of any series for which a request for redemption has been made in proper form or which are being repurchased by the Trust shall be deemed to be outstanding up to and including the time as of which the redemption or repurchase price for such shares is determined. After such time, they shall be deemed to be no longer outstanding and the price until paid shall thereupon be deemed to be a liability of that series. c. Funds on deposit and contractual obligations payable to the Trust in foreign currency and liabilities and contractual obligations payable by the Trust in foreign currency shall be taken at the current applicable rate of exchange as nearly as practicable at the time as of which the net asset value is computed for the series to which such items relate. SECTION IV. COMPLIANCE WITH INVESTMENT COMPANY ACT OF 1940 Notwithstanding any of the foregoing provisions of this Article SIXTH, the Board of Trustees may prescribe such other bases and times for determining the per share net asset value of any series of the Trust as it shall deem necessary or desirable to enable the Trust to comply with any provision of the Investment Company Act of 1940, or any rule or regulation thereunder, all as now in effect or hereafter amended or added (the "1940 Act"), including any rule or regulation adopted by any securities association registered under the Securities Exchange Act of 1934. SEVENTH: BOARD OF TRUSTEES. A. Election. The number of Trustees shall be fixed pursuant to the By- Laws. Trustees shall be elected by the shareholders, except as otherwise provided herein. The initial Trustees, each of whom shall serve until the first meeting of shareholders at which Trustees are elected and until his or her successor is elected and qualified, or until he or she sooner dies, resigns or is removed, shall be David A. Sturms and such other persons as the Trustee or Trustees then in office shall, prior to any sale of shares pursuant to a public offering, appoint. Any vacancy occurring in the Board of Trustees may be filled by the Trustees, unless immediately after filling any such vacancy, less than two- thirds of the Trustees then holding office would have been elected to such office by the shareholders. The Board of Trustees shall call a meeting of shareholders for the purpose of electing Trustees whenever less than a majority of the Trustees have been elected by shareholders. Each Trustee elected by the shareholders or by the Board of Trustees shall serve until the next meeting of shareholders, if any, called for the purpose of reelecting such Trustee or electing a successor to such Trustee and until the election and qualification of his or her successor, or until he or she sooner dies, resigns or is removed. A Trustee may be removed with or without cause (a) at any meeting called for such purpose by a vote of two-thirds of the outstanding 10 shares, (b) by the holders of two-thirds of the outstanding shares by declaration in writing filed with the Custodian of the securities of the Trust, or (c) by vote of a majority of the Trustees then in office. B. Effect of Death, Resignation, Etc. of a Trustee. The death, declination, resignation, retirement, removal, or incapacity of the Trustees, or any one of them, shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration of Trust. C. Powers. Subject to the provisions of this Declaration of Trust, the business of the Trust shall be managed by the Board of Trustees, and they shall have all powers necessary or convenient to carry out that responsibility. Without limiting the foregoing, the Board of Trustees may adopt By-Laws not inconsistent with this Declaration of Trust providing for the conduct of the business of the Trust and may amend and repeal them to the extent that such By-Laws do not reserve that right to the shareholders; they may fill vacancies in their number, including vacancies resulting from increases in their number, and may elect and remove such officers and appoint and terminate such agents as they consider appropriate; they may appoint from their own number, and terminate, any one or more committees consisting of two or more Trustees, including an executive committee which may, when the Board of Trustees is not in session, exercise some or all of the power and authority of the Board of Trustees as the Trustees may determine; they may appoint an advisory board, the members of which shall not be Trustees and need not be shareholders; they may employ one or more custodians of the assets of the Trust and may authorize such custodians to employ subcustodians and to deposit all or any part of such assets in a system or systems for the central handling of securities, retain a transfer agent or a shareholder services agent, or both, provide for the distribution of shares by the Trust, through one or more principal underwriters or otherwise, set record dates for the determination of shareholders with respect to various matters and in general delegate such authority as they consider desirable to any officers of the Trust, to any committee of the Board of Trustees and to any agent or employee of the Trust or to any such custodian or underwriter. Without limiting the foregoing, the Board of Trustees shall have power and authority: 1. To invest and reinvest in securities, options, futures contracts, options on futures contracts and other property, and to hold cash uninvested; 2. To sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or all of the assets of the Trust; 3. To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property; and to execute and deliver proxies or powers of attorney to such person or persons as the Board of Trustees shall deem proper, granting to such person or persons such power and discretion with relation to securities or property as the Board of Trustees shall deem proper; 4. To exercise powers and rights of subscription or otherwise which in any manner arise out of ownership of securities or other assets; 11 5. To hold any security or property in a form not indicating any trust, whether in bearer, unregistered or other negotiable form, or in the name of the Trustees or of the Trust or in the name of a custodian, subcustodian or other depository or a nominee or nominees or otherwise; 6. To allocate assets, liabilities and expenses of the Trust to a particular series of shares or to apportion the same among two or more series, provided that any liabilities or expenses incurred by a particular series of shares shall be payable solely out of the assets of that series; 7. To consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or issuer, any security of which is or was held in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or issuer, and to pay calls or subscriptions with respect to any security held in the Trust; 8. To join with other security holders in acting through a committee, depositary, voting trustee or otherwise, and in that connection to deposit any security with, or transfer any security to, any such committee, depositary or trustee, and to delegate to them such power and authority with relation to any security (whether or not so deposited or transferred) as the Board of Trustees shall deem proper, and to agree to pay, and to pay, such portion of the expenses and compensation of such committee, depositary or trustee as the Board of Trustees shall deem proper; 9. To compromise, arbitrate or otherwise adjust claims in favor of or against the Trust on any matter in controversy, including but not limited to claims for taxes; 10. To enter into joint ventures, general or limited partnerships and any other combinations or associations; 11. To borrow funds, securities or other assets; 12. To endorse or guarantee the payment of any notes or other obligations of any person; to make contracts of guarantee or suretyship, or otherwise assume liability for payment thereof; and to mortgage and pledge the Trust property or any part thereof to secure any of or all of such obligations or obligations incurred pursuant to Clause 11 hereof; 13. To purchase and pay for, entirely out of Trust property, such insurance as they may deem necessary or appropriate for the conduct of the business, including without limitation, insurance policies insuring the assets of the Trust and payment of distributions and principal on its portfolio investments, and insurance policies insuring the shareholders, Trustees, officers, employees, agents, investment advisers or managers, principal underwriters, or independent contractors of the Trust individually against all claims and liabilities of every nature arising by reason of holding, being or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such person as shareholder, Trustee, officer, employee, agent, investment adviser or manager, principal underwriter, or independent contractor, including any action taken or omitted that may be determined to constitute negligence, whether or not the Trust would have the power to indemnify such person against such liability; 12 14. To pay pensions for faithful service, as deemed appropriate by the Board of Trustees, and to adopt, establish and carry out pension, profit- sharing, share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees, and agents of the Trust; 15. To pay remuneration to each Trustee for his services, including reimbursement of expenses incurred, as shall be fixed from time to time by resolution of the Board of Trustees. Nothing herein contained shall be construed to preclude any Trustee from serving the Trust in any other capacity and receiving compensation therefor; and 16. To do all acts and things appropriate in the furtherance of the foregoing and in furtherance of the purposes of the Trust. The Board of Trustees shall not in any way be bound or limited by any present or future law or custom in regard to investments by Trustees. Except as otherwise provided herein or from time to time in the By-Laws, any action to be taken by the Board of Trustees may be taken by a majority of the Trustees present at a meeting of the Board of Trustees (a quorum being present), within or without Massachusetts, including any meeting held by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting, or by written consents of a majority of the Trustees then in office. D. Payment of Expenses by Trust. The Board of Trustees is authorized to pay or to cause to be paid out of the principal or income of the Trust, or partly out of principal and partly out of income, as they deem appropriate, all expenses, fees, charges, taxes and liabilities incurred or arising in connection with the Trust, or in connection with the management thereof, including, but not limited to, the Trustees' compensation and such expenses and charges for the services of the Trust's officers, employees, investment adviser or manager, principal underwriter, auditor, counsel, custodian, transfer agent, shareholder servicing agent, and such other agents or independent contractors and such other expenses and charges as the Board of Trustees may deem necessary or proper to incur, provided, however, that all expenses, fees, charges, taxes and liabilities incurred or arising in connection with a particular series of shares, as determined by the Board of Trustees, shall be payable solely out of the assets of that series. E. Ownership of Assets of the Trust. Title to all of the assets of the Trust, including all assets allocated to each series of shares, shall at all times be considered as vested in the Board of Trustees. F. Advisory, Management and Distribution. Subject to a vote meeting the requirements of the 194O Act, the Board of Trustees may, at any time and from time to time, contract for exclusive or non-exclusive advisory and/or management services with any partnership, corporation, trust, association or other organization (the "Adviser"), every such contract to comply with such requirements and restrictions as may be set forth in the By-Laws; and any such 13 contract may contain such other terms interpretive of or in addition to said requirements and restrictions as the Board of Trustees may determine, including, without limitation, authority to determine from time to time what investments shall be purchased, held, sold or exchanged and what portion, if any, of the assets of the Trust shall be held uninvested, and to make changes in the Trust's investments. The Board of Trustees may also, at any time and from time to time, contract with the Adviser or any other partnership, corporation, trust, association or other organization, appointing it exclusive or non-exclusive distributor or principal underwriter for the shares, every such contract to comply with such requirements and restrictions as may be set forth in the By-Laws; and any such contract may contain such other terms interpretive of or in addition to said requirements and restrictions as the Board of Trustees may determine. The fact that: (i) any of the shareholders, Trustees or officers of the Trust is a shareholder, director, officer, partner, trustee, employee, manager, adviser, principal underwriter, or distributor or agent of or for any corporation, trust, association, or other organization, or of or for any parent or affiliate of any organization, with which an advisory or management contract, or principal underwriter's or distributor's contract, or transfer, shareholder services or other agency contract may have been or may hereafter be made, or that any such organization, or any parent or affiliate thereof, is a shareholder or has an interest in the Trust, or that (ii) any corporation, trust, association or other organization with which an advisory or management contract or principal underwriter's or distributor's contract, or transfer, shareholder services or other agency contract may have been or may hereafter be made by the Trust also has an advisory or management contract, or principal underwriter's or distributor's contract, or transfer, shareholder services or other agency contract with one or more other corporations, trusts, associations, or other organizations, or has other business or interests, shall not affect the validity of any such contract or disqualify any shareholder, Trustee or officer of the Trust from voting upon or executing the same or create any liability or accountability to the Trust or its shareholders. EIGHTH: LIABILITY: A. Trustees, Shareholders, Etc. Not Personally Liable; Notice. All persons extending credit to, contracting with or having any claim against the Trust or a particular series of shares shall look only to the assets of the Trust or the assets of that particular series of shares for payment under such credit, contract or claim; and neither the shareholders nor the Trustees, nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor. The Board of Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee, investment adviser or principal underwriter of the Trust, nor shall any Trustee be responsible for the act or omission of any other Trustee, but nothing herein shall protect 14 any Trustee against any liability to which such Trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee. Every note, bond, contract, instrument, certificate or undertaking made or issued by any Trustees or Trustee or by any officers or officer shall give notice that this Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts and shall recite that the same was executed or made by or on behalf of the Trust or by them as Trustees or Trustee or as officers or officer and not individually and that the obligations of such instrument are not binding upon any of them or the shareholders individually but are binding only upon the assets and property of the Trust, or of the particular series of shares to which such instrument relates, and may contain such further recital as he or she or they may deem appropriate, but the omission thereof shall not operate to bind any Trustees or Trustee or officers or officer, or shareholders or shareholder individually. Every note, bond, contract, instrument, certificate, share or undertaking and every other act or thing whatsoever executed or done by or on behalf of the Trust or the Board of Trustees or any of them in connection with the Trust shall be conclusively deemed to have been executed or done only in or with respect to their or his capacity as Trustees or Trustee, and such Trustees or Trustee shall not be personally liable thereon. B. Trustee's Good Faith Action; Expert Advice; No Bond or Surety. The exercise by the Trustees of their powers and discretions hereunder shall be binding upon everyone interested. A Trustee shall be liable for his or her own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee, and for nothing else, and shall not be liable for errors of judgment or mistakes of fact or law. The Trustees may take advice of counsel or other experts with respect to the meaning and operation of this Declaration of Trust, and shall be under no liability for any act or omission in accordance with such advice or for failing to follow such advice. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required. C. Liability of Third Persons Dealing with Trustees. No person dealing with the Board of Trustees or any Trustee shall be bound to make any inquiry concerning the validity of any transaction made or to be made by either or to see to the application of any payments made or property transferred to the Trust or upon its order. NINTH: DETERMINATION OF NET PROFITS, ETC.; DIVIDENDS. With respect to each series of shares authorized by the Board of Trustees, the Board is expressly authorized to determine in accordance with generally accepted accounting principles and practices what constitutes net income, profits or earnings, or surplus and capital, to include in net income, profits or earnings the portion of subscription or redemption prices attributable to accrued net income, profits or earnings in such prices, and to determine what accounting periods shall be used by the Trust for any purpose, whether annual or any other period, including daily; to set apart out of any funds of such 15 series such reserves for such purposes as it shall determine and to abolish the same; to declare and pay dividends and distributions in cash, securities, or other property from surplus or capital or any funds of such series legally available therefor, at such intervals (which may be as frequently as daily) or on such other periodic basis as it shall determine; to declare such dividends or distributions by means of a formula or other method of determination at meetings held less frequently than the frequency of the effectiveness of such declarations; to establish payment dates for dividends or any other distributions on any basis, including dates occurring less frequently than the effectiveness of the declaration thereof; and to provide for the payment of declared dividends on a date earlier than the specified payment date in the case of shareholders of such series redeeming their entire ownership of shares of such series. Inasmuch as the computation of net income, profits or earnings for Federal income tax purposes may vary from the computation thereof on the books, the above provisions shall be interpreted to give to the Board of Trustees the power in its discretion to distribute for any fiscal year as dividends and as capital gain distributions, respectively, additional amounts sufficient to enable the Trust to avoid or reduce its liability for taxes. No dividend or distribution (including, without limitation, any distribution paid upon termination of the Trust or of any series) with respect to, nor any redemption or repurchase of, the shares of any series shall be effected by the Trust other than from the assets of such series. TENTH: INDEMNIFICATION. A. Indemnification Generally. The Trust shall indemnify, to the fullest extent permitted by applicable law, each person who is or has been a Trustee or officer (including each person who serves or has served at the Trust's request as a director, officer, or trustee of another organization in which the Trust has any interest as a shareholder, creditor or otherwise, and any heir, administrator or executor of such person) (a "Covered Person") against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and attorney's fees reasonably incurred by such Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom (a "Proceeding"), before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such person may be or may have been threatened, while in office or thereafter, by reason of being or having been such a Covered Person. B. Determination of Eligibility. Notwithstanding the provisions of Section A of Article TENTH, to the extent required under the 1940 Act, (i) Article TENTH, Section A, shall not protect any person against any liability to the Trust or to its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office; 16 (ii) in the absence of a final decision on the merits by a court or other body before whom a Proceeding was brought that a Covered Person was not liable by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office, no indemnification shall be permitted unless a determination that such person was not so liable shall have been made on behalf of the Trust by (a) the vote of a majority of the "disinterested, non-party Trustees," as defined below, or (b) an independent legal counsel as expressed in a written opinion; and (iii) the Trust shall not advance attorneys' fees incurred by a Covered Person in connection with Proceeding unless the Trust receives an undertaking by or on behalf of the Covered Person to repay the advance (unless it is ultimately determined that he is entitled to indemnification) and (a) the Covered Person shall provide security for his undertaking, or (b) the Trust shall be insured against losses arising by reason of any lawful advances, or (c) a majority of the disinterested, non-party Trustees of the Trust or an independent legal counsel, as expressed in a written opinion, shall determine, based on a review of readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the Covered Person ultimately will be found entitled to indemnification. Such undertaking shall provide that the Covered Person to whom the advance was made shall not be obligated to repay pursuant to such undertaking until the final determination of any pending Proceeding in a court of competent jurisdiction, including appeals therefrom, concerning the right of such Covered Person to be indemnified by the Trust or the obligation of such person to repay pursuant to the undertaking. Any approval pursuant to this Section shall not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with this Section as indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that such Covered Person's action was in, or not opposed to, the best interests of the Trust or to have been liable to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. As used in this Article TENTH, the term "disinterested, non-party Trustee" is a Trustee who is not an "interested person" of the Trust, as defined in Section 2(a)(19) of the 1940 Act and against whom none of the Proceedings in question or another action, suit or other Proceeding on the same or similar grounds is then or has been pending. C. Indemnification Not Exclusive. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any such Covered Person may be entitled. Nothing contained in this Article shall affect any rights to indemnification to which Covered Persons and other persons may be entitled by contract (apart from the provisions of this Article TENTH) or otherwise under law, nor to limit the power of the Trust to indemnify such persons. 17 D. Shareholders. In case any shareholder or former shareholder shall be held to be personally liable solely by reason of his or her being or having been a shareholder and not because of his or her acts or omissions or for some other reason, the shareholder or former shareholder (or his or her heirs, executors, administrators or other legal representatives or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled to be held harmless from and indemnified against all loss and expense arising from such liability. E. Contractual Rights. This Article TENTH shall be deemed to be a contract between the Trust and each person who is a Covered Person at any time this Article TENTH is in effect. Any repeal or other modification of this Article TENTH or of any applicable laws shall not limit any rights of indemnification then existing or arising out of events, acts, or omissions occurring prior to such repeal or modification, including, without limitation, the right to indemnification for Proceedings commenced after such repeal or modification to enforce this Article TENTH with respect to events, acts or omissions prior to such repeal or modification. F. Protection of Rights. If a written claim for indemnification by a Covered Person under this Article TENTH is not promptly paid in full by the Trust after receipt by the Trust of a such claim, or if expenses have not been promptly advanced after compliance by a Covered Person with the requirements of this Article TENTH for such advancement, such Covered Person may, at any time thereafter, bring suit against the Trust to recover the unpaid amount of the claim or the advancement of expenses. If successful, in whole or in part, in such suit, such Covered Person shall also be entitled to be paid the reasonable expense therefor. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the requirements of this Article TENTH for advancement of expenses have been met by such Covered Person) that the indemnification of the Covered Person is prohibited, but the burden of proving such defense shall be on the Trust. Neither the failure of the Trust, including its disinterested non-party Trustees or independent legal counsel, to have made a determination that indemnification of Covered Person is proper in the circumstances because he or she has met the applicable standard of conduct required under the 1940 Act, nor the actual determination by the Trust, including its disinterested non-party Trustees or independent legal counsel, that the Covered Person had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that such Covered Person had not met the applicable standard of conduct. ELEVENTH: RESERVATION OF RIGHT TO AMEND. A. By Board of Trustees. Except when otherwise required by the 1940 Act, this Declaration of Trust may be amended at any time by a majority of the Trustees then in office, provided notice of any amendment (other than amendments having the purpose of supplying any omission, curing any ambiguity or curing, correcting or supplementing any defective or inconsistent provision contained herein, or having any other purpose which is ministerial or clerical in nature) shall be mailed promptly to shareholders of record at the close of business on the effective date of such amendment. 