-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BhRf9s5Jdp+RS0Sn4mJcCXjWhTEvkE9ADr3F/Uh9ckNOwJc5kmFWA7aZTXkQKPR3 WNToTRUuZIo4LXPLrxCbUA== 0000773757-96-000011.txt : 19960411 0000773757-96-000011.hdr.sgml : 19960411 ACCESSION NUMBER: 0000773757-96-000011 CONFORMED SUBMISSION TYPE: PRES14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960618 FILED AS OF DATE: 19960410 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: PRES14A SEC ACT: 1934 Act SEC FILE NUMBER: 811-04367 FILM NUMBER: 96545937 BUSINESS ADDRESS: STREET 1: ONE SOUTH WACKER DR STREET 2: 11TH FLOOR CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3123687836 MAIL ADDRESS: STREET 1: ONE SOUTH WACKER DR STREET 2: 11TH FLOOR CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: STEINROE INTERMEDIATE MUNICIPALS INC DATE OF NAME CHANGE: 19880114 PRES14A 1 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 Stein Roe Municipal Trust (Name of Registrant as Specified In Its Charter) ______________________________________________ (Name of Person(s) Filing Proxy Statement if other than the Registrant) Payment of Filing Fee (Check appropriate box): [X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a- 6(i)(2), or Item 22(a)(2) of Schedule 14A. [ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-6(i)(3). [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: _______________________________________________________________ (2) Aggregate number of securities to which transaction applies: _______________________________________________________________ (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined). ______________________________________________________________ (4) Proposed maximum aggregate value of transaction: ______________________________________________________________ (5) Total fee paid: _______________________________________________________________ [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2 ) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ____________________________________________________ (2) Form, Schedule or Registration Statement No. ____________________________________________________ (3) Filing Party: ____________________________________________________ (4) Date Filed: ____________________________________________________ 1 Preliminary copy-- NOTICE OF MEETING OF SHAREHOLDERS--JUNE 18, 1996 STEIN ROE INVESTMENT TRUST STEIN ROE INCOME TRUST Stein Roe Growth & Income Fund Stein Roe Income Fund Stein Roe International Fund Stein Roe Government Income Fund Stein Roe Young Investor Fund Stein Roe Intermediate Bond Fund Stein Roe Special Venture Fund Stein Roe Cash Reserves Fund Stein Roe Balanced Fund Stein Roe Government Reserves Fund (formerly named Stein Roe Total Stein Roe Limited Maturity Income Return Fund) Fund Stein Roe Growth Stock Fund Stein Roe Capital Opportunities Fund Stein Roe Special Fund STEIN ROE MUNICIPAL TRUST Stein Roe Intermediate Municipals Fund Stein Roe High-Yield Municipals Fund Stein Roe Municipal Money Market Fund Stein Roe Managed Municipals Fund - - This tells you when and where the meeting will be held and what matters will be voted on. A meeting of the shareholders of each Fund named above will be held on June 18, 1996, at 10:00 a.m. Chicago time at the office of the Funds, Suite 3300, One South Wacker Drive, Chicago, Illinois 60606, for the following purposes: 1. (a) For shareholders of each Fund: To elect a Board of Trustees. (b) For shareholders of Stein Roe Municipal Money Market Fund only: To authorize the Fund to cast votes for the election of a Board of Trustees of SR&F Base Trust. 2. (a) For shareholders of each Fund: To amend the Fund's fundamental investment restriction regarding borrowing. (b) For shareholders of Stein Roe Municipal Money Market Fund only: To authorize the Fund to vote for approval of a similar amendment to the fundamental restrictions of SR&F Municipal Money Market Portfolio. 3. (a) For shareholders of each Fund: To amend the Fund's fundamental investment restriction regarding lending. (b) For shareholders of Stein Roe Municipal Money Market Fund only: To authorize the Fund to vote for approval of a similar amendment to the fundamental restrictions of SR&F Municipal Money Market Portfolio. 4. For shareholders of each of Stein Roe International Fund, Stein Roe Special Venture Fund, Stein Roe Intermediate Municipals Fund, Stein Roe High-Yield Municipals Fund, Stein Roe Managed Municipals Fund, and each Fund of Stein Roe Income Trust only: To approve or disapprove the following agreements relating to the Fund between the Trust and Stein Roe & Farnham Incorporated (the "Adviser") that would replace the Fund's present Investment Advisory Agreement: (a) an Administrative Agreement; and (b) a Management Agreement. 2 5. For shareholders of each of Stein Roe International Fund, Stein Roe Special Venture Fund, Stein Roe Intermediate Municipals Fund, Stein Roe High-Yield Municipals Fund, Stein Roe Managed Municipals Fund, and each Fund of Stein Roe Income Trust only: To approve or disapprove a Management Agreement between SR&F Base Trust and the Adviser that would replace the proposed Management Agreement between the Trust and the Adviser if and when the Fund converted to a master/feeder fund structure (this structure would permit the Fund to pool its assets with other funds that have the same investment objective, with the combined assets being managed by the Adviser). 