18 B. By Shareholders. Except when otherwise required by the 1940 Act, this Declaration of Trust may be amended at any time by a majority vote of the shares of the Trust entitled to be voted. TWELFTH: SHAREHOLDERS' VOTING POWERS AND MEETINGS. A. Shareholders' Voting Powers. The shareholders shall have power to vote only (i) for the election or removal of Trustees as provided in Article SEVENTH, Section A; (ii) with respect to any investment adviser as provided in Article SEVENTH, Section F; (iii) with respect to any termination of this Trust or a series thereof to the extent and as provided in Article FOURTEENTH; (iv) with respect to any amendment of this Declaration of Trust to the extent and as provided in Article ELEVENTH, Section B; (v) to the same extent as the stockholders of a Massachusetts business corporation as to whether or not a court action, proceeding or claim should or should not be brought or maintained derivatively or as a class action on behalf of the Trust or the shareholders; and (vi) with respect to such additional matters relating to the Trust as may be required by the 1940 Act, this Declaration of Trust, the By-Laws or any registration of the Trust with the SEC, or as the Board of Trustees may consider necessary or desirable. Each whole share outstanding on the record date established in accordance with the By-Laws shall be entitled to one vote as to any matter on which it is entitled to vote and each fractional share shall be entitled to a proportionate fractional vote. Notwithstanding any other provision of this Declaration of Trust, on any matter submitted to a vote of shareholders, shares shall be voted in the aggregate and not by individual series except: (1) when required by the 1940 Act or other applicable law, shares shall be voted by individual series; or (2) when the Board of Trustees has determined that the matter affects only the interests of one or more series, then shareholders of the unaffected series shall not be entitled to vote thereon. There shall be no cumulative voting in the election of the Board of Trustees. Shares may be voted in person or by proxy. A proxy with respect to shares held in the names of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy, the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. At all meetings of shareholders, unless inspectors of election have been appointed, all questions relating to the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by the chairman of the meeting. Unless otherwise specified in the proxy, the proxy shall apply to all shares of each series of the Trust owned by the shareholder. Until shares are issued, the Board of Trustees may exercise all rights of shareholders and may take any action required by law, this Declaration of Trust or the By-Laws to be taken by shareholders. B. Meetings. Meetings of shareholders of the Trust or of any series may be called by the Board of Trustees, the President, the Executive Vice- President, any Vice- President, or such other person or persons as may be specified in the By-Laws and held from time to time for the purpose of taking action upon any matter requiring the vote or the authority of the shareholders of the 19 Trust or any series as herein provided or upon any other matter deemed by the Board of Trustees to be necessary or desirable. Meetings of shareholders of the Trust or of any series shall be called by the Secretary or such other person or persons as may be specified in the By-Laws upon written application by shareholders holding at least 10% of the outstanding shares of the Trust, if shareholders of all series are required hereunder to vote in the aggregate and not by individual series at such meeting, or of any series, if shareholders of such series are entitled hereunder to vote by individual series at such meeting, requesting that a meeting be called for a purpose requiring action by the shareholders as provided herein or in the By-Laws and provided that such application shall state the purpose or purposes of such meeting and the matters proposed to be acted on. C. Quorum and Required Vote. Thirty percent of the shares entitled to vote shall be a quorum for the transaction of business at a shareholders' meeting, except that if any provision of law or of this Declaration of Trust permits or requires that holders of any series shall vote as a series, then thirty percent of the aggregate number of shares of each series entitled to vote shall be necessary to constitute a quorum for the transaction of business by that series. Any lesser number, however, shall be sufficient for adjournments or if no shares are represented thereat, any officer present thereat entitled to preside or act as secretary of such meeting may adjourn the meeting. Any adjourned session or sessions may be held within a reasonable time after the date set for the original meeting without the necessity of further notice. Except when a larger vote is required by any provision of this Declaration of Trust or the By-Laws, a majority of the shares voted shall decide any questions and a plurality shall elect any Trustee, provided that where any provision of law or of this Declaration of Trust permits or requires that the holders of any series shall vote as a series, then a majority of the shares of that series voted on the matter shall decide that matter insofar as that series is concerned. The vote upon any question shall be by written ballot whenever requested by any person entitled to vote but, unless such a request is made, voting may be conducted by voice vote or in any other way approved by the meeting. D. Place of Meeting. All shareholders' meetings shall be held at the office of the Trust in the City of Chicago, State of Illinois, except that the Board of Trustees or the President of the Trust may fix a different place of meeting within the United States, which shall be specified in the notice or waiver of notice of such meeting. E. Notice of Meetings; Adjournment. The Secretary or an Assistant Secretary shall cause notice of the place, date and hour and the purpose or purposes for which a meeting is called, to be mailed, postage prepaid, not less than seven days before the date of such meeting, to each shareholder entitled to vote at such meeting, at his address as it appears on the records of the Trust. Notice of any shareholders' meeting need not be given to any shareholder who shall sign a written waiver of such notice, whether before or after the time of such meeting, which waiver shall be filed with the record of such meeting, or to any shareholder who shall attend such meeting in person or by proxy. A meeting of shareholders convened on the date for which it was called may be adjourned from time to time, without further notice, to a date not more than 120 days after the original record date. 20 F. Share Ledger. It shall be the duty of the Secretary or Assistant Secretary of the Trust to cause an original or duplicate share ledger to be maintained at the office of the Trust's transfer agent. Such share ledger may be in written form or any other form capable of being converted into written form within a reasonable time for visual inspection. G. Action by Written Consent. Any action taken by shareholders may be taken without a meeting if a majority of shareholders entitled to vote on the matter (or such larger proportion thereof as shall be required by any express provision of this Declaration of Trust or the By-Laws) consent to the action in writing and such written consents are filed with the records of the meetings of shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of shareholders. THIRTEENTH: USE OF NAME. The Trust acknowledges that it is adopting its trust name, and may adopt the names of various series of the Trust, through permission of Stein Roe & Farnham Incorporated, a Delaware corporation, and agrees that Stein Roe & Farnham Incorporated reserves to itself and any successor to its business the right to grant the non-exclusive right to use the name "SteinRoe Tax-Exempt Income Trust," or "Stein Roe & Farnham Tax-Exempt Income Trust" or "SteinRoe _____ Fund" or "Stein Roe & Farnham ______ Fund" or "SR&F Tax-Exempt Income Trust" or "Stein Roe __________" or "Stein ___________" or "SteinRoe," or "Stein Roe," or "Stein," or any similar name to any other entity, including but not limited to any investment company of which Stein Roe & Farnham Incorporated or any subsidiary or affiliate thereof or any successor to the business thereof shall be the investment adviser. FOURTEENTH: MISCELLANEOUS. A. Duration and Termination of Trust. Unless terminated as provided herein, the Trust shall continue without limitation of time. The Trust may be terminated at any time by vote of shareholders holding a majority of the shares of each series entitled to vote or by the Trustees by written notice to the shareholders. Any series of shares may be terminated at any time by vote of shareholders holding a majority of the shares of such series entitled to vote or by the Trustees by written notice to the shareholders of such series. Upon termination of the Trust or of any one or more series of shares, after paying or otherwise providing for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated as may be determined by the Trustees, the Trust shall, in accordance with such procedures as the Trustees consider appropriate, reduce the remaining assets to distributable form in cash or shares or other securities, or any combination thereof, and distribute the proceeds to the shareholders of the series involved, ratably according to the number of shares of such series held by the several shareholders of such series on the date of termination. B. Filing of Copies, References, Headings. The original or a copy of this instrument and of each amendment hereto shall be kept at the office of 21 the Trust where it may be inspected by any shareholder. A copy of this instrument and of each amendment hereto shall be filed by the Trust with the Secretary of the Commonwealth of Massachusetts and with the Boston City Clerk, as well as any other governmental office where such filing may from time to time be required. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such amendments have been made and as to any matters in connection with the Trust hereunder; and, with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this instrument or of any such amendments. In this instrument and in any such amendment, references to this instrument, and all expressions such as "herein", "hereof", and "hereunder", shall be deemed to refer to this instrument as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this instrument. This instrument may be executed in any number of counterparts, each of which shall be deemed an original. C. Applicable Law. This Declaration of Trust is made in the Commonwealth of Massachusetts, and it is created under and is to be governed by and construed and administered according to the laws of said Commonwealth. The Trust shall be of the type commonly called a Massachusetts business trust, and without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a trust. D. Severability. If any Article or other portion of this Declaration of Trust shall be invalidated or held to be unenforceable on any ground by any court of competent jurisdiction, the decision of which shall have not been reversed on appeal, such invalidity or unenforceability shall not affect the other provisions hereof, and this Declaration of Trust shall be construed in all respects as if such invalid or unenforceable provision had been omitted herefrom. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal in the City of Boston, Massachusetts, for himself and his assigns, as of the day and year first above written. DAVID A. STURMS David A. Sturms, Trustee COMMONWEALTH OF MASSACHUSETTS) COUNTY OF SUFFOLK ) SS Boston, October 16, 1987. Then personally appeared the above-named David A. Sturms, Trustee, and acknowledged the foregoing instrument to be his free act and deed, before me. BONITA C. TIERELI Notary Public My commission expires: 1/4/91 (NOTARIAL SEAL) STEINROE TAX-EXEMPT INCOME TRUST AMENDMENT TO AGEEMENT AND DECLARATION OF TRUST The undersigned, being a majority of the duly elected and qualified Trustees of SteinRoe Tax-Exempt Income Trust, a voluntary association with transferable shares organized under the laws of the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of Trust dated October 6, 1987 (the "Declaration of Trust"), do hereby amend the Declaration of Trust as follows and hereby consent to such amendment: 1. Article First of the Declaration of Trust is deleted and the following is inserted in lieu thereof: FIRST: NAME. The name of the Trust (which is thereafter called the "Trust") is SteinRoe Municipal Trust. 2. Article Thirteenth is deleted and the following is inserted in lieu thereof: THIRTEENTH: USE OF NAME. The Trust acknowledges that it is adopting its trust name, and may adopt the names of various series of the Trust, through permission of Stein Roe & Farnham Incorporated, a Delaware corporation, and agrees that Stein Roe & Farnham Incorporated reserves to itself and any successor to its business the right to grant the non-exclusive right to use the name "SteinRoe Municipal Trust," or "Stein Roe & Farnham Municipal Trust" or "SteinRoe Trust" or "Stein Roe & Farnham ______ Trust" or "SR&F Municipal Trust" or "Stein Roe __________" or "Stein ___________" or "SteinRoe," or "Stein Roe," or "Stein," or any similar name to any other entity, including but not limited to any investment company of which Stein Roe & Farnham Incorporated or any subsidiary or affiliate thereof or any successor to the business thereof shall be the investment adviser. This instrument may be executed in several counterparts, each of which shall been deemed an original, but all taken together shall be one instrument. IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seals this 31st day of July, 1991. KENNETH L. BLOCK CHARLES R. NELSON FRANCIS W. MORLEY GORDON R. WORLEY ANTHONY G. ZULFER, JR. STATE OF ILLINOIS) ) SS COUNTY OF COOK ) Then personally appeared before me the above-named Kenneth L. Block, Francis W. Morley, Charles R. Nelson, Gordon R. Worley, and Anthony G. Zulfer, Jr., known to me to be the Trustees of SteinRoe Tax-Exempt Income Trust, and acknowledged the foregoing instrument to be their free act and deed. NICOLETTE D. PARRISH Notary Public My commission expires 10/30/93 STEINROE MUNICIPAL TRUST AMENDMENT TO AGREEMENT AND DECLARATION OF TRUST SteinRoe Municipal Trust (the "Trust"), a voluntary association with transferable shares organized under the laws of the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of Trust dated October 6, 1987 (the "Declaration of Trust"), hereby certifies the following: Pursuant to a majority vote of the shares of the Trust entitled to be voted, Article TWELFTH of the Declaration of Trust is deleted and the following is inserted in lieu thereof: TWELFTH: Shareholders' Voting Powers and Meetings. A. Shareholders' Voting Powers. The shareholders shall have power to vote only (i) for the election or removal of Trustees as provided in Article SEVENTH, Section A; (ii) with respect to any investment adviser as provided in Article SEVENTH, Section F; (iii) with respect to any termination of this Trust or a series thereof to the extent and as provided in Article FOURTEENTH; (iv) with respect to any amendment of this Declaration of Trust to the extent and as provided in Article ELEVENTH, Section B; (v) to the same extent as the stockholders of a Massachusetts business corporation as to whether or not a court action, proceeding or claim should or should not be brought or maintained derivatively or as a class action on behalf of the Trust or the shareholders; and (vi) with respect to such additional matters relating to the Trust as may be required by the 1940 Act, this Declaration of Trust, the By-Laws or any registration of the Trust with the SEC, or as the Board of Trustees may consider necessary or desirable. Each whole share (or fractional share) outstanding on the record date established in accordance with the By-Laws shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the share (or fractional share) in United States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes). Notwithstanding any other provision of this Declaration of Trust, on any matter submitted to a vote of shareholders, shares shall be voted in the aggregate and not by individual series except: (1) when required by the 1940 Act or other applicable law, shares shall be voted by individual series; or (2) when the Board of Trustees has determined that the matter affects only the interests of one or more series, then shareholders of the unaffected series shall not be entitled to vote thereon. There shall be no cumulative voting in the election of the Board of Trustees. Shares may be voted in person or by proxy. A proxy with respect to shares held in the names of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy, the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. At all meetings of shareholders, unless inspectors of election have been appointed, all questions relating to the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by the chairman of the meeting. Unless otherwise specified in the proxy, the proxy shall apply to all shares of each series of the Trust owned by the shareholder. Until shares are issued, the Board of Trustees may exercise all rights of shareholders and may take any action required by law, this Declaration of Trust or the By-Laws to be taken by shareholders. IN WITNESS WHEREOF, the Trust has caused this amendment to be signed and sealed in its name and on its behalf by Timothy K. Armour, President and Trustee of the Trust, on October 25, 1994. STEINROE INVESTMENT TRUST By TIMOTHY K. ARMOUR Timothy K. Armour President and Trustee STATE OF ILLINOIS) ) SS COUNTY OF COOK ) Then personally appeared before me the above-named Timothy K. Armour, known to be to be the President and a Trustee of SteinRoe Investment Trust, and acknowledged the foregoing instrument to be his free act and deed. NICOLETTE D. PARRISH Notary Public My commission expires 10/30/97 EX-99 3 EX-99.B5A-MGT AGMT 1 Exhibit 5(a) INVESTMENT ADVISORY AGREEMENT STEINROE MUNICIPAL TRUST, a Massachusetts business trust registered under the Investment Company Act of 1940 ("1940 Act") as an open-end diversified management investment company ("Trust"), hereby appoints STEIN ROE & FARNHAM INCORPORATED, a Delaware corporation registered under the Investment Advisers Act of 1940 as an investment adviser, of Chicago, Illinois ("Manager"), to manage the portion of its assets represented by the shares of beneficial interest issued in the series designated STEINROE MUNICIPAL MONEY MARKET FUND ("Fund") and to furnish certain administrative services. In connection therewith, Trust and Manager hereby agree that: 1. Management. Manager shall manage the investment and reinvestment of Trust's assets represented by Fund shares ("Fund assets") and advise with respect thereto for the period and on the terms set forth in this Agreement, subject to the overall control of the Board of Trustees of Trust. Manager shall give due consideration to the investment policies and restrictions and the other statements concerning Fund in Trust's agreement and declaration of trust, by-laws, and registration statements under the 1940 Act and the Securities Act of 1933 ("1933 Act"), and to the provisions of the Internal Revenue Code applicable to Fund as a regulated investment company. Manager shall for all purposes be deemed to be an independent contractor and not an agent of Trust and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent Trust in any way. 2. Expenses Borne by Trust. Subject to paragraph 3, Trust shall pay all expenses incidental to its organization, operations and business not specifically assumed or agreed to be paid by Manager pursuant to paragraphs 4 and 6, including, without limitation: all charges of depostories, custodians and other agencies for the safekeeping and servicing of its cash, securities, and other property, and of its transfer, shareholder recordkeeping, dividend disbursing, and redemption agents, if any; all charges for equipment or services used for obtaining price quotations or for communication between Manager or Trust and the custodian, transfer agent or any other agent selected by Trust; all charges for accounting services provided to Trust by the custodian, the Manager, or any other provider of accounting services; all charges for services of Trust's independent auditors; all charges for services to Trust by legal counsel; all compensation of trustees, other than those affiliated with Manager, and all expenses incurred in connection with their services to Trust; all expenses of notices, proxy solicitation material and reports to its shareholders; all expenses of preparation and printing of annual or more frequent revisions of Trust's prospectus and of supplying each then-existing shareholder or beneficial owner with a copy of such revised prospectus; all expenses related to preparing and transmitting certificates representing Trust shares; all expenses of bond and insurance coverage required by law or deemed advisable by the Board of Trustees; all brokers' commissions and other normal charges incident to the purchase and sale of portfolio securities; all taxes and corporate fees payable to Federal, state or other governmental agencies, domestic or foreign; all stamp or other transfer taxes; all expenses of registering and 2 maintaining the registration of Trust under the 1940 Act and of Trust's shares under the 1933 Act, of qualifying and maintaining qualification of Trust and of Trust's shares for sale under securities laws of various states or other jurisdictions and of registration and qualification of Trust under all other laws applicable to the Trust or its business activities; and all fees, dues or other expenses incurred by Trust in connection with membership of Trust in any trade association or other investment company organization. 3. Allocation of Expenses Borne by Trust. Any expenses borne by Trust that are attributable solely to the organization, operation or business of Fund shall be paid solely out of Fund assets. Any expense borne by Trust which is not solely attributable to Fund, nor solely to any other series of shares of Trust, shall be apportioned in such manner as Manager determines is fair and appropriate, or as otherwise specified by the Board of Trustees. 4. Expenses Borne by Manager. Manager at its own expense shall furnish administrative services, executive and other personnel, office space, and office facilities for conducting that portion of Trust's business relating to Fund. However, Manager shall not be required to pay or provide any credit for services provided by Trust's custodian, transfer agent, or other agents without additional cost to the Trust. 5. Management Fee. For the services to be rendered and the charges to be assumed and to be paid by Manager hereunder, Trust shall pay to Manager out of Fund assets a monthly fee, which is computed and accrued daily, of (a) one twenty-fourth of one percent (1/24 of 1%) the average net assets of Fund as determined as of the close of each day in the monthly period. 6. Expense Limitation. The total expenses allocated to Fund pursuant to paragraph 3, including fees paid to Manager, but exclusive of taxes, of interest, of all commissions and other normal charges incident to the purchase and sale of portfolio securities, and extraordinary charges such as litigation costs, shall not exceed the most restrictive applicable limits prescribed by any state in which Fund shares are being offered for sale to the public, and Manager agrees to reimburse Trust for any such expense in excess of such limits, provided that Manager shall not be required to make such reimbursement for any fiscal year to the extent the reimbursement exceeds the amount of management fees paid by the Fund for such year. 7. Non-Exclusivity. The services of Manager to Trust hereunder are not to be deemed exclusive and Manager shall be free to render similar services to others. 8. Investment in Fund Shares. Neither Manager nor any of its directors, officers or stockholders (or partners of stockholders) shall purchase or sell, or take a long or short position in, Fund shares, except (a) at the same price as the price to the public at the time of purchase or sale, or (b) prior to the commencement of the public offering of shares of Fund at the net asset value of such shares. 9. Standard of Care. Neither Manager, nor any of its directors, officers or stockholders (or partners of stockholders), agents or employees shall be liable or responsible to Trust or its shareholders for any error of judgment, mistake of law or any loss arising out of any investment, or for any other act or omission in the performance by 3 Manager of its duties under this Agreement, except for liability resulting from willful misfeasance, bad faith or gross negligence on Manager's part or from reckless disregard by Manager of its obligations and duties under this Agreement. 10. Amendment. This Agreement may not be amended without the affirmative votes (a) of a majority of the Board of Trustees, including a majority of those trustees who are not "interested persons" of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) of a "majority of the outstanding shares" of Fund. The terms "interested persons" and "vote of a majority of the outstanding shares" shall be construed in accordance with their respective definitions in Sections 2(a)(19) and 2(a)(42) of the 1940 Act and, with respect to the latter term, in accordance with Rule 18f-2 under the 1940 Act. 11. Termination. This Agreement may be terminated at any time, without payment of any penalty, by the Board of Trustees of Trust, or by a vote of a majority of the outstanding shares of Fund, upon at least sixty (60) days' written notice to Manager. This Agreement may be terminated by Manager at any time upon at least sixty (60) days' written notice to Trust. This Agreement shall terminate automatically in the event of its assignment (as defined in Section 2(a)(4) of the 1940 Act). Unless terminated as hereinbefore provided, this Agreement shall continue in effect until June 30, 1996 and thereafter from year to year only so long as such continuance is specifically approved at least annually (a) by a majority of those trustees who are not interested persons of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the Board of Trustees of Trust or by a vote of a majority of the outstanding shares of Fund. 12. Non-Liability of Trustees and Shareholders. Any obligation of Trust hereunder shall be binding only upon the assets of Trust (or the applicable series thereof) and shall not be binding upon any trustee, officer, employee, agent or shareholder of Trust. Neither the authorization of any action by the trustees or shareholders of Trust nor the execution of this Agreement on behalf of Trust shall impose any liability upon any trustee or any shareholder. 13. Use of Manager's Name. The Trust may use the name "SteinRoe Municipal Trust" and the Fund may use the name "SteinRoe Municipal Money Market Fund" or any other name derived from the name "Stein Roe & Farnham" only for so long as this Agreement or any extension, renewal, or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the Manager as investment adviser. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, the Trust and Fund will cease to use any name derived from the name "Stein Roe & Farnham" or otherwise connected with the Manager, or with any organization which shall have succeeded to the Manager's business as investment adviser. 14. References and Headings. In this Agreement and in any such amendment, references to this Agreement and all expressions such as "herein," "hereof," and "hereunder" shall be deemed to refer to this Agreement as amended or affected by any 4 such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this Agreement. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. Dated: November 1, 1994 STEINROE MUNICIPAL TRUST Attest: By: TIMOTHY K. ARMOUR President JILAINE HUMMEL BAUER Secretary STEIN ROE & FARNHAM INCORPORATED Attest: By: HANS P. ZIEGLER Chief Executive Officer KEITH J. RUDOLF Secretary EX-99 4 EX-99.B5B-MGT AGMT 1 Exhibit 5(b) INVESTMENT ADVISORY AGREEMENT STEINROE MUNICIPAL TRUST, a Massachusetts business trust registered under the Investment Company Act of 1940 ("1940 Act") as an open-end diversified management investment company ("Trust"), hereby appoints STEIN ROE & FARNHAM INCORPORATED, a Delaware corporation registered under the Investment Advisers Act of 1940 as an investment adviser, of Chicago, Illinois ("Manager"), to manage the portion of its assets represented by the shares of beneficial interest issued in the series designated STEINROE INTERMEDIATE MUNICIPALS ("Fund") and to furnish certain administrative services. In connection therewith, Trust and Manager hereby agree that: 1. Management. Manager shall manage the investment and reinvestment of Trust's assets represented by Fund shares ("Fund assets") and advise with respect thereto for the period and on the terms set forth in this Agreement, subject to the overall control of the Board of Trustees of Trust. Manager shall give due consideration to the investment policies and restrictions and the other statements concerning Fund in Trust's agreement and declaration of trust, by-laws, and registration statements under the 1940 Act and the Securities Act of 1933 ("1933 Act"), and to the provisions of the Internal Revenue Code applicable to Fund as a regulated investment company. Manager shall for all purposes be deemed to be an independent contractor and not an agent of Trust and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent Trust in any way. 2. Expenses Borne by Trust. Subject to paragraph 3, Trust shall pay all expenses incidental to its organization, operations and business not specifically assumed or agreed to be paid by Manager pursuant to paragraphs 4 and 6, including, without limitation: all charges of depostories, custodians and other agencies for the safekeeping and servicing of its cash, securities, and other property, and of its transfer, shareholder recordkeeping, dividend disbursing, and redemption agents, if any; all charges for equipment or services used for obtaining price quotations or for communication between Manager or Trust and the custodian, transfer agent or any other agent selected by Trust; all charges for accounting services provided to Trust by the custodian, the Manager, or any other provider of accounting services; all charges for services of Trust's independent auditors; all charges for services to Trust by legal counsel; all compensation of trustees, other than those affiliated with Manager, and all expenses incurred in connection with their services to Trust; all expenses of notices, proxy solicitation material and reports to its shareholders; all expenses of preparation and printing of annual or more frequent revisions of Trust's prospectus and of supplying each then-existing shareholder or beneficial owner with a copy of such revised prospectus; all expenses related to preparing and transmitting certificates representing Trust shares; all expenses of bond and insurance coverage required by law or deemed advisable by the Board of Trustees; all brokers' commissions and other normal charges incident to the purchase and sale of portfolio securities; all taxes and corporate fees payable to Federal, state or other governmental agencies, domestic or foreign; all stamp or other transfer taxes; all expenses of registering and 2 maintaining the registration of Trust under the 1940 Act and of Trust's shares under the 1933 Act, of qualifying and maintaining qualification of Trust and of Trust's shares for sale under securities laws of various states or other jurisdictions and of registration and qualification of Trust under all other laws applicable to the Trust or its business activities; and all fees, dues or other expenses incurred by Trust in connection with membership of Trust in any trade association or other investment company organization. 3. Allocation of Expenses Borne by Trust. Any expenses borne by Trust that are attributable solely to the organization, operation or business of Fund shall be paid solely out of Fund assets. Any expense borne by Trust which is not solely attributable to Fund, nor solely to any other series of shares of Trust, shall be apportioned in such manner as Manager determines is fair and appropriate, or as otherwise specified by the Board of Trustees. 4. Expenses Borne by Manager. Manager at its own expense shall furnish administrative services, executive and other personnel, office space, and office facilities for conducting that portion of Trust's business relating to Fund. However, Manager shall not be required to pay or provide any credit for services provided by Trust's custodian, transfer agent, or other agents without additional cost to the Trust. 5. Management Fee. For the services to be rendered and the charges to be assumed and to be paid by Manager hereunder, Trust shall pay to Manager out of Fund assets a monthly fee, which is computed and accrued daily, of (a) one twentieth of one percent (1/20 of 1%) of the first $100 million of the average net assets of Fund; plus (b) eleven two hundred and fortieths of one percent (11/240 of 1%) of the average net assets of Fund in excess of $100 million but not exceeding $200 million; plus (c) one twenty-fourth of one percent (1/24 of 1%) of the average net assets of Fund in excess of $200 million as determined as of the close of each day in the monthly period. 6. Expense Limitation. The total expenses allocated to Fund pursuant to paragraph 3, including fees paid to Manager, but exclusive of taxes, of interest, of all commissions and other normal charges incident to the purchase and sale of portfolio securities, and extraordinary charges such as litigation costs, shall not exceed the most restrictive applicable limits prescribed by any state in which Fund shares are being offered for sale to the public, and Manager agrees to reimburse Trust for any such expense in excess of such limits, provided that Manager shall not be required to make such reimbursement for any fiscal year to the extent the reimbursement exceeds the amount of management fees paid by the Fund for such year. 7. Non-Exclusivity. The services of Manager to Trust hereunder are not to be deemed exclusive and Manager shall be free to render similar services to others. 8. Investment in Fund Shares. Neither Manager nor any of its directors, officers or stockholders (or partners of stockholders) shall purchase or sell, or take a long or short position in, Fund shares, except (a) at the same price as the price to the public at the time of purchase or sale, or (b) prior to the commencement of the public offering of shares of Fund at the net asset value of such shares. 3 9. Standard of Care. Neither Manager, nor any of its directors, officers or stockholders (or partners of stockholders), agents or employees shall be liable or responsible to Trust or its shareholders for any error of judgment, mistake of law or any loss arising out of any investment, or for any other act or omission in the performance by Manager of its duties under this Agreement, except for liability resulting from willful misfeasance, bad faith or gross negligence on Manager's part or from reckless disregard by Manager of its obligations and duties under this Agreement. 10. Amendment. This Agreement may not be amended without the affirmative votes (a) of a majority of the Board of Trustees, including a majority of those trustees who are not "interested persons" of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) of a "majority of the outstanding shares" of Fund. The terms "interested persons" and "vote of a majority of the outstanding shares" shall be construed in accordance with their respective definitions in Sections 2(a)(19) and 2(a)(42) of the 1940 Act and, with respect to the latter term, in accordance with Rule 18f-2 under the 1940 Act. 11. Termination. This Agreement may be terminated at any time, without payment of any penalty, by the Board of Trustees of Trust, or by a vote of a majority of the outstanding shares of Fund, upon at least sixty (60) days' written notice to Manager. This Agreement may be terminated by Manager at any time upon at least sixty (60) days' written notice to Trust. This Agreement shall terminate automatically in the event of its assignment (as defined in Section 2(a)(4) of the 1940 Act). Unless terminated as hereinbefore provided, this Agreement shall continue in effect until June 30, 1996 and thereafter from year to year only so long as such continuance is specifically approved at least annually (a) by a majority of those trustees who are not interested persons of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the Board of Trustees of Trust or by a vote of a majority of the outstanding shares of Fund. 12. Non-Liability of Trustees and Shareholders. Any obligation of Trust hereunder shall be binding only upon the assets of Trust (or the applicable series thereof) and shall not be binding upon any trustee, officer, employee, agent or shareholder of Trust. Neither the authorization of any action by the trustees or shareholders of Trust nor the execution of this Agreement on behalf of Trust shall impose any liability upon any trustee or any shareholder. 13. Use of Manager's Name. The Trust may use the name "SteinRoe Municipal Trust" and the Fund may use the name "SteinRoe Intermediate Municipals" or any other name derived from the name "Stein Roe & Farnham" only for so long as this Agreement or any extension, renewal, or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the Manager as investment adviser. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, the Trust and Fund will cease to use any name derived from the name "Stein Roe & Farnham" or otherwise connected with the Manager, or with any organization which shall have succeeded to the Manager's business as investment adviser. 4 14. References and Headings. In this Agreement and in any such amendment, references to this Agreement and all expressions such as "herein," "hereof," and "hereunder" shall be deemed to refer to this Agreement as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this Agreement. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. Dated: November 1, 1994 STEINROE MUNICIPAL TRUST Attest: By: TIMOTHY K. ARMOUR President JILAINE HUMMEL BAUER Secretary STEIN ROE & FARNHAM INCORPORATED Attest: By: HANS P. ZIEGLER Chief Executive Officer KEITH J. RUDOLF Secretary EX-99 5 EX-99.B5C-MGT AGMT 1 Exhibit 5(c) INVESTMENT ADVISORY AGREEMENT STEINROE MUNICIPAL TRUST, a Massachusetts business trust registered under the Investment Company Act of 1940 ("1940 Act") as an open-end diversified management investment company ("Trust"), hereby appoints STEIN ROE & FARNHAM INCORPORATED, a Delaware corporation registered under the Investment Advisers Act of 1940 as an investment adviser, of Chicago, Illinois ("Manager"), to manage the portion of its assets represented by the shares of beneficial interest issued in the series designated STEINROE MANAGED MUNICIPALS ("Fund") and to furnish certain administrative services. In connection therewith, Trust and Manager hereby agree that: 1. Management. Manager shall manage the investment and reinvestment of Trust's assets represented by Fund shares ("Fund assets") and advise with respect thereto for the period and on the terms set forth in this Agreement, subject to the overall control of the Board of Trustees of Trust. Manager shall give due consideration to the investment policies and restrictions and the other statements concerning Fund in Trust's agreement and declaration of trust, by- laws, and registration statements under the 1940 Act and the Securities Act of 1933 ("1933 Act"), and to the provisions of the Internal Revenue Code applicable to Fund as a regulated investment company. Manager shall for all purposes be deemed to be an independent contractor and not an agent of Trust and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent Trust in any way. 2. Expenses Borne by Trust. Subject to paragraph 3, Trust shall pay all expenses incidental to its organization, operations and business not specifically assumed or agreed to be paid by Manager pursuant to paragraphs 4 and 6, including, without limitation: all charges of depostories, custodians and other agencies for the safekeeping and servicing of its cash, securities, and other property, and of its transfer, shareholder recordkeeping, dividend disbursing, and redemption agents, if any; all charges for equipment or services used for obtaining price quotations or for communication between Manager or Trust and the custodian, transfer agent or any other agent selected by Trust; all charges for accounting services provided to Trust by the custodian, the Manager, or any other provider of accounting services; all charges for services of Trust's independent auditors; all charges for services to Trust by legal counsel; all compensation of trustees, other than those affiliated with Manager, and all expenses incurred in connection with their services to Trust; all expenses of notices, proxy solicitation material and reports to its shareholders; all expenses of preparation and printing of annual or more frequent revisions of Trust's prospectus and of supplying each then-existing shareholder or beneficial owner with a copy of such revised prospectus; all expenses related to preparing and transmitting certificates representing Trust shares; all expenses of bond and insurance coverage required by law or deemed advisable by the Board of Trustees; all brokers' commissions and other normal charges incident to the purchase and sale of portfolio securities; all taxes and corporate fees payable to Federal, state or other governmental agencies, domestic or foreign; all stamp or other transfer taxes; all expenses of registering and maintaining the registration of Trust under the 1940 Act and of Trust's shares under the 1933 Act, of qualifying and maintaining 2 qualification of Trust and of Trust's shares for sale under securities laws of various states or other jurisdictions and of registration and qualification of Trust under all other laws applicable to the Trust or its business activities; and all fees, dues or other expenses incurred by Trust in connection with membership of Trust in any trade association or other investment company organization. 3. Allocation of Expenses Borne by Trust. Any expenses borne by Trust that are attributable solely to the organization, operation or business of Fund shall be paid solely out of Fund assets. Any expense borne by Trust which is not solely attributable to Fund, nor solely to any other series of shares of Trust, shall be apportioned in such manner as Manager determines is fair and appropriate, or as otherwise specified by the Board of Trustees. 4. Expenses Borne by Manager. Manager at its own expense shall furnish administrative services, executive and other personnel, office space, and office facilities for conducting that portion of Trust's business relating to Fund. However, Manager shall not be required to pay or provide any credit for services provided by Trust's custodian, transfer agent, or other agents without additional cost to the Trust. 5. Management Fee. For the services to be rendered and the charges to be assumed and to be paid by Manager hereunder, Trust shall pay to Manager out of Fund assets a monthly fee, which is computed and accrued daily, of (a) one twentieth of one percent (1/20 of 1%) of the first $100 million of the average net assets of Fund; plus (b) eleven two hundred and fortieths of one percent (11/240 of 1%) of the average net assets of Fund in excess of $100 million but not exceeding $200 million; plus (c) one twenty-fourth of one percent (1/24 of 1%) of the average net assets of Fund in excess of $200 million but not exceeding $800 million; plus (d) three-eightieths of one percent (3/80 of 1%) of the average net assets of Fund in excess of $800 million, as determined as of the close of each day in the monthly period. 6. Expense Limitation. The total expenses allocated to Fund pursuant to paragraph 3, including fees paid to Manager, but exclusive of taxes, of interest, of all commissions and other normal charges incident to the purchase and sale of portfolio securities, and extraordinary charges such as litigation costs, shall not exceed the most restrictive applicable limits prescribed by any state in which Fund shares are being offered for sale to the public, and Manager agrees to reimburse Trust for any such expense in excess of such limits, provided that Manager shall not be required to make such reimbursement for any fiscal year to the extent the reimbursement exceeds the amount of management fees paid by the Fund for such year. 7. Non-Exclusivity. The services of Manager to Trust hereunder are not to be deemed exclusive and Manager shall be free to render similar services to others. 8. Investment in Fund Shares. Neither Manager nor any of its directors, officers or stockholders (or partners of stockholders) shall purchase or sell, or take a long or short position in, Fund shares, except (a) at the same price as the price to the public at the time of purchase or sale, or (b) prior to the commencement of the public offering of shares of Fund at the net asset value of such shares. 3 9. Standard of Care. Neither Manager, nor any of its directors, officers or stockholders (or partners of stockholders), agents or employees shall be liable or responsible to Trust or its shareholders for any error of judgment, mistake of law or any loss arising out of any investment, or for any other act or omission in the performance by Manager of its duties under this Agreement, except for liability resulting from willful misfeasance, bad faith or gross negligence on Manager's part or from reckless disregard by Manager of its obligations and duties under this Agreement. 10. Amendment. This Agreement may not be amended without the affirmative votes (a) of a majority of the Board of Trustees, including a majority of those trustees who are not "interested persons" of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) of a "majority of the outstanding shares" of Fund. The terms "interested persons" and "vote of a majority of the outstanding shares" shall be construed in accordance with their respective definitions in Sections 2(a)(19) and 2(a)(42) of the 1940 Act and, with respect to the latter term, in accordance with Rule 18f-2 under the 1940 Act. 11. Termination. This Agreement may be terminated at any time, without payment of any penalty, by the Board of Trustees of Trust, or by a vote of a majority of the outstanding shares of Fund, upon at least sixty (60) days' written notice to Manager. This Agreement may be terminated by Manager at any time upon at least sixty (60) days' written notice to Trust. This Agreement shall terminate automatically in the event of its assignment (as defined in Section 2(a)(4) of the 1940 Act). Unless terminated as hereinbefore provided, this Agreement shall continue in effect until June 30, 1996 and thereafter from year to year only so long as such continuance is specifically approved at least annually (a) by a majority of those trustees who are not interested persons of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the Board of Trustees of Trust or by a vote of a majority of the outstanding shares of Fund. 12. Non-Liability of Trustees and Shareholders. Any obligation of Trust hereunder shall be binding only upon the assets of Trust (or the applicable series thereof) and shall not be binding upon any trustee, officer, employee, agent or shareholder of Trust. Neither the authorization of any action by the trustees or shareholders of Trust nor the execution of this Agreement on behalf of Trust shall impose any liability upon any trustee or any shareholder. 13. Use of Manager's Name. The Trust may use the name "SteinRoe Municipal Trust" and the Fund may use the name "SteinRoe Managed Municipals" or any other name derived from the name "Stein Roe & Farnham" only for so long as this Agreement or any extension, renewal, or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the Manager as investment adviser. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, the Trust and Fund will cease to use any name derived from the name "Stein Roe & Farnham" or otherwise connected with the Manager, or with any 4 organization which shall have succeeded to the Manager's business as investment adviser. 14. References and Headings. In this Agreement and in any such amendment, references to this Agreement and all expressions such as "herein," "hereof," and "hereunder" shall be deemed to refer to this Agreement as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this Agreement. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. Dated: November 1, 1994 STEINROE MUNICIPAL TRUST Attest: By: TIMOTHY K. ARMOUR President JILAINE HUMMEL BAUER Secretary STEIN ROE & FARNHAM INCORPORATED Attest: By: HANS P. ZIEGLER Chief Executive Officer KEITH J. RUDOLF Secretary EX-99 6 EX-99.B5D-MGT AGMT 1 Exhibit 5(d) INVESTMENT ADVISORY AGREEMENT STEINROE MUNICIPAL TRUST, a Massachusetts business trust registered under the Investment Company Act of 1940 ("1940 Act") as an open-end diversified management investment company ("Trust"), hereby appoints STEIN ROE & FARNHAM INCORPORATED, a Delaware corporation registered under the Investment Advisers Act of 1940 as an investment adviser, of Chicago, Illinois ("Manager"), to manage the portion of its assets represented by the shares of beneficial interest issued in the series designated STEINROE HIGH-YIELD MUNICIPALS ("Fund") and to furnish certain administrative services. In connection therewith, Trust and Manager hereby agree that: 1. Management. Manager shall manage the investment and reinvestment of Trust's assets represented by Fund shares ("Fund assets") and advise with respect thereto for the period and on the terms set forth in this Agreement, subject to the overall control of the Board of Trustees of Trust. Manager shall give due consideration to the investment policies and restrictions and the other statements concerning Fund in Trust's agreement and declaration of trust, by- laws, and registration statements under the 1940 Act and the Securities Act of 1933 ("1933 Act"), and to the provisions of the Internal Revenue Code applicable to Fund as a regulated investment company. Manager shall for all purposes be deemed to be an independent contractor and not an agent of Trust and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent Trust in any way. 2. Expenses Borne by Trust. Subject to paragraph 3, Trust shall pay all expenses incidental to its organization, operations and business not specifically assumed or agreed to be paid by Manager pursuant to paragraphs 4 and 6, including, without limitation: all charges of depostories, custodians and other agencies for the safekeeping and servicing of its cash, securities, and other property, and of its transfer, shareholder recordkeeping, dividend disbursing, and redemption agents, if any; all charges for equipment or services used for obtaining price quotations or for communication between Manager or Trust and the custodian, transfer agent or any other agent selected by Trust; all charges for accounting services provided to Trust by the custodian, the Manager, or any other provider of accounting services; all charges for services of Trust's independent auditors; all charges for services to Trust by legal counsel; all compensation of trustees, other than those affiliated with Manager, and all expenses incurred in connection with their services to Trust; all expenses of notices, proxy solicitation material and reports to its shareholders; all expenses of preparation and printing of annual or more frequent revisions of Trust's prospectus and of supplying each then-existing shareholder or beneficial owner with a copy of such revised prospectus; all expenses related to preparing and transmitting certificates representing Trust shares; all expenses of bond and insurance coverage required by law or deemed advisable by the Board of Trustees; all brokers' commissions and other normal charges incident to the purchase and sale of portfolio securities; all taxes and corporate fees payable to Federal, state or other governmental agencies, domestic or foreign; all stamp or other transfer taxes; all expenses of registering and maintaining the registration of Trust under the 1940 Act and of Trust's shares under the 1933 Act, of qualifying and maintaining 2 qualification of Trust and of Trust's shares for sale under securities laws of various states or other jurisdictions and of registration and qualification of Trust under all other laws applicable to the Trust or its business activities; and all fees, dues or other expenses incurred by Trust in connection with membership of Trust in any trade association or other investment company organization. 3. Allocation of Expenses Borne by Trust. Any expenses borne by Trust that are attributable solely to the organization, operation or business of Fund shall be paid solely out of Fund assets. Any expense borne by Trust which is not solely attributable to Fund, nor solely to any other series of shares of Trust, shall be apportioned in such manner as Manager determines is fair and appropriate, or as otherwise specified by the Board of Trustees. 4. Expenses Borne by Manager. Manager at its own expense shall furnish administrative services, executive and other personnel, office space, and office facilities for conducting that portion of Trust's business relating to Fund. However, Manager shall not be required to pay or provide any credit for services provided by Trust's custodian, transfer agent, or other agents without additional cost to the Trust. 5. Management Fee. For the services to be rendered and the charges to be assumed and to be paid by Manager hereunder, Trust shall pay to Manager out of Fund assets a monthly fee, which is computed and accrued daily, of (a) one twentieth of one percent (1/20 of 1%) of the first $100 million of the average net assets of Fund; plus (b) eleven two hundred and fortieths of one percent (11/240 of 1%) of the average net assets of Fund in excess of $100 million but not exceeding $200 million; plus (c) one twenty-fourth of one percent (1/24 of 1%) of the average net assets of Fund in excess of $200 million as determined as of the close of each day in the monthly period. 6. Expense Limitation. The total expenses allocated to Fund pursuant to paragraph 3, including fees paid to Manager, but exclusive of taxes, of interest, of all commissions and other normal charges incident to the purchase and sale of portfolio securities, and extraordinary charges such as litigation costs, shall not exceed the most restrictive applicable limits prescribed by any state in which Fund shares are being offered for sale to the public, and Manager agrees to reimburse Trust for any such expense in excess of such limits, provided that Manager shall not be required to make such reimbursement for any fiscal year to the extent the reimbursement exceeds the amount of management fees paid by the Fund for such year. 7. Non-Exclusivity. The services of Manager to Trust hereunder are not to be deemed exclusive and Manager shall be free to render similar services to others. 8. Investment in Fund Shares. Neither Manager nor any of its directors, officers or stockholders (or partners of stockholders) shall purchase or sell, or take a long or short position in, Fund shares, except (a) at the same price as the price to the public at the time of purchase or sale, or (b) prior to the commencement of the public offering of shares of Fund at the net asset value of such shares. 3 9. Standard of Care. Neither Manager, nor any of its directors, officers or stockholders (or partners of stockholders), agents or employees shall be liable or responsible to Trust or its shareholders for any error of judgment, mistake of law or any loss arising out of any investment, or for any other act or omission in the performance by Manager of its duties under this Agreement, except for liability resulting from willful misfeasance, bad faith or gross negligence on Manager's part or from reckless disregard by Manager of its obligations and duties under this Agreement. 