6. To act on such other business as may properly come before the meeting. THE BOARD OF TRUSTEES OF EACH TRUST STRONGLY RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH PROPOSAL. PLEASE MARK, DATE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED SO YOUR VOTE MAY BE CAST AT THE MEETING. BY THE TRUSTEES: Timothy K. Armour Francis W. Morley Kenneth L. Block Charles R. Nelson William W. Boyd Gordon R. Worley Lindsay Cook May 1, 1996 3 PROXY STATEMENT - - THIS DOCUMENT GIVES YOU INFORMATION YOU NEED IN ORDER TO VOTE ON THE MATTERS COMING BEFORE THE MEETING. IF YOU HAVE ANY QUESTIONS, PLEASE CALL US AT OUR TOLL-FREE NUMBER, 800-338-2550. - - WHO IS ASKING FOR MY VOTE? The trustees of Stein Roe Investment Trust ("Investment Trust"), Stein Roe Income Trust ("Income Trust"), and Stein Roe Municipal Trust ("Municipal Trust") (referred to collectively as the "Trusts"), who are responsible for overseeing each of the Funds that is a series of the respective Trusts, have asked that you vote on several matters. The vote will be formally taken at a June 18 meeting of shareholders. You may vote in person at that meeting or--as most shareholders do--return the attached proxy card, indicating your vote, in advance of the meeting. Rather than investing directly in portfolio securities, Stein Roe Municipal Money Market Fund is a feeder fund (see "Master Fund/Feeder Fund Structure" on page 3) that invests all of its assets in the SR&F Municipal Money Market Portfolio (the "Portfolio"), a series of SR&F Base Trust ("Base Trust"). The Fund, as a Portfolio investor, has been requested by Base Trust to vote on the election of trustees of Base Trust and on changes in the Portfolio's fundamental restrictions that are identical to those being proposed for the Fund. Therefore, the Fund is also soliciting proxies from its shareholders on these matters relating to Base Trust. - - WHO IS ELIGIBLE TO VOTE? Shareholders of record of each Fund at the close of business on April 17, 1996, are entitled to notice of, and to vote at, the meeting. Each share of a Fund is entitled to a number of votes on any matter relating to that Fund that comes before the meeting equal to the dollar net asset value of the share as of the record date for the meeting. Each Fund's outstanding shares and its net asset value per share on the record date were: No. of Net Asset Shares Value Per Fund Outstanding Share - ----------------------------------- ----------- --------- Stein Roe Growth & Income Fund Stein Roe International Fund Stein Roe Young Investor Fund Stein Roe Special Venture Fund Stein Roe Balanced Fund Stein Roe Growth Stock Fund Stein Roe Capital Opportunities Fund Stein Roe Special Fund Stein Roe Income Fund Stein Roe Government Income Fund Stein Roe Intermediate Bond Fund Stein Roe Cash Reserves Fund Stein Roe Government Reserves Fund Stein Roe Limited Maturity Income Fund Stein Roe Intermediate Municipals Fund 4 Stein Roe High-Yield Municipals Fund Stein Roe Municipal Money Market Fund Stein Roe Managed Municipals Fund If you are a shareholder of more than one Fund, you will receive a separate proxy for each Fund, and you should complete and return each proxy you receive. Your completed and signed proxy will be voted in accordance with your instructions. If you sign the proxy, but do not fill in a vote, your shares will be voted in accordance with the trustees' recommendations. - - WHAT ARE SHAREHOLDERS BEING ASKED TO VOTE ON? The following table shows what proposals are to be voted on by the shareholders of the respective Funds: FUND WHOSE SHAREHOLDERS ARE ENTITLED TO VOTE PROPOSAL - ---------------------------- ---------------------------------- Each Fund............... .......1(a) Election of trustees Municipal Money Market Fund... .1(b) Election of Trustees of Base Trust Each Fund ................... ..2(a) Restriction on borrowing Municipal Money Market Fund.... 2(b) Authorize similar changes to Base Trust Each Fund.................. ....3(a) Restriction on lending Municipal Money Market Fund .. 3(b) Authorize similar changes to Base Trust International Fund, Young Investor Fund, Income Fund, Government Income Fund, Intermediate Bond Fund, Cash Reserves Fund, Government Reserves Fund, Limited Maturity Income Fund, Intermediate Municipals Fund, High-Yield Municipals Fund, Managed Municipals Fund .........4-5 Management and advisory agreements with the Adviser; management agreement with Base Trust - - HOW CAN I GET MORE INFORMATION ABOUT THE FUNDS? A copy of each Fund's annual report has previously been mailed to shareholders. IF YOU WOULD LIKE TO HAVE COPIES OF A FUND'S MOST RECENT ANNUAL AND SEMIANNUAL REPORTS SENT TO YOU FREE OF CHARGE, PLEASE CALL US TOLL-FREE AT 800-338-2550 OR WRITE TO THE STEIN ROE FUNDS AT P.O. BOX 804058, CHICAGO, ILLINOIS 60680. - - HOW DO THE TRUSTEES RECOMMEND THAT I VOTE? The trustees recommend that you vote shares of each Fund that you own: 1. FOR the election of all nominees as trustees; 2. FOR the amendments to investment restrictions; 5 3. FOR approval of the management and administrative agreements between the Trust and Stein Roe & Farnham Incorporated (the "Adviser") and the management agreement between the Adviser and SR&F Base Trust. 