10. Amendment. This Agreement may not be amended without the affirmative votes (a) of a majority of the Board of Trustees, including a majority of those trustees who are not "interested persons" of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) of a "majority of the outstanding shares" of Fund. The terms "interested persons" and "vote of a majority of the outstanding shares" shall be construed in accordance with their respective definitions in Sections 2(a)(19) and 2(a)(42) of the 1940 Act and, with respect to the latter term, in accordance with Rule 18f-2 under the 1940 Act. 11. Termination. This Agreement may be terminated at any time, without payment of any penalty, by the Board of Trustees of Trust, or by a vote of a majority of the outstanding shares of Fund, upon at least sixty (60) days' written notice to Manager. This Agreement may be terminated by Manager at any time upon at least sixty (60) days' written notice to Trust. This Agreement shall terminate automatically in the event of its assignment (as defined in Section 2(a)(4) of the 1940 Act). Unless terminated as hereinbefore provided, this Agreement shall continue in effect until June 30, 1996 and thereafter from year to year only so long as such continuance is specifically approved at least annually (a) by a majority of those trustees who are not interested persons of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the Board of Trustees of Trust or by a vote of a majority of the outstanding shares of Fund. 12. Non-Liability of Trustees and Shareholders. Any obligation of Trust hereunder shall be binding only upon the assets of Trust (or the applicable series thereof) and shall not be binding upon any trustee, officer, employee, agent or shareholder of Trust. Neither the authorization of any action by the trustees or shareholders of Trust nor the execution of this Agreement on behalf of Trust shall impose any liability upon any trustee or any shareholder. 13. Use of Manager's Name. The Trust may use the name "SteinRoe Municipal Trust" and the Fund may use the name "SteinRoe High-Yield Municipals" or any other name derived from the name "Stein Roe & Farnham" only for so long as this Agreement or any extension, renewal, or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of the Manager as investment adviser. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, the Trust and Fund will cease to use any name derived from the name "Stein Roe & Farnham" or otherwise connected with the Manager, or with any organization which shall have succeeded to the Manager's business as investment adviser. 4 14. References and Headings. In this Agreement and in any such amendment, references to this Agreement and all expressions such as "herein," "hereof," and "hereunder" shall be deemed to refer to this Agreement as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this Agreement. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. Dated: November 1, 1994 STEINROE MUNICIPAL TRUST Attest: By: TIMOTHY K. ARMOUR President JILAINE HUMMEL BAUER Secretary STEIN ROE & FARNHAM INCORPORATED Attest: By: HANS P. ZIEGLER Chief Executive Officer KEITH J. RUDOLF Secretary EX-99 7 EX-99.B5E-MGT AGMT 1 Exhibit 5(e) [STEINROE MUTUAL FUNDS LETTERHEAD] October 31, 1994 SteinRoe Municipal Trust P.O. Box 804058 Chicago, Illinois 60680 Re: SteinRoe Municipal Money Market Fund Gentlemen: The firm of Stein Roe & Farnham Incorporated hereby undertakes as follows: In the interest of limiting the expenses of the series of SteinRoe Municipal Trust designated SteinRoe Municipal Money Market Fund (the "Fund"), Stein Roe & Farnham Incorporated ("SR&F"), the investment adviser to the Fund, undertakes to reimburse the Fund to the extent, but only to the extent, that annualized expenses (excluding taxes, interest, all commissions and other normal charges incident to the purchase and sale of portfolio securities, and extraordinary charges such as litigation costs, but including fees paid to SR&F) exceed .7 of 1% of average net assets of the Fund through October 31, 1995, subject to the right of SR&F on 30 days' notice to terminate this undertaking. The amount of the expense reimbursement (or any offsetting reimbursement by the Fund to SR&F) shall be computed on an annual basis, but accrued and paid monthly. Sincerely, STEIN ROE & FARNHAM INCORPORATED By: TIMOTHY K. ARMOUR President, Mutual Funds Division Attest: By: JILAINE HUMMEL BAUER Assistant Secretary 2 [STEINROE MUTUAL FUNDS LETTERHEAD] May 1, 1995 SteinRoe Municipal Trust One South Wacker Drive Chicago, Illinois 60606 Re: SteinRoe Intermediate Municipals Gentlemen: The firm of Stein Roe & Farnham Incorporated hereby undertakes as follows: In the interest of limiting the expenses of the series of SteinRoe Municipal Trust designated SteinRoe Intermediate Municipals (the "Fund"), Stein Roe & Farnham Incorporated ("SR&F"), the investment adviser to the Fund, undertakes to voluntarily waive its management fee and/or absorb certain expenses for the Fund to the extent, but only to the extent, that annualized fees and expenses (excluding taxes, interest, all commissions and other normal charges incident to the purchase and sale of portfolio securities, and extraordinary charges such as litigation costs) during the period that this undertaking is in effect exceed 0.70% of average net assets of the Fund. Unless extended in writing by SR&F, this undertaking shall terminate on October 31, 1995, subject to the right of SR&F on 30 days' written notice to terminate this undertaking. The amount of the fee waiver and/or expense absorption (or any offsetting reimbursement by the Fund to SR&F) shall be computed on an annual basis, but accrued and paid monthly. Sincerely, STEIN ROE & FARNHAM INCORPORATED By: KENNETH J. KOZANDA Vice President and Treasurer Attest: By: JILAINE HUMMEL BAUER Assistant Secretary EX-99 8 EX-99.B8-CUSTODIAN Exhibit 8 CUSTODIAN CONTRACT Between STEINROE TAX-EXEMPT INCOME TRUST and STATE STREET BANK AND TRUST COMPANY TABLE OF CONTENTS 1. Employment Of Custodian and Property to be Held By It ...........................................1 2. Duties of the Custodian with Respect to Property of the Trust Held by the Custodian....................1 2.1 Holding Securities................................1 2.2 Delivery of Securities ...........................2 2.3 Registration of Securities .......................4 2.4 Bank Accounts ....................................4 2.5 Payment for Shares ...............................5 2.6 Investments and Availability of Federal Funds ....5 2.7 Collection of Income .............................5 2.8 Payment of Trust Moneys ..........................6 2.9 Liability for Payment in Advance of Receipt of Securities Purchased ..................7 2.10 Payments for Repurchases or Redemptions of Shares of a Fund .............................7 2.11 Appointment of Agents ...........................7 2.12 Deposit of Trust Assets in Securities System ....7 2.13 Segregated Account ..............................9 2.14 Ownership Certificates for Tax Purposes ........10 2.15 Proxies ........................................10 2.16 Communications Relating to Trust Portfolio Securities ...........................10 2.17 Proper Instructions ............................10 2.18 Actions Permitted Without Express Authority ....10 2.19 Evidence of Authority ..........................11 3. Duties of Custodian With Respect to the Books of Account and Calculation of Net Asset Value and Net Income ........................................11 4. Records .............................................11 5. Opinion of Trust's Independent Accountant ...........11 6. Reports to Trust by Independent Public Accountants ..12 7. Compensation of Custodian ...........................12 8. Responsibility of Custodian ........................ 12 9. Effective Period, Termination and Amendment .........13 10. Successor Custodian .................................13 11. Interpretive and Additional Provisions ..............14 12. Massachusetts Law to Apply ..........................14 13. Prior Contracts .....................................14 14. Notices .............................................14 15. Successors ..........................................14 16. Non-Liability of Trustees and Shareholders ..........15 17. Additional Funds ....................................15 CUSTODIAN CONTRACT This Contract between SteinRoe Tax-Exempt Income Trust, a voluntary association organized under the laws of the Commonwealth of Massachusetts in the form commonly known as a business trust, having its principal place of business at 300 West Adams Street, Chicago, Illinois 60606, hereinafter called the "Trust," and State Street Bank and Trust Company, a Massachusetts trust company, having its principal place of business at 225 Franklin Street, Boston, Massachusetts 02101, hereinafter called the "Custodian." WHEREAS, the Trust is authorized to issue shares of beneficial interest ("Shares") in separate series, with each such series representing interests in a separate portfolio of securities and other assets (any such series being referred to as a "Fund"); and WHEREAS, the following series have been authorized: SteinRoe Intermediate Municipals, SteinRoe High-Yield Municipals, SteinRoe Tax- Exempt Money Fund, and SteinRoe Managed Municipals; WITNESSETH: That in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. Employment of Custodian and Property to be Held by It. The Trust hereby employs the Custodian as the custodian of its assets, pursuant to the provisions of its Agreement and Declaration of Trust. The Trust agrees to deliver to the Custodian all securities and cash owned by it, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Trust from time to time, and the cash consideration received by it for such new or treasury Shares, of any series, with or without par value, of the Trust as may be issued or sold from time to time. The Custodian shall not be responsible for any property of the Trust held or received by the Trust and not delivered to the Custodian or any sub-custodian appointed as prescribed herein. Upon receipt of "Proper Instructions" (within the meaning of Section 2.17), the Custodian shall from time to time employ one or more sub-custodians, but only in accordance with an applicable vote by the Board of Trustees of the Trust, and provided that the Custodian shall have no more or less responsibility or liability to the Trust on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian. 2. Duties of the Custodian with Respect to Property of the Trust Held by the Custodian. 2.1 Holding Securities. The Custodian shall hold and physically segregate for the account of each Fund all non-cash property, including all securities, owned by the Trust and allocated to each Fund, other than securities that are maintained pursuant to Section 2.12 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury, collectively referred to herein as "Securities System." 2.2 Delivery of Securities. The Custodian shall release and deliver securities owned by the Trust, held for the account of a Fund, held either by the Custodian or in a Securities System account of the Custodian, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: (1) Upon sale of such securities for the account of the Fund and receipt of payment therefor; (2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into for the account of the Fund; (3) In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.12 hereof; (4) To the depository agent in connection with tender or other similar offers for portfolio securities of the Fund; (5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; (6) To the issuer thereof, or its agent, for transfer into the name of the Trust or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.11 or into the name or nominee name of any sub-custodian appointed pursuant to Article 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian and will be held by the Custodian for the account of the Fund; (7) Upon the sale of such securities for the account of the Fund, to the broker or its clearing agent, against a receipt, in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or wilfull misconduct; (8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization, or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian and will be held by the Custodian for the account of the Fund; (9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian and will be held by the Custodian for the account of the Fund; (10) For delivery in connection with any loans of securities made by the Trust from the Fund's portfolio, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Trust, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Trust prior to the receipt of such collateral; (11) For delivery as security in connection with any borrowings by the Trust requiring a pledge of assets in the Fund's portfolio, but only against receipt of amounts borrowed; (12) For delivery in accordance with the provisions of any agreement among the Trust, the Custodian and a broker- dealer, relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with options transactions by the Trust; (13) For delivery in accordance with the provisions of any agreement among the Trust, the Custodian, and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any Contract Market, or any similar organization or organizations, regarding account deposits in connection with futures transactions by the Trust for the account of the Fund; (14) Upon receipt of instructions from the transfer agent ("Transfer Agent") for the Trust, for delivery to such Transfer Agent or to the holders of Shares of the Fund in connection with distributions in kind, as may be described from time to time in the Fund's currently effective prospectus and statement of additional information ("prospectus"), in satisfaction of requests by holders of Shares of the Fund for repurchase or redemption; (15) For delivery in connection with any reverse repurchase agreement entered into by the Trust with respect to the Fund, but only against receipt for the account of the Fund of the amount payable by the other party to the agreement; and (16) For any other proper purpose, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Trustees of the Trust ("Board of Trustees") or of the Executive Committee thereof ("Executive Committee") signed by an officer of the Trust and certified by the Secretary or an Assistant Secretary, specifying the securities to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purposes to be proper purposes, and naming the person or persons to whom delivery of such securities shall be made. 2.3 Registration of Securities. Securities held by the Custodian (other than bearer securities) shall be registered in the name of the Trust or in the name of any nominee of the Trust for the account of the particular Fund or of any nominee of the Custodian which nominee shall be assigned exclusively to the Trust for the account of such Fund unless the Trust has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Trust, or in the name or nominee name of any agent appointed pursuant to Section 2.11 or in the name or nominee name of any sub-custodian appointed pursuant to Article 1. All securities accepted by the Custodian on behalf of the Trust under the terms of this Contract shall be in "street name" or other good delivery form. 2.4 Bank Accounts. The Custodian shall open and maintain a separate bank account or accounts for each Fund in the name of the Trust, subject only to draft or order by the Custodian acting pursuant to the terms of this Contract, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of that Fund, other than cash maintained by the Trust in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Custodian for the Trust may be deposited by it to its credit as Custodian in the Banking Department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the Investment Company Act of 1940 and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall be approved by vote of a majority of the Board of Trustees of the Trust. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. If and when authorized by Proper Instructions in accordance with a resolution adopted by the Board of Trustees, the Custodian may open and maintain an additional account or accounts in such other bank or trust company as may be designated by such instructions, such account or accounts, however, to be in the name of the Custodian in its capacity as the Custodian and subject only to its draft or credit in accordance with the terms of this Contract. The Custodian shall furnish the Trust, not later than twenty (20) calendar days after the last business day of each month, a statement reflecting the current status of its internal reconciliation of the closing balance as of that day in all accounts described in this Paragraph to the balance shown on the daily cash report for the day rendered to the Trust. 2.5 Payments for Shares. The Custodian shall receive from the Trust or from the Transfer Agent of the Trust and deposit into a Fund's account such payments as are received for Shares of that Fund issued or sold from time to time by the Trust. The Custodian will provide timely notification to the Trust and the Transfer Agent of any receipt by it of payments for Shares of each Fund. 2.6 Investment and Availability of Federal Funds. Upon mutual agreement between the Trust and the Custodian, the Custodian shall, upon the receipt of Proper Instructions, (1) invest in such instruments as may be set forth in such instructions on the same day as received all federal funds received after a time agreed upon between the Custodian and the Trust; and (2) make federal funds available to the Trust as of specified times agreed upon from time to time by the Trust and the Custodian in the amount of checks received in payment for Shares of a Fund which are deposited into that Fund's account. 2.7 Collection of Income. The Custodian shall collect on a timely basis all income and other payments with respect to registered securities held hereunder to which the Trust shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer securities if, on the date of payment by the issuer, such securities are held by the Custodian or agent thereof and shall credit such income, as collected, to the appropriate Fund account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Income due the Trust on securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Trust. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Trust with such information or data as may be necessary to assist the Trust in arranging for the timely delivery to the Custodian of the income to which the Trust is properly entitled. The Custodian shall notify the Trust of any income or such other payments that are not collected in due course within a reasonable time after they become payable. 2.8 Payment of Trust Moneys. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out Trust moneys held in a Fund's account in the following cases only: (1) Upon the purchase of securities, options, futures contracts or options on futures contracts for the account of the Fund but only (a) against the delivery of such securities, or evidence of title to futures contracts or options on futures contracts, to the Custodian (or any bank, banking firm or trust company doing business in the United States which is qualified under the Investment Company Act of 1940, as amended, to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Trust or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase for the Fund effected through a Securities System, in accordance with the conditions set forth in Section 2.12 hereof; or (c) in the case of a repurchase agreement entered into between the Trust (on behalf of the Fund) and the Custodian, or another bank, or a broker-dealer, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's segregated non-proprietary account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Trust of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Trust; (2) In connection with conversion, exchange or surrender of securities owned by the Trust in the Fund's portfolio as set forth in Section 2.2 hereof; (3) For the redemption or repurchase of Fund Shares issued by the Trust as set forth in Section 2.10 hereof; (4) For the payment of any expense or liability incurred by the Trust for the account of the Fund, including but not limited to the following payments: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; (5) For the payment of any dividends on Shares of the Fund declared pursuant to the governing documents of the Trust; (6) For payment of the amount of dividends received in respect of securities sold short from the Fund's portfolio; (7) For any other proper purposes, but only upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Trustees or of the Executive Committee signed by an officer of the Trust and certified by its Secretary or an Assistant Secretary, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made. 2.9 Liability for Payment in Advance of Receipt of Securities Purchased. In any and every case where payment for purchase of securities for the account of a Fund is made by the Custodian in advance of receipt of the securities purchased, in the absence of specific written Proper Instructions from the Trust to so pay in advance, the Custodian shall be absolutely liable to the Trust for such securities to the same extent as if the securities had been received by the Custodian, except that in the case of a repurchase agreement entered into by the Trust with a bank, or with a broker-dealer clearing through a bank, which is a member of the Federal Reserve System, the Custodian may transfer funds to the account of such bank prior to the receipt of (i) written evidence that the securities subject to such repurchase agreement have been transferred by book-entry into a segregated non- proprietary account of the Custodian maintained with the Federal Reserve Bank of Boston or (ii) of the safe-keeping receipt, provided that such securities have in fact been so transferred by book-entry. 2.10 Payments for Repurchases or Redemptions of Shares of a Fund. From such funds as may be available for the purpose, but subject to the limitations of the Agreement and Declaration of Trust and any applicable votes of the Board of Trustees pursuant thereto, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds in the account of a Fund available for payment to holders of Shares of that Fund who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Trust to holders of Shares of the Fund, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian. 2.11 Appointment of Agents. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the Investment Company Act of 1940, as amended, to act as a custodian, as its agent to carry out such of the provisions of this Article 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. 2.12 Deposit of Trust Assets in Securities System. The Custodian may deposit and/or maintain securities owned by the Trust in a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, which acts as a securities depository, or in the book-entry system authorized by the U.S. Department of the Treasury and certain federal agencies, collectively referred to herein as "Securities System", in accordance with applicable Federal Reserve Board and Securities and Exchange Commission rules and regulations, if any, and subject to the following provisions: (1) The Custodian may keep securities of the Trust in a Securities System provided that such securities are represented in an account ("Account") of the Custodian in the Securities System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; (2) The records of the Custodian with respect to securities of the Trust which are maintained in a Securities System shall identify by book-entry those securities belonging to the Trust and further identify the Fund in whose portfolio the securities are held; (3) The Custodian shall pay for securities purchased for the account of a Fund upon (i) receipt of advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of that Fund. The Custodian shall transfer securities sold for the account of a Fund upon (i) receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of that Fund. Copies of all advices from the Securities System of transfers of securities for the account of a Fund shall identify the Fund, be maintained for that Fund by the Custodian and be provided to the Trust at its request. Upon request, the Custodian shall furnish the Trust confirmation of each transfer to or from the account of that Fund in the form of a written advice or notice and shall furnish to the Trust copies of daily transaction sheets reflecting each day's transactions in the Securities System for the account of that Fund. (4) The Custodian shall provide the Trust with any report obtained by the Custodian on the Securities System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Securities System; (5) The Custodian shall have received the initial or annual certificate, as the case may be, required by Article 9 hereof; (6) Anything to the contrary in this Contract notwithstanding, the Custodian shall be liable to the Trust for any loss or damage to the Trust resulting from the use of the Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees or from failure of the Custodian or any such agent to enforce effectively such rights as it may have against the Securities System; at the election of the Trust, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Trust has not been made whole for any such loss or damage. 2.13 Segregated Account. The Custodian shall upon receipt of Proper Instructions establish and maintain a segregated account or accounts for and on behalf of each Fund, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.12 hereof, (i) in accordance with the provisions of any agreement among the Trust, the Custodian and a broker-dealer registered under the Exchange Act (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Trust, (ii) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Trust for the account of such Fund or commodity futures contracts or options thereon purchased or sold by the Trust for the account of such Fund, (iii) for the purposes of compliance by the Trust with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of segregated accounts by registered investment companies and (iv) for other proper purposes, but only, in the case of clause (iv), upon receipt of, in addition to Proper Instructions, a certified copy of a resolution of the Board of Trustees or of the Executive Committee signed by an officer of the Trust and certified by the Secretary or an Assistant Secretary, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper purposes. 2.14 Ownership Certificates for Tax Purposes. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to securities of the Trust held by it and in connection with transfers of securities. 2.15 Proxies. The Custodian shall, with respect to the securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Trust or a nominee of the Trust, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Trust such proxies, all proxy soliciting materials and all notices relating to such securities. 2.16 Communications Relating to Trust Portfolio Securities. The Custodian shall transmit promptly to the Trust all written information (including, without limitation, pendency of calls and maturities of securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Trust and the maturity of futures contracts purchased or sold by the Trust) received by the Custodian from issuers of the securities being held for the Trust. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Trust all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Trust desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Trust shall notify the Custodian at least one business day prior to the date on which the Custodian is to take such action. 2.17 Proper Instructions. Proper Instructions as used throughout this Article 2 means a writing signed or initialed by one or more persons as the Board of Trustees shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Trust shall cause all oral instructions to be confirmed in writing. Upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Board of Trustees of the Trust accompanied by a detailed description of procedures approved by the Board of Trustees, Proper Instructions may include communications effected directly between electromechanical or electronic devices provided that the Board of Trustees and the Custodian are satisfied that such procedures afford adequate safeguards for the Trust's assets. 2.18 Actions Permitted Without Express Authority. The Custodian may in its discretion, without express authority from the Trust: (1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Contract, provided that all such payments shall be accounted for to the Trust; (2) surrender securities in temporary form for securities in definitive form; (3) endorse for collection, in the name of the Trust, checks, drafts and other negotiable instruments; and (4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Trust except as otherwise directed by the Board of Trustees of the Trust. 2.19 Evidence of Authority. The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed by or on behalf of the Trust. The Custodian may receive and accept a certified copy of a vote of the Board of Trustees of the Trust as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Board of Trustees pursuant to its Agreement and Declaration of Trust as described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. 3. Duties of Custodian with Respect to the Books of Account and Calculation of Net Asset Value and Net Income. The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board of Trustees to keep the books of account of each Fund and/or compute the net asset value per share of the outstanding shares of each Fund or, if directed in writing to do so by the Trust, shall itself keep such books of account and/or compute such net asset value per share. If so directed, the Custodian shall also calculate daily the net income of each Fund as described in that Fund's currently effective prospectus and shall advise the Trust and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer for the Trust to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per share and the daily income of a Fund shall be made at the time or times described from time to time in that Fund's currently effective prospectus. 4. Records. The Custodian shall create and maintain all records relating to its activities and obligations under this Contract in such manner as will meet the obligations of the Trust under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder, applicable federal and state tax laws and any other law or administrative rules and procedures which may be applicable to the Trust. All such records shall be the property of the Trust and shall at times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Trust and employees and agents of the Securities and Exchange Commission. The Custodian shall, at the Trust's request, supply the Trust with a list of securities held by the Custodian for the account of each Fund and shall, when requested to do so by the Trust and for such compensation as shall be agreed upon between the Trust and the Custodian, include certificate numbers in such lists. 5. Opinion of Trust's Independent Accountant. The Custodian shall take all reasonable action, as the Trust may from time to time request, to obtain from year to year favorable opinions from the Trust's independent accountants with respect to its activities hereunder in connection with the preparation of the Trust's Form N-1A, and the Form N-SAR or other annual reports to the SEC and with respect to any other requirements of the SEC. 6. Reports to Trust by Independent Public Accountants. The Custodian shall provide the Trust, at such times as the Trust may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a Securities System, relating to the services provided by the Custodian under this Contract; such reports shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Trust, to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, shall so state. 7. Compensation of Custodian. The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Trust and the Custodian. 8. Responsibility of Custodian. So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Contract and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Contract, but shall be kept indemnified by and shall be without liability to the Trust for any action taken or omitted by it in good faith without negligence. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Trust) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Notwithstanding the foregoing, the responsibility of the Custodian with respect to redemptions effected by check shall be in accordance with a separate Agreement entered into between the Custodian and the Trust. If the Trust requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Trust being liable for the payment of money or incurring liability of some other form, the Trust, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. If the Trust requires the Custodian to advance on behalf of the account of the Fund cash or securities for any purpose or in the event that the Custodian or its nominee shall incur on behalf of, or be assessed with respect to, the account of the Fund any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Contract, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the Fund shall be security therefor and should the Trust fail to repay the Custodian promptly after receipt of notice of such amount owing, the Custodian shall be entitled to utilize available cash of such Fund and to dispose of the assets held for such Fund to the extent necessary to obtain reimbursement. 9. Effective Period, Termination and Amendment. This Contract shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; provided, however that the Custodian shall not act under Section 2.12 hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Trustees has approved the initial use of a particular Securities System and the receipt of an annual certificate of the Secretary or an Assistant Secretary that the Board of Trustees has reviewed the use by the Trust of such Securities System, as required in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended; provided further, however, that the Trust shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, or any provision of its Agreement and Declaration of Trust, and further provided, that the Trust may at any time by action of its Board of Trustees (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Contract in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Contract, the Trust shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements. 10. Successor Custodian. If a successor custodian shall be appointed by the Board of Trustees of the Trust, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities and all funds and other assets then held by it hereunder and shall transfer to an account of the successor custodian all of the Trust's securities held in a Securities System. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Board of Trustees of the Trust, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such vote. In the event that no written order designating a successor custodian or certified copy of a vote of the Board of Trustees shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian and all instruments held by the Custodian relative thereto and all other property held by it under this Contract and to transfer to an account of such successor custodian all of the Trust's securities held in any Securities System. Thereafter, such bank or trust company shall be the successor of the Custodian under this Contract. In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Trust to procure the certified copy of vote referred to or of the Board of Trustees to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Contract relating to the duties and obligations of the Custodian shall remain in full force and effect. 11. Interpretive and Additional Provisions. In connection with the operation of this Contract, the Custodian and the Trust may from time to time agree on such provisions interpretive of or in addition to the provisions of this Contract as may in their joint opinion be consistent with the general tenor of this Contract. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provisions of the Agreement and Declaration of Trust of the Trust. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Contract. 12. Massachusetts Law to Apply. This Contract shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. 13. Prior Contracts. This Contract supersedes and terminates, as of the date hereof, all prior contracts between the Trust and the Custodian relating to the custody of the Trust's assets. 14. Notices. Notices and other writings delivered or mailed by registered mail postage prepaid to the Trust, Attention: Secretary, Twelfth Floor, 300 West Adams, Chicago, Illinois 60606, or to the Custodian, Attention: Custody and Shareholder Services--Stein Roe & Farnham Incorporated, 225 Franklin Street, Boston, Massachusetts 02101, or to such other address as the Trust or State Street may hereafter specify, shall be deemed to have been properly delivered or given hereunder to the respective addresses. 15. Successors. This Agreement shall be binding on and shall inure to the benefit of the Trust and the Custodian and their respective successors. 16. Non-Liability of Trustees and Shareholders. Any obligation of the Trust hereunder shall be binding only upon the assets of the Trust (or the applicable Fund), as provided in the Agreement and Declaration of Trust of the Trust, and shall not be binding upon any Trustee, officer, employee, agent or shareholder of the Trust nor upon the assets held in the account of any other Fund. Neither the authorization of any action by the Trustees or the shareholders of a Fund, nor the execution of this Contract on behalf of the Trust shall impose any liability upon any Trustee or any shareholder. Nothing in this Contract shall protect any Trustee against any liability to which such Trustee would otherwise be subject by willful misfeasance, bad faith or gross negligence in the performance of his duties, or reckless disregard of his obligations and duties under this Contract. 17. Additional Funds. In the event that the Trust establishes one or more series of Shares in addition to the series referenced herein with respect to which it desires to have Custodian render services as Custodian under the terms hereof, it shall so notify Custodian in writing, and if Custodian agrees in writing to provide such services, such series of Shares shall become a Fund hereunder. IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the 31st day of December, 1987. STEINROE TAX-EXEMPT INCOME TRUST BY: LAWRENCE R. MAFFIA Attest: Senior Vice-President NICOLETTE D. PARRISH Assistant Secretary STATE STREET BANK AND TRUST COMPANY BY: E.D. HAWKINS, JR. Attest: Vice President J. FARRELL Assistant Secretary STATE STREET BANK AND TRUST COMPANY ORIGINATING BANK AGREEMENT FOR AUTOMATED CLEARING HOUSE SERVICES In consideration of their mutual promises contained herein, SteinRoe Tax-Exempt Income Trust ("Company") and State Street Bank and Trust Company ("SSB") agree as follows: 1. TERMS. Terms used herein which are defined in the Operating Rules of the New England Automated Clearing House Association ("the Association") shall have the same meaning herein as they have under those Operating Rules. 2. PURPOSE. For the purpose of effecting payment through the Association, the Company may from time to time initiate electronic credit and debit entries to and from deposit accounts maintained by its Receiver at a Receiving Depositor Financial Institution ("Receiving Bank"). Under such a plan, SSB will act as an Originating Depository Financial Institution ("Originating Bank") for the electronic debit and credit entries originated by the Company in accordance with the Operating Rules of the Association. 3. RULES. The company shall comply with and be bound by the Operating Rules of the Association and the Operating Rules of the National Automated Clearing House Association as in effect from time to time. The Company represents and warrants to SSB that it is an Organization and its Receivers are Organizations as defined in the Operating Rules of the Association. 4. COMPANY ACCOUNT. The Company shall establish or designate in writing to SSB the Company Account or Accounts (collectively referred to as the Company Account) at SSB for the purpose of this Agreement. The Company shall notify SSB in writing of any change in the designation of the Company Account. Any electronic debit or credit entry to the Company Account shall be made on the banking day at SSB on which the entry to or from the account is made at the Receiving Bank. SSB may debit the Company Account for any amount payable by the Company to SSB. 5. AUTHORIZATION BY RECEIVRS. Each of the Company's Receivers participating in this plan will authorize the Company to initiate electronic debit entries payable at the Receiving Bank where its checking account is maintained and will authorize such Bank as the case may be to honor and pay such debit entries. Each of the Company's Receivers participating in this plan will also authorize the Company to initiate electronic credit entries for sums due and payable to it for deposit at the Receiving Bank where its deposit account is maintained and will authorize such Bank as the case may be to accept such credit entries. 6. PREPARATION OF ENTRIES. SSB shall prepare Prenotifications and Entries (referred to herein collectively as "entries") on the basis of data provided by the Company. Such data (referred to herein as "entry data") shall be in the form, have the content, and be transmitted to SSB as set forth by SSB standards. SSB shall have no obligation to act on entry data received which does not comply with SSB standards and SSB shall have no obligation to reverse, adjust, or stop payment or posting of any such entry data received or any entry prepared therefrom; provided, however, if requested by Company, SSB shall not unreasonably refuse to reverse, adjust, or stop payment or posting of any such entry data received on any entry prepared therefrom. 7. COMPANY AUTHORIZATIONS. (a) The Company shall provide, on forms supplied by SSB, certification of signatures of one or more persons authorized by the Company (an "Authorized Person") to deliver entry data via electronic tape or disk to SSB on behalf of the Company under this Agreement. The signature of each Authorized Person shall be certified by the Secretary of the Company. All such tape or disk entry data shall be accompanied by a transmittal letter executed by an Authorized Person. SSB shall be entitled to act (or refrain from acting, if appropriate) under this Agreement on any signature reasonably believed by SSB to be that of an Authorized Person. Any writing bearing such a signature shall be deemed to have been executed by an Authorized Person on behalf of the Company. (b) For transmittal of entry data via telephone or terminal authorization, SSB will provide passwords to the Company. It is the responsibility of the Company to control password usage and to guard against unauthorized use of the password. SSB may act upon all entry data successfully transmitted via usage of the Company's password and SSB shall have no obligation, responsibility, or liability for entry data transmitted via unauthorized use of the Company's password. 8. TRANSMITTAL OF ENTRIES AND SETTLEMENT. Except in the case of entries initiated to accounts maintained with SSB (referred to herein as "on us entries"), SSB shall transmit entries which comply with the requirements provided for herein to the Association and settle for such entries in accordance with the Association's Rules. Where entry data is received by SSB prior to a deadline set by SSB, SSB shall transmit the entries prepared from such entry data (other than on us entries) to the Association prior to the applicable Association deadline. In the event SSB receives entry data after 5:00 p.m., Chicago time, SSB shall have no obligation to transmit the entries derived therefrom to the Association prior to the Association deadline. Any SSB deadline may be changed by SSB from time to time on 30 days' prior written notice to the Company. 9. DEBIT ENTRIES (a) SSB shall credit the Company Account with the amount of each debit entry transmitted by SSB to the Association. Thereafter, the Company shall be entitled to withdraw the amount of such credit. In the event such a debit entry is returned by a Receiving Bank in accordance with the Operating Rules after SSB has provided such credit, the Company shall, upon demand, repay SSB the amount of such entry. (b) Upon receipt of debit entries at a Receiving Bank, the payment amounts will be debited to the Receiver's account, provided, however, that should such Bank be unable or unwilling to make such charge, it may return the debit entry in accordance with the Operating Rules of the Association or SSB Operating Procedures, whichever is applicable. 10. CREDIT ENTRIES. (a) SSB shall debit the Company Account with the amount of each credit entry transmitted by SSB to the Association. The Company shall maintain in the Company Account sufficient immediately-available funds to pay each credit entry sent to the Association. (b) In the event that there are not sufficient collected funds to perform the debit, SSB has no obligation to perform the requested transfer. (c) SSB shall promptly recredit the Company Account with the amount of each credit entry (which was a debit to the Company Account) which is rejected by SSB, and each other credit entry which is returned by the Receiving Bank, provided that SSB has obtained payment for the returned entry from such Receiving Bank. (d) Upon receipt of credit entries at a Receiving Bank, the payment amounts will be credited to the Receiver's account, provided, however, that should such Bank be unable or unwilling to make such credit, it may return the credit entry in accordance with the Operating Rules of the Association or SSB Operating Procedures, whichever is applicable. Upon receipt by SSB of the returned credit entry, the Company account shall be credited with the amount of the entry. 11. ON US ENTRIES. In the case of on us entries, SSB shall credit or debit the amount of each such entry to the appropriate Receiver's account maintained with SSB. 12. REVERSING ENTRIES. SSB shall initiate reversing entries, at the Company's request, in accordance with the Operating Rules of the Association; however, SSB does not guarantee that such reversing entries will be accepted by the Receiving Bank. If a Receiving Bank does not or cannot accept the reversing entry, SSB shall have no further obligations to the Company with respect to such reversing entries, except to notify the Company by telephone followed by written confirmation. 13. ACCURACY OF ENTRIES. SSB shall not have any responsibility for the accuracy of any entry furnished by the Company nor shall SSB be under any duty to furnish advices of entries, or any other statements to the Receivers concerned, except as otherwise provided by applicable law or rules. By the act of transmitting entries to SSB, the Company shall warrant to SSB that the Company has full right to use and deal with the funds represented by those entries. SSB may act upon an entry provided by the Company regardless of the medium by which the entry is transmitted to SSB, including the Company's entries that will be communicated by the Company to SSB as a result of telephone authorization. SSB may rely upon the authenticity and accuracy of communications made to SSB on behalf of the Company. SSB shall not be responsible nor liable for acting upon, in good faith, any communication for debit or credit or other entries believed by it to be genuine, but that were not authorized by the Company; provided that SSB has acted in accordance with its own procedures and all applicable rules. 14. BANK LIABILITY. Notwithstanding any provision to the contrary contained herein, SSB shall only be liable to the Company under this Agreement for its failure to exercise ordinary care in performing the services provided for herein. SSB shall have no liability or responsibility to the Company with regard to any other matter, including without limitation, any act or omission by the Association, any other financial institution, the Federal Reserve Bank of Boston, or any other person or entity. SSB shall have no liability to the Company for any damages or losses due to strikes, breakdowns or other nonfunctioning of equipment, impossibility of performance, or other causes or circumstances beyond SSB's control. In the event that SSB or its employees shall become liable to the Company for failure to exercise ordinary care, such liability will be limited to actual damages proved, or the amount of the entry reduced by the amount which could not have been realized by the exercise of ordinary care, whichever is less. SSB shall have no liability to the Company for any consequential or special damages. 15. COMPANY LIABLITY. The Company shall be deemed to make the same warranties to SSB with respect to both on us entries and other entries subject to this Agreement as SSB is deemed to make under the Rules, and SSB shall have no responsibility with respect to the matters so warranted by Company. In the case of on us entries, such warranties shall apply as of the time such entries are processed by SSB. The Company shall indemnify and hold SSB harmless from and against any and all claims, demands, loss, liability, or expenses (including attorneys' fees and costs) resulting directly or indirectly from (a) a breach of any such warranty, (b) the debiting or crediting of the amount of an entry to the account of any person, as requested by the Company, (c) the delay of any financial institution other than SSB in debiting or crediting, or the failure of such institution to debit or credit the amount of any entry, as requested by the Company, (d) delay of the Company in initiating or the failure of the Company to initiate any entry, (e) claims by the Company's receivers with respect to acts or omissions or claimed acts or omissions of the Company, (f) claims by any Receiving Bank with respect to acts or omissions or claimed acts or omissions of the Company, (g) claims by the Association with respect to acts or omissions or claimed acts or omissions of the Company, and (h) acts of, or claims by, any person or entity which receives entry data from the Company and transmits such data to SSB. 16. COOPERATION. The Company and SSB agree to cooperate promptly and fully in the investigation of any claim asserted by any person arising out of this Agreement or the transactions contemplated thereby. 17. SERVICE FEE. The Company shall pay SSB a service fee which may be changed from time to time by SSB upon 30 days' prior written notice to the Company. Such service fee shall be paid in cash or by any other means agreed upon by the Company and SSB from time to time. 18. HEADINGS. Headings are used for reference only and shall not be deemed a part of this Agreement. 19. TERMINATION. This Agreement may be terminated either by SSB or the Company upon 30 days' prior notice in writing. Notwithstanding such termination, this Agreement shall remain in full force and effect as to all transactions taking place prior to the termination date. 20. APPLICABLE LAW. This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts. In the event of any conflict between provisions of this Agreement and any applicable law or regulation, these provisions shall be deemed modified to the extent, and only to the extent, required to comply with such law or regulation. 21. ENTIRE AGREEMENT. This Agreement supplements the Custodian Contract dated December 31, 1987 and its amendments, and together they embody the entire agreement of the parties with regard to the subject matter hereof and supersedes all previous negotiations, representations, and agreements with respect thereof. This Agreement shall be binding upon the parties hereto and their respective successors and assignees. This Agreement may be amended only in writing signed by both parties. 22. NON-LIABILITY OF COMPANY AND ITS SHAREHOLDERS. Any obligation of the Company hereunder shall be binding only upon the assets of the Company (or the applicable series there) and shall not be binding upon any trustee, officer, employee, agent, or shareholder of the Company. Neither the authorization of any action by the trustees or shareholders of Company nor the execution of this Agreement on behalf of Company shall impose any liability upon any trustee or shareholder. The Company has executed two counterpart originals of this Agreement. The Company requests that SSB assent to each one, insert an effective date on each one, and return one to the Company. This Agreement is effective as of the 4th day of May, 1989. STEINROE TAX-EXEMPT INCOME TRUST By: JAMES D. WINSHIP Date: May 4, 1989 Title: Chief Executive Officer STATE STREET BANK AND TRUST COMPANY By: PATRICIA T. MAHONEY Date: May 30, 1989 Title: Vice President AMENDMENT TO CUSTODIAN CONTRACT Amendment to the Custodian Contract between SteinRoe Tax-Exempt Income Trust, a business trust organized and existing under the laws of Massachusetts, having a principal place of business at 300 W. Adams, Chicago, Illinois 60606 (hereinafter called the "Fund"), and State Street Bank and Trust Company, a Massachusetts trust company, having its principal place of business at 225 Franklin Street, Boston Massachusetts 02110 (hereafter called the "Custodian"). WHEREAS: The Fund and the Custodian are parties to a Custodian Contract dated December 31, 1987 (the "Custodian Contract"); WHEREAS: The Fund desires that the Custodian issue a letter of credit (the "Letter of Credit") on behalf of the Fund for the benefit of ICI Mutual Insurance Company (the "Company") in accordance with the Continuing Letter of Credit and Security Agreement and that the Fund's obligations to the Custodian with respect to the Letter of Credit shall be fully collateralized at all times while the Letter of Credit is outstanding by, among other things, segregated assets of the Fund equal to 125% of the face amount to the amount of the Letter of Credit; WEREAS: the Custodian Contract provides for the establishment of segregated accounts for proper Fund purposes upon Proper Instructions (as defined in the Custodian Contract); and WHEREAS: The Fund and the Custodian desire to establish a segregated account to hold the collateral for the Fund's obligations to the Custodian with respect to the Letter of Credit and to amend the Custodian Contract to provide for the establishment and maintenance thereof; WITNESSETH: That in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto hereby amend the Custodian Contract as follows: 1. Capitalized terms used herein without definition shall have the meanings ascribed to them in the Custodian Contract. 2. The Fund hereby instructs the Custodian to establish and maintain a segregated account (the "Letter of Credit Custody Account") for and in behalf of the Fund as contemplated by Section 2.13(iv) for the purpose of collateralizing the Fund's obligations under this Amendment to the Custodian Contract. 3. The Fund shall deposit with the Custodian and the Custodian shall hold in the Letter of Credit Custody Account cash, U.S. government securities and other high-grade debt securities owned by the Fund acceptable to the Custodian (collectively "Collateral Securities") equal to 125% of the face amount to the amount which the Company may draw under the Letter of Credit. Upon receipt of such Collateral Securities in the Letter of Credit Custody Account, the Custodian shall issue the Letter of Credit to the Company. 4. The Fund hereby grants to the Custodian a security interest in the Collateral Securities from time to time in the Letter of Credit Custody Account (the "Collateral") to secure the performance of the Fund's obligations to the Custodian with respect to the Letter of Credit, including, without limitation, under Section 5-114(3) of the Uniform Commercial Code. The Fund shall register the pledge of Collateral and execute and deliver to the Custodian such powers and instruments of assignment as may be requested by the Custodian to evidence and perfect the limited interest in the Collateral granted hereby. 5. The Collateral Securities in the Letter of Credit Custody Account may be substituted or exchanged (including substitutions or exchanges which increase or decrease the aggregate value of the Collateral) only pursuant to Proper Instructions from the Fund after the Fund notifies the Custodian of the contemplated substitution or exchange and the Custodian agrees that such substitution or exchange is acceptable to the Custodian. 6. Upon any payment made pursuant to the Letter of Credit by the Custodian to the Company, the Custodian may withdraw from the Letter of Credit Custody Account Collateral Securities in an amount equal in value to the amount actually so paid. The Custodian shall have with respect to the Collateral so withdrawn all of the rights of a secured credit under the Uniform Commercial Code as adopted in the Commonwealth of Massachusetts at the time of such withdrawal and all other rights granted or permitted to it under law. 7. The Custodian will transfer upon receipt all income earned on the Collateral to the Fund custody account unless the Custodian receives Proper Instructions from the Fund to the contrary. 8. Upon the drawing by the Company of all amounts which may become payable to it under the Letter of Credit and the withdrawal of all Collateral Securities with respect thereto by the Custodian pursuant to Section 6 hereof, or upon the termination of the Letter of Credit by the Fund with the written consent of the Company, the Custodian shall transfer any Collateral Securities then remaining in the Letter of Credit Custody Account to another fund custody account. 9. Collateral held in the Letter of Credit Custody Account shall be released only in accordance with the provisions of this Amendment to Custodian Contract. The Collateral shall at all times until withdrawn pursuant to Section 6 hereof remain the property of the Fund, subject only to the extent of the interest granted herein to the Custodian. 10. Notwithstanding any other termination of the Custodian Contract, the Custodian Contract shall remain in full force and effect with respect to the Letter of Credit Custody Account until transfer of all Collateral Securities pursuant to Section 8 hereof. 11. The Custodian shall be entitled to reasonable compensation for its issuance of the Letter of Credit and for its services in connection with the Letter of Credit Custody Account as agreed upon from time to time between the Fund and the Custodian. 12. The Custodian Contract as amended hereby, shall be governed by, and construed and interpreted under, the laws of the Commonwealth of Massachusetts. 13. The parties agree to execute and deliver all such further documents and instruments and to take such further action as may be required to carry out the purposes of the Custodian Contract, as amended hereby. 14. Except as provided in this Amendment to the Custody Contract, the Custodian Contract shall remain in full force and effect, without amendment or modification, and all applicable provisions of the Custodian Contract, as amended hereby, including, without limitation, Section 8 thereof, shall govern the Letter of Credit Custody Account and the rights and obligations of the Fund and the Custodian under this Amendment to Custodian Contract. No provision of this Amendment to Custodian Contract shall be deemed to constitute a waiver of any rights of the Custodian under the Custodian Contract or under law. IN WITNESS WHEREOF, each of the parties has caused this amendment to the Custodian Contract to be executed in its name and behalf by its duly authorized representatives and its seal to be hereunder affixed as of the 31st day of January, 1990. STEINROE TAX-EXEMPT INCOME TRUST BY: LAWRENCE R. MAFFIA Attest: Senior Vice-President By: JILAINE HUMMEL BAUER Secretary STATE STREET BANK AND TRUST COMPANY BY: E.D. HAWKINS, JR. Attest: Vice President By: J. FARRELL Assistant Secretary [STATE STEET LOGO] Stein Roe & Farnham Funds STEINROE INCOME TRUST SteinRoe Cash Reserves SteinRoe Government Reserves SteinRoe Government Income Fund SteinRoe Intermediate Bond Fund SteinRoe Income Fund SteinRoe Limited Maturity Income Fund STEINROE INVESTMENT TRUST SteinRoe Prime Equities SteinRoe Total Return Fund SteinRoe Stock Fund SteinRoe Special Fund SteinRoe Capital Opportunities Fund SteinRoe International Fund SteinRoe Young Investors Fund STEINROE MUNICIPAL TRUST SteinRoe Municipal Money Market Fund SteinRoe Intermediate Municipals SteinRoe Managed Municipals SteinRoe High-Yield Municipals A Custody only service has been established between Stein Roe & Farnham on behalf of the SteinRoe Funds and State Street Bank. This fee schedule will become effective upon the change from a Full Service to a Custody only relationship for each individual fund. The effective dates for each fund are as follows: March 8, 1994 SteinRoe International Fund (7123) New Fund April 1, 1994 SteinRoe Stock Fund (7103) SteinRoe Capital Opportunities Fund (7104) SteinRoe Total Return Fund(7105) SteinRoe Special Fund (7106) SteinRoe Prime Equities (7111) May 1, 1994 SteinRoe Cash Reserves (7102) SteinRoe Government Reserves (7109) SteinRoe Young Investors Fund (7124) New Fund June 1, 1994 SteinRoe Income Fund (7118) SteinRoe Limited Maturity Income Fund (7122) July 1, 1994 SteinRoe Government Income Fund (7116) The remaining five SteinRoe funds will continue to be billed under the old fee schedule until their conversion to custody only service. *Notes* Outgoing wires will continue to be billed at $3.50. This will remain in effect until November, 1994. Payments for custody services are due 15 days after receipt of the invoices and will be charged against the fund's custodian checking account. In the event SRF has a question on an invoice, payment is due 5 days after inquiries are responded to. Stein Roe & Farnham State Street Bank and Trust GARY A. ANETSBERGER KEVIN J. MORRISSEY Senior Vice President Vice President 8/15/94 8/4/94 [STATE STREET LOGO] STATE STREET BANK AND TRUST COMPANY CUSTODIAN FEE SCHEDULE STEINROE INCOME TRUST STEINROE INVESTMENT TRUST STEINROE MUNICIPAL TRUST STEINROE VARIABLE INVESTMENT TRUST I. ADMINISTRATION Domestic Custody Service: Maintain custody of fund assets. Settle portfolio purchases and sales. Report buy and sell fails. Determine and collect portfolio income. Make cash disbursements and report cash transactions. Monitor corporate actions. Report portfolio positions. ANNUAL FEES Based on the Total Domestic Assets of LFC Utilities Trust, the SteinRoe No-Load Funds and the SteinRoe Variable Investment Trust Funds for which State Street Bank and Trust is custodian. Fees to be pro-rated per portfolio. First $5 Billion .75 Basis points Next $5 Billion .65 Basis points Excess .55 Basis points Monthly Minimum for New Funds introduced after July 1, 1994 $750.00 per month II. GLOBAL CUSTODY Maintain custody of fund assets. Settle portfolio purchases and sales. Report buy and sell fails. Determine and collect portfolio income Make cash disbursements and report cash transactions in local and base currency. Withhold foreign taxes. File foreign tax reclaims. Monitor corporate actions. Report portfolio positions. Group A Group B Group C Group D Group E - ------- ------- ------- ------- ------- Austria Australia Denmark Indonesia Argentina Belgium Hong Kong Finland Philippines Bangladesh Canada Netherlands France Portugal Brazil Euroclear New Zealand Ireland Korea Chile Germany Singapore Italy Spain China Japan South Africa Luxembourg Sri-Lanka Columbia Switzerland Malaysia Sweden Cypress Mexico Taiwan Greece Norway Hungary Thailand India U.K. Israel Pakistan Peru Turkey Uruguary Venezuela A. Asset Charge: (basis points) - based on market value in each country Group A Group B Group C Group D Group E ------- ------- ------- ------- ------- First $50 Million 5 8 12 25 40 Next $ 50 Million 4.5 6 10 22 30 Over $100 Million 4 5 8 18 25 B. Global Transaction Charges: (in dollars) $25.00 $40.00 $55.00 $70.00 $150.00 III. PORTFOLIO TRANSACTIONS State Street Bank Repos No charge DTC or Fed Book Entry $9.00 New York Physical Settlements $25.00 Physical Maturities - delivery and collection fees $33.00 PTC Purchase, Sale, Deposit or Withdrawal $9.00 All Other Trades $16.00 IV. OPTIONS Option charge for each option written or closing contract, per issue, per broker $25.00 Option expiration for each option written or closing contract, per issues, per broker $15.00 Option exercised charge for each option written, per issue, per broker $15.00 V. LENDING OF SECURITIES Deliver loaned securities versus cash collateral $20.00 Deliver loaned securities versus securities collateral $30.00 Receive/deliver additional cash collateral $ 6.00 Substitutions of securities collateral $30.00 Deliver cash collateral versus receipt of loaned securities $15.00 Deliver securities collateral versus receipt of loaned securities $25.00 Loan administration - mark-to-market per day, per loan $ 3.00 VI. FUTURES AND NON-EQUITY OPTIONS Collateral Segregation $ 6.00 VII. COUPON BONDS Monitoring for calls and processing coupons for each coupon issue held--monthly charge $ 5.00 VIII. PRINCIPAL REDUCTION PAYMENTS Per pay down $ 7.00 IX. DIVIDEND CHARGES For items held at the Request of Traders over record date in Street Form $50.00 X. FDIC INSURANCE 22 basis points on average gross balances. XI. BALANCE CREDIT A balance credit will be applied against the fees outlines in sections I through X above equal to 75% of the 90 Treasury Bill Rate in effect on the last Monday of the month, adjusted to a monthly basis, times the average daily domestic cash balance available to the fund for investment. XII. SPECIAL SERVICES Fees for activities of a non-recurring nature such as fund consolidations or reorganizations, extraordinary security shipments and the preparation of special reports will be subject to negotiation. Fees for automated pricing, yield calculation and other special items will be negotiated separately. XIII. OUT-OF-POCKET EXPENSES A billing for the recovery of applicable out-of-pocket expenses will be made as of the end of each month. Out-of-pocket expenses include, but are not limited to the following: - Telephone - Wire Charges ($5.25 in and $5 out) - Postage and Insurance - Courier Service - Duplicating - Legal Fees - Supplies Related to Fund Records - Rush Transfer ($8 each) - Sub-custodian Charges - Price Waterhouse Audit Letter - Federal Reserve Fee for Return Check items over $2,500 ($4.25 each) - Securities Transfer - $15.00 Each XIV. PAYMENT The above fees will be charged against the fund's custodian checking account fifteen (15) days after the invoice is mailed to the fund's offices. STEINROE INCOME TRUST STATE STREET BANK AND TRUST COMPANY STEINROE INVESTMENT TRUST STEINROE MUNICIPAL TRUST STEINROE VARIABLE INVESTMENT TRUST By: GARY A. ANETSBERGER BY: KEVIN J. MORRISSEY Title: Senior Vice-President Title: Vice President Date: 5/8/95 Date: May 4, 1995 EX-99 9 EX-99.B9A-TRANSFER 1 Exhibit 9(a) AGENCY AGREEMENT This Agency Agreement is made this 31st day of December, 1987 by and between STEINROE TAX-EXEMPT INCOME TRUST, a Massachusetts trust (hereinafter called the "Fund") and STEINROE SERVICES INC., a Delaware corporation (hereinafter called "SteinRoe Services"). WITNESSETH: 1. Appointment. The Fund hereby appoints SteinRoe Services, effective as of the date hereof, as its agent in connection with the issue, redemption, and transfer of shares of beneficial interest of the Fund, including shares of each respective series of the Fund (hereinafter called the "Shares"), and to process investment income and capital gain distributions with respect to such Shares, to perform certain duties in connection with the Fund's withdrawal and other plans, to mail proxy and other materials to the Fund's shareholders upon the terms and conditions set forth herein, and to perform such other and further duties as are agreed upon between the parties from time to time. 2. Acknowledgment. SteinRoe Services acknowledges that it has received from the Fund the following documents: A. A certified copy of the Agreement and Declaration of Trust of Fund and any amendments thereto; B. A certified copy of the By-Laws of Fund; C. A certified copy of the resolution of the Board of Trustees of Fund authorizing this Agreement; D. Specimens of all forms of Share certificates as approved by the Board of Trustees of Fund with a statement of the Secretary of Fund certifying such approval; E. Samples of all account application forms and other documents relating to shareholders accounts, including terms of Fund's Systematic Withdrawal Plan; F. Certified copies of any resolutions of the Board of Trustees authorizing the issue of authorized but unissued Shares; G. An opinion of counsel for Fund with respect to the validity of the Shares, the status of repurchased Shares and the number of Shares with respect to which a Registration Statement has been filed and is in effect; H. A certificate of incumbency bearing the signatures of the officers of Fund who are authorized to sign Share certificates, to sign checks and to sign written instructions to SteinRoe Services. 2 3. Additional Documentation. The Fund will also furnish SteinRoe Services from time to time with the following documents: A. Certified copies of each amendment to the Agreement and Declaration of Trust and By-Laws of Fund; B. Each Registration Statement filed with the Securities and Exchange Commission and amendments thereto with respect to Shares of Fund; C. Certified copies of each resolution of the Board of Trustees authorizing officers to give instructions to SteinRoe Services; D. Specimens of all new Share certificates accompanied by certified copies of Board of Trustees resolutions approving such forms; E. Forms and terms with respect to new plans that may be instituted and such other certificates, documents or opinions that SteinRoe Services may from time to time, in its discretion, deem necessary or appropriate in the proper performance of its duties. 4. Authorized Shares. The Fund certifies to SteinRoe Services that, as of the date of this Agreement, it may issue unlimited number of Shares of the same class in one or more series as the Board of Trustees may authorize with the following series having been so authorized as of the date of this Agreement: SteinRoe Intermediate Municipals, SteinRoe High-Yield Municipals, SteinRoe Tax-Exempt Money Fund, and SteinRoe Managed Municipals. 5. Registration of Shares. SteinRoe Services shall record issuances of Shares based on the information provided by the Fund. SteinRoe Services shall have no obligation to the Fund, when countersigning and issuing Shares, whether evidenced by certificates or in uncertificated form, to take cognizance of any law relating to the issuance and sale of Shares, except as specifically agreed in writing between SteinRoe Services and the Fund, and shall have no such obligation to any shareholder except as specifically provided in Sections 8-205, 8-208 and 8-406 of the Uniform Commercial Code. Based on data provided by the Fund of Shares registered or qualified for sale in various states, SteinRoe Services will advise the Funds when any sale of Shares to a resident of a state would result in total sales in that state in excess of the amount registered or qualified in that state. 6. Share Certificates. The Fund shall supply SteinRoe Services with a sufficient supply of serially pre-numbered blank Share certificates, which shall contain the appropriate series designation, if applicable. Such blank certificates shall be properly prepared and signed by authorized officers of Fund manually or, if authorized by Fund, by facsimile and shall bear the seal of Fund or a facsimile thereof. Notwithstanding the death, resignation, or removal of any officer of Fund authorized to sign certificates, SteinRoe Services may continue to countersign certificates which bear the manual or facsimile signature of such officer as directed by Fund. 7. Checks. The Fund shall supply SteinRoe Services with a sufficient supply of serially pre-numbered blank checks for the dividend bank accounts and for the principal bank accounts of Fund. SteinRoe Services shall prepare and sign by facsimile signature plates, bearing the facsimiles of the 3 signatures of authorized signatories of the Fund, dividend account checks for payment of ordinary income dividends and capital gain distributions and principal account checks for payment of redemptions of Shares, including those in connection with the Fund's Withdrawal Plan, refunds on subscriptions and other capital payments on Shares, in accordance with this Agreement. SteinRoe Services shall hold signature facsimile plates for this purpose and shall exercise reasonable care in their transportation, storage or use. SteinRoe Services may deliver such signature facsimile plates to an agent or contractor to perform the services described herein, but shall not be relieved of its duties hereunder by any such delivery. 8. Recordkeeping. SteinRoe Services shall maintain records showing for each shareholder's account in the appropriate series of the Fund, the following information and such other information as may be mutually agreed to from time to time by the Fund and SteinRoe Services: A. To the extent such information is provided by shareholders of the Fund: name(s), address, alphabetical sort key, client number, tax identification number, account number, the existence of any special service or transaction privilege offered by the Fund and applicable to the shareholder's account including but not limited to the telephone exchange privilege, and other similar information; B. Number of Shares held; C. Amount of accrued dividends; D. Information for the current calendar year regarding the account of the shareholder, including transactions to date, date of each transaction, price per share, amount and type of each purchase and redemption, transfers, amount of accrued dividends, the amount and date of all distributions paid, price per share, and amount of all distributions reinvested; E. Any stop order currently in effect against the shareholder's account; F. Information with respect to any withholding for the calendar year as required under applicable Federal and state laws, rules and regulations; G. The certificate number and date of issuance of each Share certificate outstanding, if any, representing a shareholder's Shares in each account, the number of Shares so represented, and any stop legend on each certificate; H. Information with respect to gross proceeds of all sales transactions as required under applicable Federal income tax laws, rules and regulations; and I. Such other information as may be agreed upon by the Fund and SteinRoe Services from time to time. 4 9. Purchases. Upon receipt of a request for purchase of Shares containing data required by a Fund for processing of a purchase transaction, SteinRoe Services will: A. Compute the number of Shares of the appropriate series of the Fund to which the purchaser is entitled and the dollar value of the transaction according to the price of such Fund Shares as provided by the Fund for purchases made at that time and date; B. In the case of a new shareholder, establish an account for the shareholder, including the information specified in Section 8 hereof; in the case of an Exchange as described in Section 12 below by telephone or telegraph, the account shall have exactly the same registration as that of the account of the other SteinRoe fund (or other series of the Fund) from which the Exchange was made; C. Transmit to the shareholder by mail or electronically a confirmation of the purchase, as directed by the Fund, in such format as agreed to by SteinRoe Services and the Fund, including all information called for thereby, and, in the case of a purchase for a new account, shall also furnish the shareholder a current Fund prospectus; D. If applicable, prepare a refund check in the amount of any overpayment of the subscription price and deliver it to the Fund for signing; and E. If a certificate is requested by the shareholder, prepare, countersign, issue and mail, not earlier than 30 days after the date of purchase, to the shareholder at his address of record a Share certificate for such full Shares purchased. 10. Redemptions. Instructions to redeem Shares of any series of that Fund, including instructions for an Exchange as described in Section 12 below, may be furnished in written form, or by other means, including but not limited to telephonic or electronic transmission or by writing a special form of check, as may be mutually agreed to from time to time by the Fund and SteinRoe Services. Upon receipt by SteinRoe Services of instructions to redeem which are in "good order," as defined in the Prospectus of the Fund and satisfactory to SteinRoe Services, SteinRoe Services will: A. Compute the amount due for the Shares and the total number of all the Shares redeemed in accordance with the price per Share as provided by the Fund for redemptions of such Shares at that time and date, and transmit to the shareholder by mail or electronically a confirmation of the redemption, as directed by the Fund, in such format as agreed to by SteinRoe Services and the Fund, including all information called for thereby; B. Confirmations of redemptions that result in the payment of accrued dividends shall indicate the amount of such payment and any amounts withheld; 5 C. In the case of a redemption in written form other than by Exchange, SteinRoe Services shall transmit to the shareholder by check or, as may be mutually agreed to by the Fund and SteinRoe Services and requested by the shareholder, electronic means, an amount equal to the redemption price and any payment of accrued dividends occasioned by the redemption, net of any amounts withheld under applicable Federal and state laws, rules and regulations on or before the seventh calendar day following the date on which instructions to redeem in "good order" as defined in the Prospectus of the Fund, which instructions are satisfactory to SteinRoe Services as received by SteinRoe Services. In the case of an Exchange, SteinRoe Services shall use the proceeds of the redemption, net of any amounts withheld under applicable Federal and state laws, rules and regulations, to purchase Shares of the SteinRoe fund (or the applicable series of the Fund) selected by the person requesting the Exchange; D. In the case of Exchanges by telephone or telegraph, redemptions by telephone or electronic transmission and redemptions by writing a special form of check, SteinRoe Services shall deliver to the Fund, on the business day following the effective date of such transaction, a listing of such transaction data in a format agreed to by the Fund and SteinRoe Services from time to time; E. If any Share certificate or instruction to redeem tendered to SteinRoe Services is not satisfactory to SteinRoe Services, it shall promptly notify the Fund of such fact together with the reason therefor; F. SteinRoe Services shall cancel promptly Share certificates received in proper form for redemption and issue, countersign and mail new Share certificates for the Shares represented by certificates so cancelled which are not redeemed; G. SteinRoe Services shall advise the Fund and refuse to process any redemption by electronic transmission or Exchange by telephone or telegraph or redemptions by writing a special form of check, if such transaction would result in the redemption of Shares represented by outstanding certificates, unless otherwise instructed by an officer of the Fund. 11. Administration of Withdrawal Plans. A redemption made pursuant to a Withdrawal Plan offered by the Fund shall be effected by SteinRoe Services at the net asset value per Share of the appropriate series of the Fund on the fifth business day prior to the first day of the month in which the recipient is scheduled to receive the withdrawal payment. SteinRoe Services shall prepare and mail to the recipient on or before the seventh calendar day after the date of redemption a check in the amount of each required payment, net of any amounts withheld under applicable Federal and state laws, rules and regulations, and also furnish the shareholder a confirmation of the redemption as described in Section 10 above. 12. Exchanges. Upon receipt by SteinRoe Services of a request to exchange Shares of a series of the Fund held in a shareholder's account for 6 those of another series of the Fund or of another SteinRoe Fund or vice versa in written form, by telephone or telegraph or by other electronic means, containing data required by the Fund for processing such a transaction, SteinRoe Services will: A. If the request is by telephone, telegraph or other electronic means, verify that the shareholder has furnished both the SteinRoe Funds from and to which the Exchange is to be made authorization, in a form acceptable to such Funds, to accept Exchange instructions for his account by such means. B. Process a redemption of the Shares of the series of the Fund to be redeemed in connection with the Exchange and apply the proceeds thereof, net of any amounts withheld under applicable Federal and state laws, rules and regulations, to purchase shares of another SteinRoe Fund (or another series of the Fund) being acquired in accordance with the respective Fund's redemption and purchase policies and Sections 9 and 10 of this Agreement. Any redemption and purchase pursuant to an Exchange shall be effected as of the time and prices applicable to an order for redemption or purchase received at the time the request for Exchange is received. 13. Transfer of Shares. Upon receipt by SteinRoe Services of a request for a transfer of Shares of any series of the Fund, and receipt of a Share certificate for transfer or an order for the transfer of Shares in the case of an uncertificated account, in either case with such endorsements, instruments of assignment or evidence of succession as may be required by SteinRoe Services and accompanied by payment of such transfer taxes, if any, as may be applicable, and satisfaction of any other conditions for registration of transfers contained in the Fund's By-Laws, Prospectus, and Statement of Additional Information, SteinRoe Services will verify the balance of Shares of such series of the Fund in the account; record the transfer of ownership of such Shares in its Share certificate and shareholder records for such series; cancel Share certificates for Shares surrendered for transfer; establish an account pursuant to Section 8 for the transferee if a new shareholder; prepare, countersign and mail new Share certificates for a like number of Shares in the case of a certificated account; and transmit to the shareholder by mail or electronically confirmation of the transfer for each account affected, in a format agreed to by SteinRoe Services and the Fund, including all information called for thereby. SteinRoe Services shall be responsible for determining that certificates, orders for transfer, and supporting documents, if any, are in proper legal form for the transfer of Shares. 14. Changes in Shareholder Records. Changes in items of information specified in Section 8 not relating to change in ownership of Shares will be made by SteinRoe Services upon receipt of a request for such change in a format agreed to by SteinRoe Services and the Fund. In the case of any change that SteinRoe Services and the Fund agree requires confirmation, a confirmation of such change in a format agreed to by SteinRoe Services and the Fund shall be transmitted to the shareholder by mail or electronically. 7 15. Refusal to Redeem or Transfer. SteinRoe Services reserves the right to refuse to redeem or transfer Shares until reasonably satisfied that the endorsement on the Share certificates or written request presented is valid and genuine, and for such purpose may require where reasonably necessary or appropriate a guarantee of signature. SteinRoe Services also reserves the right to refuse to redeem or transfer Shares until satisfied that the requested transfer or redemption is legally authorized, and it shall incur no liability for the refusal in good faith to make transfers or redemptions which it, in its judgment, deems improper or unauthorized. Notwithstanding the foregoing, SteinRoe Services shall redeem or transfer Shares even though not satisfied as to the endorsement or legal authority if it is first indemnified to its reasonable satisfaction against all expenses and liabilities to which it might, in its judgment, be subjected by such action. 16. Dividends and Capital Gain Distributions. The Fund will promptly inform SteinRoe Services of the declaration of any dividend or other distribution with respect to Shares of any series of the Fund, including the amount of distribution, the amount of withholding under applicable Federal and state laws, rules and regulations, if any, dividend number, if any, record date, ex-dividend date, payable date and price at which dividends or other distributions are to be reinvested. In the case of any series of the Fund for which dividends shall be declared daily and paid monthly or quarterly, SteinRoe Services will credit the dividend payable to each shareholder thereof to a dividend account of the shareholder and will provide Fund on each business day with reports of the total amount of dividends credited and such other data as are agreed upon by the Fund and SteinRoe Services. Promptly after the payable date for the Fund, SteinRoe Services will provide the Fund with reports showing the accounts which have been paid a dividend or other distribution, the amount received by each account, the amount withheld as required under applicable Federal and state laws, rules and regulations, if any, the amount of the dividend or distribution paid in cash or reinvested in Shares, and the total amount of cash and Shares required for payment of the dividend or other distribution. In the case of each other series of the Fund, SteinRoe Services will provide Fund promptly following the record date therefore with reports of the total amount of dividends payable with respect thereto and such other data as are agreed to by Fund and SteinRoe Services. Promptly after the payable date therefor, SteinRoe Services will provide the Fund with reports showing the accounts which are to be paid a dividend or other distribution, the amount to be received by each account, the amount to be withheld as required under applicable Federal and state laws, rules and regulations, if any, whether such dividend or distribution is to be paid in cash or reinvested in Shares, and the total amount of cash and Shares required for the payment of such dividend or distribution. At times agreed to by the Fund and SteinRoe Services, SteinRoe Services will transmit by mail or electronically to shareholders the proceeds of such dividend or other distribution and confirmation thereof. Where distributions 8 are reinvested, the price and date of reinvestment will be those supplied by the Fund. Confirmations will be prepared by SteinRoe Services in a format agreed to by SteinRoe Services and the Fund. 17. Withholding. Under applicable Federal and state laws, rules and regulations requiring withholding from dividends and other distributions and payments to shareholders, SteinRoe Services shall be responsible for determining the amount to be withheld and the Fund shall forward that amount to SteinRoe Services, which will deposit said amount with, and report said amount to, the proper governmental agency as required thereunder. Liability for any amounts withheld, whether or not actually withheld, and for any penalties which may be imposed upon the payor for failure to withhold, report, or deposit the proper amount, and for any interest due on said amount, shall be borne by the Fund and SteinRoe Services as provided in Section 35 hereof. Upon receipt of a certificate from a shareholder pertaining to withholding (including exemptions therefrom) containing such information as required by the Fund of the shareholder under applicable Federal and state laws, rules and regulations, SteinRoe Services shall promptly process the certificate, which shall become effective as soon as reasonably possible after receipt by SteinRoe Services, but no later than may be required by applicable Federal and state laws, rules and regulations. At the time a shareholder account is established with the Fund, the Fund shall be responsible for (i) soliciting the shareholder's tax identification number in the manner and form required under applicable Federal and state laws, rules and regulations; (ii) identifying and rejecting an obviously incorrect number (as defined under applicable Federal and state laws, rules and regulations) and (iii) furnishing to SteinRoe Services the number and any related information provided by or on behalf of the shareholder. SteinRoe Services shall be responsible for any subsequent communications to the shareholder that may be required in this regard. In the case of withholding an amount in excess of the proper amount from a payment made by or on behalf of the Fund to a shareholder except as otherwise provided by applicable Federal and state laws, rules and regulations, SteinRoe Services, at the direction of the Fund, shall immediately adjust the shareholder's account, as well as succeeding deposits; provided, however, that when an adjustment would result in an adjustment across calendar years, SteinRoe Services shall not be required to make such adjustment. In the case of (i) a failure to withhold the proper amount from a dividend or other distribution or payment made by or on behalf of any series of the Fund to a shareholder or (ii) any penalties attributable to (a) a failure to withhold the proper amount or (b) the shareholder's failure to provide the Fund or SteinRoe Services with correct information requested in order to comply with withholding requirements under applicable Federal and state laws, rules and regulations, SteinRoe Services, at the direction of the Fund, shall immediately cause the redemption of Shares from the shareholder's account with such series having a value not exceeding the sum of such deficit amount and applicable penalties and apply the proceeds to reimburse whomever has borne the expense resulting from the shareholder's failure. If the value of the Shares in the shareholder's account with the 9 series is less than the sum of the deficit amount and applicable penalties, SteinRoe Services may cause the redemption of Shares having a value not exceeding such difference from any account, including a joint account, of the shareholder with any other series of the Fund or any other SteinRoe Fund, subject to the consent of the other SteinRoe Fund, and apply the proceeds to reimburse whoever has borne the expense resulting from the shareholder's failure. 18. Mailings. SteinRoe Services shall take all steps required, including the addressing of envelopes, to make the following additional mailings to shareholders: A. SteinRoe Services shall mail financial reports furnished by each series of the Fund to shareholders as requested and will mail the current prospectus for each series of the Fund to shareholders of such series once each year; B. SteinRoe Services shall mail to shareholders of each series of the Fund proxy material for each duly scheduled meeting of shareholders of that series; C. SteinRoe Services shall include in any of the above mailings such other enclosures as are compatible for mailing purposes as reasonably requested by the Fund; D. SteinRoe Services shall make such other mailings upon such terms and conditions and for such fees as are agreed to by SteinRoe Services and each Fund from time to time. The Fund shall deliver all material required to be furnished by it to SteinRoe Services for any scheduled mailing sufficiently in advance of the date for such mailing, so that SteinRoe Services may effect the scheduled mailing. 19. Tax Information Returns and Reports. SteinRoe Services will prepare and file with the appropriate governmental agencies, such information, returns and reports as are required to be so filed for reporting (i) dividends and other distributions made, (ii) amounts withheld on dividends and other distributions and payments under applicable Federal and state laws, rules and regulations, and (iii) gross proceeds of sales transactions as required and as the Fund shall direct SteinRoe Services. Further, SteinRoe Services shall prepare and deliver to the Fund reports showing amounts withheld from dividends and other distributions and payments made for each series of the Fund. 20. Information to be Furnished to Shareholders. SteinRoe Services will prepare and transmit to each shareholder of the Fund annually in such format as is reasonably requested by the Fund, and as agreed to by SteinRoe Services, information returns and reports for reporting dividends and other distribution and payments, amounts withheld, if any, and gross proceeds of sales transactions as required under applicable Federal and state laws, rules and regulations. 10 21. Stop Orders. Upon receipt of a request from the Fund or a shareholder that a "stop" should be placed on the shareholder's account, SteinRoe Services will maintain a record of such "stop" and notify the Fund if any transaction request is received from a shareholder which would reduce the number of Shares in an account on which a "stop" has been placed. SteinRoe Services will inform the Fund of any information SteinRoe Services receives relating to a "stop." SteinRoe Services shall also maintain for the Fund the record of share certificates on which a "stop" has been placed, it being understood that a certificate "stop" does not mean a "stop" on the shareholder's entire account to which a certificate may relate. 22. Share Splits and Share Dividends. If the Fund elects to declare a Share dividend or split for any series, the services and fees with respect thereto will be negotiated by the Fund and SteinRoe Services. 23. Replacement of Share Certificates. SteinRoe Services may issue a new Share certificate in place of a Share certificate represented as not having been received or as having been lost, stolen, seized or destroyed, upon receiving instructions from the Fund and indemnity satisfactory to SteinRoe Services, and may issue a new Share certificate in exchange for, and upon surrender of, an identifiable mutilated Share certificate. Such instructions from the Fund shall be in such form as has been approved by the Board of Trustees of the Fund and shall be in accordance with the provisions of the By-Laws of the Fund governing such matters. 24. Unclaimed and Undelivered Share Certificates. Where a Share certificate is in the possession of SteinRoe Services for any reason, and has not been claimed by the record holder or cannot be delivered to the record holder, SteinRoe Services shall cancel said certificate and reflect as uncertificated Shares on the shareholder's account record the Shares represented by said cancelled certificate. 25. Reports and Files. SteinRoe Services shall maintain the files and furnish the statistical and other information listed on Schedule B. However, SteinRoe Services reserves the right to delete, change or add to the files maintained and information provided so long as such deletions, additions or changes do not impair the receipt of services described elsewhere in this Agreement. SteinRoe Services shall also use its best efforts to obtain such additional statistical and other information as the Fund may reasonably request within the capabilities of SteinRoe Services, for such additional consideration as may be agreed to by SteinRoe Services and the Fund. 26. Examination of Daily Transactions. The Fund will examine reports reflecting each day's transactions and other data delivered to it for the accuracy of the transactions reflected therein and failure to reflect transactions that should have been reflected therein. If SteinRoe Services has not received from Fund, within five (5) business days after delivery of such reports to Fund, written notice, which may be in the form of an appropriate transaction instruction submitted by Fund for the purpose of correcting the error or omission, as to any errors or omissions which a reasonable inspection and normal audit and control procedure would reveal, then all transactions reflected in such reports shall be deemed to be correct and accepted by the Fund, and SteinRoe Services shall have no further responsibility for 11 the omission from or correction, deletion, or inclusion of any transaction reflected or which should have been reflected therein, or any liability to the Fund or any third person on account of such error or omission. 27. Disposition of Books, Records, and Cancelled Share Certificates. SteinRoe Services will periodically send to the Fund all books, documents, and records of the Fund no longer needed for current purposes and Share certificates which have been cancelled in transfer or in redemption; such books, documents, records, and Share certificates shall be safely stored by the Fund for future reference for such period as is required by the Investment Company Act of 1940, or the rules and regulations issued thereunder, or other relevant statutes. SteinRoe Services shall have no liability for loss or destruction of said books, documents, records, or Share certificates after they are returned to the Fund. 28. Inspection of Share Books. In case of any request or demand for inspection of the books of the Fund reflecting ownership of the Fund's Shares therein ("Share books"), SteinRoe Services will make a reasonable effort to notify the Fund and to secure instructions as to permitting or refusing such inspection. SteinRoe Services reserves the right, however, to exhibit the Share books to any person in case it is advised by its counsel that it may be held liable for the failure to exhibit the Share books to such person. 29. Fees. The Fund shall pay to SteinRoe Services for its services hereunder fees computed as set forth in Schedule A hereto. 30. Out-of-Pocket Expenses. The Fund shall reimburse SteinRoe Services for any and all out-of-pocket expenses and charges in performing services under this Agreement, including but not limited to, mailing service, postage, printing of shareholder statements, the cost of any and all forms of the Fund and other materials used by SteinRoe Services in communicating with shareholders of the Fund, the cost of any equipment or service used for communicating with the Fund's custodian bank or other agent of the Fund, and all costs of telephone communication with or on behalf of shareholders allocated in a manner mutually acceptable to the Fund and SteinRoe Services. 31. Instructions, Opinion of Counsel, and Signatures. At any time SteinRoe Services may apply to a duly authorized agent of the Fund for instructions regarding the Fund, and may consult counsel for the Fund or its own counsel, in respect of any matter arising in connection with this Agreement, and it shall not be liable for any action taken or omitted by it in good faith in accordance with such instructions or with the advice or opinion of such counsel. SteinRoe Services shall be protected in acting upon any such instruction, advice, or opinion and upon any other paper or document delivered by the Fund or such counsel believed by SteinRoe Services to be genuine and to have been signed by the proper person or persons and shall not be held to have notice of any change of authority of any officer or agent of the Fund, until receipt of written notice thereof from the Fund. 32. Fund's Legal Responsibility. The Fund assumes full responsibility for the preparation, contents, and distribution of each Prospectus and Statement of Additional Information of the Fund, and for complying with all 12 applicable requirements of the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and any laws, rules, and regulations of government authorities having jurisdiction over the Fund except that SteinRoe Services shall be responsible for all laws, rules and regulations of government authorities having jurisdiction over transfer agents and their activities. SteinRoe Services assumes full responsibility for complying with due diligence requirements of payors of reportable dividends and of brokers under the Internal Revenue Code with respect to shareholder accounts. 33. Registration of SteinRoe Services as Transfer Agent. SteinRoe Services represents that it is registered with the Securities and Exchange Commission as a transfer agent under Section 17A of the Securities Exchange Act of 1934 and will notify the Fund promptly if such registration is revoked or if any proceeding is commenced before the Securities and Exchange Commission which may lead to such revocation. 34. Confidentiality of Records. SteinRoe Services agrees not to disclose any information received from the Fund to any other customer of SteinRoe Services or to any other person except SteinRoe Services's employees and agents, and shall use its best efforts to maintain such information as confidential. Upon termination of this Agreement, SteinRoe Services shall return to the Fund all records in the possession and control of SteinRoe Services related to the Fund's activities, other than SteinRoe Services's own business records, it being also understood that any programs and systems used by SteinRoe Services to provide the services rendered hereunder will not be given to the Fund. Notwithstanding the foregoing, it is understood and agreed that SteinRoe Services may maintain with the Fund's records information and data to be utilized by SteinRoe Services in providing services to entities serving as trustees and/or custodians of prototype Tax- Qualified Retirement Plans, IRA Plans, plans for employees of public schools or tax-exempt organizations, or other plans which invest in the Fund's Shares. In the event that this Agreement is terminated, SteinRoe Services may transfer and retain from the records maintained for the Fund such information and data relating to participants in such aforementioned plans as may be required for SteinRoe Services to continue providing its services to such trustees and/or custodians. 35. Liability and Indemnification. SteinRoe Services shall not be liable to the Fund for any action taken or thing done by it or its agents or contractors on behalf of the Fund in carrying out the terms and provisions of this Agreement if done in good faith and without negligence or misconduct on the part of SteinRoe Services, its agents or contractors. The Fund shall indemnify and hold SteinRoe Services, and its controlling persons, if any, harmless from any and all claims, actions, suits, losses, costs, damages, and expenses, including reasonable expenses for counsel, incurred by it in connection with its acceptance of this Agreement, in connection with any action or omission by it or its agents or contractors in the performance of its duties hereunder to the Fund, or as a result of acting upon any instruction believed by it to have been executed by a duly authorized agent of the Fund or as a result of acting upon information provided 13 by the Fund in form and under policies agreed to by SteinRoe Services and the Fund provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate solely to a particular series or group of series of Shares, such indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of SteinRoe Services or its agents or contractors, including but not limited to willful misfeasance, bad faith, or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) SteinRoe Services shall give the Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of SteinRoe Services. SteinRoe Services shall indemnify and hold harmless the Fund from and against any and all claims, demands, expenses and liabilities which the Fund may sustain or incur arising out of, or incurred because of, the negligence or misconduct of SteinRoe Services or its agents or contractors, provided that: (i) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of the Fund or its other agents or contractors and (ii) the Fund shall give SteinRoe Services prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of the Fund. 36. Insurance. SteinRoe Services represents that it has available to it the insurance coverage set forth on Schedule C hereto, and agrees to notify the Fund in advance of any proposed deletion or reduction in said insurance. 37. Further Assurances. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. 38. Dual Interests. It is understood that some person or persons may be trustees, directors, officers, or shareholders of both the Fund and SteinRoe Services, and that the existence of any such dual interest shall not affect the validity hereof or of any transactions hereunder except as otherwise provided by specific provision of applicable law. 39. Amendment and Termination. This Agreement may be modified or amended from time to time by mutual agreement between the parties hereto and may be terminated by at least one hundred eighty (180) days' written notice given by one party to the other. Upon termination hereof, the Fund shall pay to SteinRoe Services such compensation as may be due as of the date of such termination and shall reimburse SteinRoe Services for its costs, expenses, and disbursements payable under this Agreement to such date. In the event that in connection with termination a successor to any of the duties or responsibilities of SteinRoe Services hereunder is designated by the Fund by written notice to SteinRoe Services, it shall promptly upon such termination and at the expense of the Fund, transfer to such successor a certified list of shareholders of the Fund (with name, address, and tax identification number), a record of the account of each shareholder and status thereof, and all other relevant books, records, and data established or maintained by SteinRoe Services under this Agreement and shall cooperate in the transfer of such duties and responsibilities, including provision, at 14 the expense of the Fund, for assistance from SteinRoe Services personnel in the establishment of books, records, and other data by such successor. 40. Assignment. Any interest of SteinRoe Services under this Agreement shall not be assigned or transferred, either voluntarily or involuntarily, by operation of law or otherwise, without the prior written consent of the Fund. 41. Notice. Any notice under this Agreement shall be in writing, addressed and delivered or sent by registered mail, postage prepaid to the other party at such address as such other party may designate for the receipt of such notices. Until further notice to the other parties, it is agreed that the address of the Fund is 300 West Adams Street, Chicago, Illinois 60606, Attention: Secretary, and that of SteinRoe Services for this purpose is 300 West Adams Street, Chicago, Illinois 60606, Attention: Secretary. 42. Non-Liability of Trustees and Shareholders. Any obligation of the Fund hereunder shall be binding only upon the assets of the Fund (or the applicable series thereof), as provided in the Agreement and Declaration of Trust of the Fund, and shall not be binding upon any Trustee, officer, employee, agent or shareholder of the Fund or upon any other SteinRoe Fund. Neither the authorization of any action by the Trustees or the shareholders of the Fund, nor the execution of this Agreement on behalf of the Fund shall impose any liability upon any Trustee or any shareholder. Nothing in this Agreement shall protect any Trustee against any liability to which such Trustee would otherwise be subject by willful misfeasance, bad faith or gross negligence in the performance of his duties, or reckless disregard of his obligations and duties under this Agreement. 43. References and Headings. In this Agreement and in any such amendment, references to this Agreement and all expressions such as "herein," "hereof," and "hereunder," shall be deemed to refer to this Agreement as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this Agreement. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 15 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first above written. STEINROE TAX-EXEMPT INCOME TRUST By: JAMES D. WINSHIP Attest: Executive Vice-President JILAINE HUMMEL BAUER Secretary STEINROE SERVICES INC. By: JAMES D. WINSHIP Attest: Vice President JILAINE HUMMEL BAUER Secretary 16 SCHEDULE A TO AGENCY AGREEMENT This Schedule A is attached to and made part of the Agency Agreement dated December 31, 1987 (the "Agreement") between STEINROE TAX-EXEMPT INCOME FUND (the "Fund"), a Massachusetts business trust, and STEINROE SERVICES INC. ("Service Corp."). 1. Regular fees. Subject to the provisions of Section 39 relating to the modification, amendment and termination of the Agreement, including this Schedule A, the Fund shall pay to SteinRoe Services a fee for each of its accounts holding shares of the same series at the applicable annual rate as set forth below. The fee per account will be payable monthly at a rate of one-twelfth of the annual fee and will be changed with respect to any shareholder account of the respective series in existence during any part of the applicable month regardless of the portion of the month for which the account is active. (a) Base fee: Type of Series Annual fee Non-daily dividend $6.00* Daily dividend $10.00* -------------- *Plus $0.25 per dividend paid. (b) Transaction surcharge: In addition, for each shareholder-initiated transaction, the Fund shall pay to SteinRoe Services an additional fee of (1) $0.75 for each such automated transaction (which shall include check-writing and any other type of transaction as the Fund and SteinRoe Services shall mutually agree is automated) and (2) $1.25 for each such non- automated transaction. For purposes of this Schedule A, shareholder-initiated transactions shall include any transaction initiated by a shareholder (other than purchases representing reinvestment of dividends or distributions) changing the share balance or any other information with respect to the shareholder's account. 2. Minimum fee. For each series of the Fund, there shall be a minimum monthly fee, as computed under this schedule, of $500 per month. 17 SCHEDULE B SYSTEM DESCRIPTION The following outline sets out the files maintained and reports produced and identifies sub-systems for specific processing. I. Basic Shareholder Recordkeeping System Includes maintaining required files and record and producing reports reflecting the result of processing transactions. A. Files Maintained: 1. Shareowner Alpha File (contains a cross reference between a 10-position alpha code and a shareholder account number within a specified fund code) 2. Shareowner Master File 3. Shareowner History File 4. Letter of Intent File 5. Cumulative Discount File 6. Systematic Withdrawal File 7. Pre-Authorized Check File 8. Additional Mail File 9. Pending Correspondence File 10. Purchase Reminder File 11. Accrued Dividend File 12. Certificate File 13. Price File 14. Check Reconciliation File 15. Dealer Name and Address File 16. Fail Free (Wire Order File) 17. Expedited Redemption File 18. Corporate Action File 19. Year-End Information 20. ARMS system (advertising response system) B. Reports Produced: 1. Daily Fund Reports (a) Daily Recap & Share Control Sheet (shares) (b) Daily Recap & Share Control Sheet (cash amount) (c) Daily Distribution of Cash Sheet 2. Daily Wire Order Activity Reports (a) Daily Batch Balance (b) Daily Confirmed Deletion Report (c) Master Activity Report (d) Daily Confirmed Unpaid Purchase Journal (e) Daily Confirmed Redemption Journal (f) Fail/Free Balance Listing - Trade Date Sequence (g) Fail/Free Balance Listing - Alpha Code Sequence 18 (h) Fail/Free Balance Listing - Order Number Sequence (i) Fail/Free Balance Listing - Dealer Number Sequence (j) Daily Confirmed "As Of" Report 3. Additional Activity Reports (microfiche only) 1. Direct Payments Journal 2. Confirmed Payments w/Transfer Inst. Journal 3. Dividend Share Adjustment Journal 4. Issue From Free File Journal 5. Purchase Cancellation Journal 6. Direct Redemption Journal 7. Dividend Cash Adjustment Journal 8. Confirmed Redemptions Journal 9. Redemption Cancellation Journal 10. Exchange Redemption Journal 11. Exchange Purchase Journal 12. Certificate Deposit Journal 13. Certificate Withdrawal Journal 14. Transfer (debit/minus) Journal 15. Transfer (credit/add) Journal 16. Confirmed Payments Without Trans. Journal 17. Keogh Fee Redemption Journal 18. Fiduciary Contribution Journal 19. Wire Instruction Report for Expedited Redemptions 20. Check-Writing Redemption Report 21. Asset Transfer Journal 22. Dividend Reinvestment to Cash Journal 23. Dividend Cash to Reinvestment Journal 24. SWP Redemption Journal 25. Maintenance Update Journal 26. Pending Correspondence Purge Report 27. Decrease W/H-Purchase Shares 28. Decrease W/H-Remit Cash 29. Increase W/H Redeem Shares 30. Increase W/H Collect Cash 31. Daily "As Of" Report - Reason Code Sequence 32. Daily "As Of" Report - Transfer Code Sequence 33. Daily "As Of" Report - Account Sequence 34. Direct Payments thru Fund Journal 35. Checkwriting Redemption Journal 36. Voluntary Maintenance Journal 37. Expedited Redemption Journal 38. Special Redemptions Journal 39. Replacement Check Journal 40. Daily Dividend Close Out Journal 41. Daily Dividend Decrease Journal 42. Daily Dividend Increase Journal 43. PAC Direct Payments Journal 4. Summary Reports (a) Fund Share Balance Listing (b) Net Share Change to Fund 19 (c) Exchange Distribution Report (d) Daily CRT Operator Statistics (e) Staff Summary Statistics (f) Daily Close-Out Journal 5. Month End Profile Reports (a) Social Code Report (b) Shareowner Residence Report (c) Distribution of Shares Report (d) Account Summary Report (e) CWRED Activity Analysis (f) Monthly Maintenance Journal (g) 420 Report. (h) ARMS Monthly Activity Report 6. Internal Operating Reports 1. Daily Transaction Work File Deletions 2. Additional Mail File Error Listing 3. Daily Fund Share Balance Listing 4. Daily Update Error Listing (MUIDO) 5 Keogh/IRA Excess Contribution Report 6. Fail/As Of Trade Extensions 7. Price Update Report 8. Redemption Check Register 9. Shareowner Check/Confirm Report 10. Fiduciary Asset Report 11. Daily Batch Balance Report (Summary) 12. Premature Share Removal Report 13. EXRED Warning Report 14. Expedited Redemption Maintenance Journal 15. Dealer File Maintenance Journal 16. Fail/Free Delinquent Trades 17. Purchase Reminder Maintenance Report 18. Requests for Duplicate Confirms 19. Systematic Withdrawal Plan Journal 20. Purchase/Redemption Invoices 21. New Account Verification Report 22. Check Writing Checks and Report 23. SPAC Reports 24. Confirmations 25. Stop Payment Notices 26. Shareowner Master Record (purged account) 27. Daily Calculated Rate Report (095) 28. 007 Report 29. 030 (Falconer tape) 30. Change of Address Notification' 31. Redemption Checks 32. Stock Certificates 33. ADTRANS Activity Journal 34. Expedited Redemption Report 35. Same Day Wire Report 36. Check-Writing Report 20 37. Expedited Redemption/DRED Wire Report 38. Daily Batch Balance Detail Report 39. Record Date Journal 40. Stock Certificate Mail Advice 41. Fund Options Maintenance Report 42. Batch Transmission Error Report 7. Shareowner Maintenance Journal II. Sub-systems to Basic Shareholder Recordkeeping A. Withdrawal Accounting To Generate Checks and Confirmation Statements for Systematic Withdrawal Plans B. Defined Contribution/IRA Accounting - Account Processing for Defined Contribution and IRA Plans to include the following: 1. Establishing and Maintaining Accounts 2. Inception-to-Date Accounting 3. Daily Statement Production 4. Collection of Fees 5. Year End Information - W2P, 1099R, Annual Report and 5498 Production D. Corporate Actions 1. Dividends and Capital Gains Processing and Reporting 2. Year-End Tax Information Reporting (including 1099 Forms) 3. Yearly Transcript (Microfilm) E. Proxy Processing 1. Proxy Production and Mailing 2. Proxy Tabulation 3. Proxy Vote Tabulation F. Wire Order Processing 1. Processing Buy or Sell Orders 2. Automatic Calculation of the Trade 3. Verify Dealer/Branch 4. Verify Price 5. Generate Invoices 6. Produce Journals 7. Produce Confirmation Statements 8. Produce Redemption Checks G. Blue Sky Reporting 1. Automatic Reporting of Wire Trades and Subscription Trade Data 2. Generating Daily and Monthly Blue Sky Sales and Status Reporting Including the following: (a) Blue Sky State Sales Report (b) Blue Sky State Status Report (c) Blue Sky Daily Warning Report (d) Blue Sky Monthly Sales Activity Report (e) Blue Sky Maintenance Journals (f) Blue Sky Daily Sales Activity Report 21 SCHEDULE C (Revised 9/87) SCHEDULE OF INSURANCE COVERAGE Type of Insurance Insurance Underwriter Coverage Comprehensive Commercial (Note 1) A. Loss or Damage to Federal Insurance Co. $7,300,000 Property (fire and extended coverage) B. Comprehensive Liability Federal Insurance Co. 1,000,000 (bodily injury, property damage, personal injury) C. Commercial Umbrella Federal Insurance Co. 10,000,000 (excess liability to (primary - 5 million) supplement coverage Transamerica Inc. Co. under primary liability (Excess insurance - 5 policies) million) Data Processing Insurance (Note 1) A. Data Processing Equipment Sun Insurance Company $3,298,000 (loss or damage) of New York B. Blanket media and extra Sun Insurance Company 500,000 expense (costs related of New York to beginning operations after a loss) C. Valuable Papers Sun Insurance Company 100,000 of New York D. Business Interruption Sun Insurance Company 1,000,000 of New York E. Contingent Business Sun Insurance Company 1,000,000 Interruption of New York (Kansas City, MO) Other (Note 1) A. Registered Management Federal Insurance Co. $25,000,000 Investment Co. Bond ($100,000 deductible) B. Errors & Omissions Evanston Insurance Co. 20,000,000 First State Insurance ($5,000 Co. deductible 22 Each director or officer) Kemper Insurance Co. ($150,000 deductible) C. Transfer Agents Mail Federal Insurance C $100,000 First Class Mail $5,000,000 Registered Mail D. Fiduciary Liability Federal Insurance Co. 5,000,000 Note (1): Insureds include the firm of Stein Roe & Farnham Incorporated, as well as each of the SteinRoe Funds. FIRST AMENDMENT TO AGENCY AGREEMENT This amendment, made this 1st day of August, 1988 (the "First Amendment"), amends the Agency Agreement (including Schedules A, B, and C) dated December 31, 1987, (the "Agreement"), by and among SteinRoe Tax-Exempt Income Trust (the "Fund"), a Massachusetts business trust and SteinRoe Services Inc. ("Service Corp."). WHEREAS, the Board of Trustees of the Fund has approved an increase in its overall transfer agency fees, as well as the institution of additional fees for services provided by Service Corp. that have grown in significance and for which there was no previous charge, which fees are: (1) a 10% increase in base, dividend, and transaction fees, and elimination of the fee differential for automated and manual transactions; (2) a direct pass-through to the Fund of the charges by DST, Inc. to Service Corp. for systems and facilities DST, Inc. provides to Service Corp. that enable Service Corp. to perform its services under this Agreement; and (3) additional fees for services provided with respect to closed accounts, as well as certain administrative and shareholder services. NOW, THEREFORE, the Agreement is hereby amended as follows: 1. Section 8 of the Agreement entitled "Record-Keeping" is amended by adding the following sentence at the end thereof. "SteinRoe Services shall maintain for any account that is closed ("Closed Account") the aforesaid records through the June of the calendar year following the year in which the account is closed or such other period as may be mutually agreed to from time to time by such Fund and Service Corp." 2. The following are added as new sections of the Agreement numbered 9 and 10 and the sections currently numbered 9 through 43 are amended by renumbering them as sections 11 through 45: "9. Administrative Services. Service Corp. shall furnish the Fund (i) certain administrative services insofar as they relate to the maintenance of shareholder account records, recordkeeping systems, and reporting of information to shareholders, in connection with compliance with applicable securities, tax and other laws and regulations, and (ii) facilities and personnel to enhance, develop and implement services, systems and facilities either directly or through third-party service providers. "10. Shareholder Services. In addition to the shareholder recordkeeping and transactional services provided for elsewhere herein, Service Corp. shall provide the Fund certain shareholder information services, including but not limited to, responding to shareholder inquiries in writing or by telephone, generating data for shareholders with special information needs, and disseminating information about tax law changes and other developments affecting shareholders with respect to their accounts in the Fund." 3. Section 30 of the Agreement (renumbered Section 32 by this First Amendment) entitled "Out-of-Pocket Expenses" is amended as follows: "32. Out-of-Pocket Expenses. The Fund shall reimburse Service Corp. for any and all out-of-pocket expenses and charges in performing services under this Agreement, including but not limited to, mailing service, postage, printing of shareholder statements, the cost of any and all forms of the Fund and other materials used by SteinRoe Services in communicating with shareholders of the Fund, the cost of any equipment or service used for communicating with the Fund's custodian bank or other agent of the Fund, charges of DST, Inc. to Service Corp. for use of its system and facilities related to Service Corp.'s services under this Agreement, and all costs of telephone communication with or on behalf of shareholders allocated in a manner mutually acceptable to the Fund and SteinRoe Services." 4. Schedule A to the Agreement is amended and restated in the form attached hereto. IN WITNESS WHEREOF, the parties have caused this First Amendment to be executed as of the day and year first written above. STEINROE TAX-EXEMPT INCOME TRUST By: JAMES D. WINSHIP ATTEST: Executive Vice-President JILAINE HUMMEL BAUER Secretary STEINROE SERVICES INC. By: JAMES D. WINSHIP ATTEST: Executive Vice President JILAINE HUMMEL BAUER Secretary SCHEDULE A TO AGENCY AGREEMENT This Schedule A, dated August 1, 1988, is attached to and made part of the Agency Agreement dated December 31, 1987 as amended by a First Amendment dated August 1, 1988 (the "Agreement"), by and among SteinRoe Tax-Exempt Income Trust (the "Fund"), a Massachusetts business trust, and SteinRoe Services Inc. ("Service Corp."), and constitutes Schedule A referred to in Section 31 of the Agreement (numbered Section 29 prior to the First Amendment to the Agreement) for periods commencing and transactions occurring on and after August 1, 1988. Subject to the provisions of Section 41 (numbered Section 39 prior to the First Amendment to the Agreement) relating to the modification, amendment and termination of the Agreement, including this Schedule A, the Fund shall pay to Service Corp. the following fees. The services for which these fees are charged are indicated by cross- reference to the appropriate section of the Agreement. (Sections 11- 45 were numbered sections 9-43 prior to the First Amendment to the Agreement.) 1. REGULAR FEES (A) Open Accounts The Fund shall pay to Service Corp. for each of its accounts a fee at the applicable annual rate set forth below. The Account Fees shall be payable each month at a rate of one- twelfth of the annual rate and shall apply to any account open during any part of a month. (i) Account Fees Annual Rate (a) Base Fee $11.00 (Sections 5, 7, 8, 11-16, and 20-28) (b) Administration Fee $ 1.50 (Section 9) (c) Shareholder Service Fee $ 3.50 (Section 10) (ii) Transaction Fees (a) Dividends and other $ 0.275 distributions paid on a single date (Sections 18 and 19) (b) Shareholder-initiated $ 1.375 transactions (Sections 11, 12, 14, 15, and 19) (B) Closed Accounts (Section 8) The Fund shall pay to Service Corp. for each of its Closed Accounts, as defined in Section 8 of the Agreement, a fee at the applicable annual rate set forth below beginning with the month following the month in which an account is closed, and for each succeeding month the account remains closed through June of the calendar year following the year in which the account is closed or such other period as may be agreed to by the Fund and Service Corp. The fee shall be payable each month at a rate of one-twelfth of the annual rate. Type of Series Annual Rate Daily dividend $ 7.33 For purposes of this Schedule A, (a) an account shall be considered closed when the share balance is reduced to zero, and (b) a shareholder-initiated transaction shall include (i) any transaction initiated by a shareholder (other than purchases representing reinvestment of dividends or other distributions) changing the share balance or any other information with respect to the shareholder's account and (ii) any phone call initiated by a shareholder to an automated telephone service system maintained by Service Corp. to service Fund shareholders, not involving either the marketing or distribution of a Fund or a transaction as defined in (i) above. 2. MINIMUM FEE For each series of a Fund, there shall be a minimum monthly fee, as computed under this Schedule, of $500 per month. SECOND AMENDMENT TO AGENCY AGREEMENT This amendment, made this 1st day of February, 1991 (the "Second Amendment"), amends the Agency Agreement (including Schedules A, B, and C) dated December 31, 1987, as amended by a First Amendment dated August 1, 1988 (the "Agreement"), by and between SteinRoe Tax-Exempt Income Trust (the "Fund"), a Massachusetts business trust, and SteinRoe Services Inc. (hereinafter referred to as "Service Corp."). WHEREAS, the Board of Trustees of the Fund has approved an increase in its overall transfer agency fees, as well as the institution of a separate fee for services provided by Service Corp. in connection with establishing new accounts which are: (1) a 10% increase in base, administrative, shareholder servicing, and dividend fees; (2) a 3% increase in shareholder-initiated transaction fees; and (3) an additional fee of $4.00 per account for services provided in connection with establishing new accounts. NOW, THEREFORE, Schedule A to the Agreement is hereby amended and restated in the form attached hereto. IN WITNESS WHEREOF, the parties have caused this Second Amendment to be executed as of the day and year first written above. STEINROE TAX-EXEMPT INCOME TRUST By: JAMES D. WINSHIP ATTEST: Executive Vice-President JILAINE HUMMEL BAUER Secretary STEINROE SERVICES INC. By: JAMES D. WINSHIP ATTEST: Executive Vice President JILAINE HUMMEL BAUER Secretary SCHEDULE A TO AGENCY AGREEMENT (February 1, 1991) This Schedule A, dated February 1, 1991, is attached to and made part of the Agency Agreement dated December 31, 1987 as amended by a First Amendment dated August 1, 1988 and a Second Amendment dated February 1, 1991 (the "Agreement"), by and between SteinRoe Tax- Exempt Income Trust (the "Fund"), a Massachusetts business trust, and SteinRoe Services Inc. ("Service Corp."), and constitutes Schedule A referred to in Section 31 of the Agreement (numbered Section 29 prior to the First Amendment to the Agreement) for periods commencing and transactions occurring on and after February 1, 1991. Subject to the provisions of Section 41 (numbered Section 39 prior to the First Amendment to the Agreement) relating to the modification, amendment and termination of the Agreement, including this Schedule A, the Fund shall pay to Service Corp. the following fees. The services for which these fees are charged are indicated by cross- reference to the appropriate section of the Agreement. 1. REGULAR FEES (A) Open Accounts The Fund shall pay to Service Corp. for each of its accounts a fee at the applicable rate set forth below. The Account Fees, which are stated at an annual rate, shall be payable each month at a rate of one-twelfth of the annual rate and shall apply to any account open during any part of a month. (i) Account Fees (a) Base Fee $12.10 (Sections 5, 7, 8, 11-16, and 20-28) (b) Administration Fee $ 1.65 (Section 9) (c) Shareholder Service Fee $ 3.85 (Section 10) (ii) Transaction Fees (a) Dividends and other $ 0.3025 distributions paid on a single date (Sections 18 and 19) (b) New account set up fee $ 4.00 (shareholder-initiated) (Sections 8, 9, 12, and 13) (c) Other shareholder-initiated $ 1.415 transactions (Sections 11, 12, 14, 15, and 19) (B) Closed Accounts (Section 8) The Fund shall pay to Service Corp. for each of its Closed Accounts, as defined in Section 8 of the Agreement, a fee at an annual rate of $7.33 beginning with the month following the month in which an account is closed, and for each succeeding month the account remains closed through June of the calendar year following the year in which the account is closed or such other period as may be agreed to by the Fund and Service Corp. The fee shall be payable each month at a rate of one-twelfth of the annual rate. For purposes of this Schedule A, (a) an account shall considered new whenever a new number is assigned to the account, (b) an account shall be considered closed when the share balance is reduced to zero, and (c) a shareholder-initiated transaction shall include (i) any transaction initiated by a shareholder (other than purchases representing reinvestment of dividends or other distributions) changing the share balance or any other information with respect to the shareholder's account and (ii) any phone call initiated by a shareholder to an automated telephone service system maintained by Service Corp. to service Fund shareholders, not involving either the marketing or distribution of a Fund or a transaction as defined in (i) above. 2. MINIMUM FEE For each series of the Fund, there shall be a minimum monthly fee, as computed under this Schedule, of $500 per month. THIRD AMENDMENT TO AGENCY AGREEMENT This amendment, made this 29th day of July, 1992 (the "Third Amendment"), amends the Agency Agreement dated December 31, 1987, as amended by amendments dated February 1, 1991 and August 1, 1988 (the "Agreement"), by and between SteinRoe Municipal Trust (formerly SteinRoe Tax-Exempt Income Trust) (the "Fund"), a Massachusetts business trust, and SteinRoe Services Inc. (hereinafter referred to as "Service Corp."), a Massachusetts corporation. WHEREAS, Service Corp. wishes to be able to assign certain of its duties and responsibilities under the Agreement when the parties determine it to be in their mutual interest for it to do so; NOW, THEREFORE, the Agreement is hereby amended by deleting Section 40 and substituting the following: "40. Assignment. "A. Except as provided below, neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the written consent of the other party. "B. This Agreement shall inure to the benefit of and be binding upon the parties and their respective permitted successors and assigns. "C. Service Corp. may subcontract for the performance of any of its duties or obligations under this Agreement with any person if such subcontract is approved by the Board of Trustees of the Fund provided, however, that Service Corp. shall be as fully responsible to the Fund for the acts and omissions of any subcontractor as it is for its own acts and omissions." IN WITNESS WHEREOF, the parties have caused this Third Amendment to be executed as of the day and year first written above. STEINROE MUNICIPAL TRUST By: JILAINE HUMMEL BAUER ATTEST: Vice-President and Secretary NICOLETTE D. PARRISH Assistant Secretary STEINROE SERVICES INC. By: JEANNE M. LASHBROOK ATTEST: Vice President JILAINE HUMMEL BAUER Secretary FOURTH AMENDMENT TO AGENCY AGREEMENT This amendment made this lst day of May, 1995 (the "Fourth Amendment") amends the Agency Agreement dated December 31, 1987, as amended by amendments dated July 29, 1992, February 1, 1991, and August 1, 1998 (the "Agreement") by and between STEINROE MUNICIPAL TRUST (the "Fund"), a Massachusetts business trust, and STEINROE SERVICES INC. (hereinafter referred to as "Service Corp."), a Massachusetts corporation. By mutual agreement of the parties, the Agreement is hereby amended as follows: 1. Sections 9, 10, and 32 (added by a first amendment dated August 1, 1988) of the Agreement are amended and restated to read as follows: "9. Administrative Services. Service Corp. shall furnish the following administrative services to the Fund: A. Coordination of the printing and dissemination of prospectuses, financial reports, and other shareholder information as are agreed to by Service Corp. and the Fund from time to time. B. Maintenance of data and statistics and preparation of reports for internal use and for distribution to the Fund's Board of Trustees concerning shareholder transaction and service activity. C. Handling of requests from third parties involving shareholder records, including, but not limited to, record subpoenas, tax levies, and orders issued by courts or administrative or regulatory agencies. D. Development and monitoring of shareholder service programs that may be offered from time to time, including, but not limited to, individual retirement account and tax-qualified retirement plan programs, checkwriting redemption privileges, automatic purchase, exchange and redemption programs, audio response services, programs involving electronic transfer of , and lock box facilities. E. Provision of facilities, hardware and software systems, and equipment in Chicago (and other locations mutually agreed to by Service Corp. and the Fund) to meet the needs of shareholders and prospective shareholders, including, but not limited to, walk-in facilities, toll-free telephone numbers, electronic audio and other communication, accounting and recordkeeping systems to handle shareholder transaction, inquiry and other activity, and to provide management and other personnel required to staff such facilities and administer such systems. 10. Shareholder Services. Service Corp. shall provide the following services as are requested by the Fund in addition to the transactional and recordkeeping services provided for elsewhere herein: A. Responding to communications from shareholders or their representatives or agents concerning any matters pertaining to shares registered in their names, including, but not limited to, (i) net asset value and average cost basis information; (ii) shareholder services, plans, options, and privileges; and (ii) with respect to the series of the Fund represented by such shares, information concerning investment policies, portfolio holdings, performance, and shareholder distributions and the classification thereof for tax purposes. B. Handling of shareholder complaints and correspondence directed to or brought to the attention of Service Corp. C. Soliciting and tabulating proxies of shareholders and answering questions concerning the subject matter thereof. D. Under the direction of the officers of the Fund, administering a program whereby shareholders whose mail from the Fund is returned are identified, current address information for such shareholders is solicited, and shares and dividend or redemption proceeds owned by shareholders who cannot be located are escheated to the proper authorities in accordance with applicable laws and regulations. E. Preparing and disseminating special data, notices, reports, programs, and literature for certain categories of shareholders based on account characteristics, or for shareholders generally in light of industry, market, product, tax, or legal developments. F. Assisting any institutional servicing or recordkeeping agent engaged by Service Corp. and approved by the Fund in the development, implementation, and maintenance of special programs and systems to enhance overall shareholder servicing capability, consisting of: (i) Product and system training for personnel of the institutional servicing agent. (ii) Joint programs with the institutional servicing agent to develop customized shareholder software systems, account statements, and other information and reports. (iii) Electronic and telephonic systems and other technological means by which shareholder information, account data, and cost of securities may be exchanged among Service Corp., the institutional servicing agent, and their respective agents or vendors. G. Furnishing sub-accounting services for retirement plan shareholders and other shareholders representing group relationships with special recordkeeping needs. H. Providing and supervising the services of employees whose principal responsibility and function will be to preserve and strengthen the Fund's relationships with its shareholders. I. Such other shareholder and shareholder-related services, whether similar to or different from those described in this section as the parties may from time to time agree in writing. 32. Out-of-Pocket Expenses. The Fund shall reimburse Service Corp. for any and all out-of-pocket expenses and charges in performing services under this Agreement (other than charges for normal data processing services and related software, equipment and facilities) including, but not limited to, mailing service, postage, printing of shareholder statements, the cost of any and all forms of the Fund and other materials used by Service Corp. in communicating with shareholders of the Fund, the cost of any equipment or service used for communicating with the Fund's custodian bank or other agent of the Fund, and all costs of telephone communication with or on behalf of shareholders allocated in a manner mutually acceptable to the Fund and Service Corp." 2. Schedule A to the Agreement is amended and restated in the form attached hereto. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first above written. STEINROE MUNICIPAL TRUST By: TIMOTHY K. ARMOUR ATTEST: President JILAINE HUMMEL BAUER Secretary STEINROE SERVICES INC. By: STEPHEN P. LAUTZ ATTEST: Vice President JILAINE HUMMEL BAUER Secretary Schedule A Agency Agreement (as amended on May 1, 1995) Fees pursuant to Section 31 (previously numbered Section 29) of the Agency Agreement shall be calculated in accordance with the following schedule. For each series, the fee shall accrue on each calendar day and shall be payable monthly on the first business day of the next succeeding calendar month. The daily fee accrual shall be computed by multiplying the fraction of one divided by the number of days in the calendar year by the applicable annual fee and multiplying this product by the net assets of the series, determined in the manner established by the Board of Trustees of the applicable Fund, as of the close of business on the last preceding business day on which the series' net asset value was determined. Type of Series Annual Fee Fixed Income (non-money fund) 0.140% of average daily net assets Fixed Income (money market fund) 0.150% of average daily net assets Dated: May 1, 1995 EX-27 10 FDS/MUNICIPAL MONEY FUND
6 3 STEINROE MUNICIPAL MONEY MARKET FUND 6-MOS JUN-30-1994 JUL-01-1994 DEC-31-1994 174,779 174,779 2,714 590 0 178,083 1,595 0 2,553 4,148 0 173,864 173,864 165,747 0 0 71 0 0 173,935 0 2,717 0 575 2,142 (2) 0 2,140 0 (2,142) 0 0 133,860 (127,673) 1,930 2,140 0 73 0 0 411 0 616 163,798 1.00 0.013 0 (0.013) 0 0 1.00 0.70 0 0
EX-27 11 FDS/INTERMEDIATE MUNICIPALS
6 1 STEINROE INTERMEDIATE MUNICIPALS 6-MOS JUN-30-1994 JUL-01-1994 DEC-31-1994 215,014 213,798 5,510 941 0 220,249 3,234 0 985 4,219 0 219,153 20,200 21,643 0 0 (1,846) 0 (1,277) 216,030 0 6,433 0 849 5,584 (1,773) (4,656) (845) 0 (5,584) 0 0 3,490 (5,271) 338 (845) 0 0 0 (74) 642 0 849 226,246 11.00 0.26 (0.30) (0.26) 0 0 10.70 .75 0 0
EX-27 12 FDS/MANAGED MUNICIPALS
6 4 STEINROE MANAGED MUNICIPALS 6-MOS JUN-30-1994 JUL-01-1994 DEC-31-1994 591,849 592,096 12,478 1,997 0 606,571 0 0 2,195 2,195 0 614,255 72,291 79,022 0 0 (9,946) 0 67 604,376 0 21,843 0 2,208 19,635 (5,058) (21,451) (6,874) 0 (19,635) 0 0 4,755 (12,892) 1,406 (6,874) 0 0 0 (4,888) 1,739 0 2,208 663,525 8.70 0.25 (0.34) (0.25) 0 0 8.36 0.66 0 0
EX-27 13 FDS/HIGH-YIELD MUNICIPALS
6 2 STEINROE HIGH-YIELD MUNICIPALS 6-MOS JUN-30-1994 JUL-01-1994 DEC-31-1994 275,783 259,800 7,224 360 0 267,384 0 0 2,583 2,583 0 285,812 24,882 27,855 0 0 (4,848) 0 (16,163) 264,801 0 10,055 0 1,317 8,738 (2,678) (8,924) (2,864) 0 (8,738) 0 0 3,301 (6,746) 472 (2,864) 0 0 0 (2,171) 811 0 1,317 293,641 11.06 0.33 (0.42) (0.33) 0 0 10.64 0.89 0 0
-----END PRIVACY-ENHANCED MESSAGE-----