1. ELECTION OF TRUSTEES Pursuant to the Trusts' By-Laws, three of the current trustees of each Trust are scheduled to retire from the Board by December 31, 1997. In order to facilitate the transition of Board responsibilities, it is proposed that the Board be expanded from seven to nine members. The Nominating Committee has proposed a slate including seven nominees who are currently trustees and two nominees who are standing for election for the first time. In addition to voting for trustees of Municipal Trust, shareholders of Stein Roe Municipal Money Market Fund are voting to direct the Fund to cast votes for or against election of an identical slate for the Board of Trustees of Base Trust. Each of the nine candidates nominated for election will serve as a trustee of each Trust until the next meeting of shareholders of the Trust called for the purpose of electing trustees and until a successor is elected and qualified or until death, retirement, resignation, or removal. The persons named in the enclosed proxy intend to vote at the meeting in favor of the election of the nominees named below as the trustees of each Trust. All nominees, except Mr. Hacker and Mr. Theobald, are currently trustees of each Trust. A shareholder using the enclosed proxy may vote for all or any of the nominees or withhold his or her vote from all or any of such nominees. If the proxy is properly executed but unmarked, it will be voted in favor of all nominees. If, for any reason, any nominee shall become unavailable for election, the proxy holders may, but will not be bound to, vote for a substitute nominee. - - WHO ARE THE TRUSTEES AND NOMINEES? TIMOTHY K. ARMOUR. President, Mutual Funds division, and Director, the Adviser, since June, 1992; Senior Vice President and Director of Marketing, Citibank, Illinois, 1989 to 1992. Age 47. Member of the Executive Committee, Nominating Committee, and Pricing Committee of each Trust.* KENNETH L. BLOCK. Chairman Emeritus, A. T. Kearney, Inc. (international management consultants). Age 75. Member of the Audit Committee of each Trust. WILLIAM W. BOYD. Chairman and Director, Sterling Plumbing Group, Inc. (manufacturer of plumbing products) since 1992; President and Chief Executive Officer prior thereto. Also a director of Cummins-Allison Corp. (manufacturer of currency counting equipment), Kohler Company (manufacturer of plumbing products), and Market Facts, Inc. (market research); and chairman of the Board of Trustees, Elmhurst College. Age 69. Member of the Audit Committee and Nominating Committee of each Trust. 6 LINDSAY COOK. Senior Vice President, Liberty Financial Companies, Inc. (the indirect parent of the Adviser). Also a Vice President of Liberty Securities Corporation, the Funds' distributor. Age 44.* DOUGLAS A. HACKER. Senior Vice President and Chief Financial Officer, United Airlines, since July, 1994; Senior Vice President- - -Finance, United Airlines, February, 1993 to July, 1994; Vice President--Corporate & Fleet Planning, American Airlines, 1991 to February, 1993. Also a Director of the Steppenwolf Theatre Company and a Trustee of Providence-St. Mel School. Age 40. FRANCIS W. MORLEY. Chairman, Employer Plan Administrators and Consultants Co. (designer, administrator, and communicator of employee benefit plans). Age 75. Member of the Audit Committee of each Trust and of the Executive Committee and Pricing Committee of Income Trust and Municipal Trust. CHARLES R. NELSON. Van Voorhis Professor of Political Economy, University of Washington. Also serves as a consultant on economic and statistical matters. Age 53. Member of the Audit Committee and Nominating Committee of each Trust. THOMAS C. THEOBALD. Managing Partner, William Blair Capital Partners (private equity fund) since 1994; Chief Executive Officer and Chairman of the Board of Directors of Continental Bank Corporation, 1987-1994. Also a director of following public companies: Xerox Corporation, Anixter International (distributes network support equipment), Enron Global Power & Pipelines (owns electric plans and pipelines in developing countries), and Peregrine Asia Growth Fund (mutual fund). Director or partner of following private companies: GFTA (software developer), Kleinwort Benson Holdings (holding company for several American subsidiaries of London-based Kleinwort Benson), and LaSalle Income & Growth Properties (private real estate investment trust). Also a Trustee of Mutual Life Insurance Company of New York and Northwestern University. Age 58. GORDON R. WORLEY. Private investor. Age 76. Member of the Audit Committee of each Trust and of the Executive Committee and Pricing Committee of Investment Trust. *Messrs. Armour and Cook are interested persons of each Trust and of the Adviser, as defined in the Investment Company Act of 1940 (the "Investment Company Act"), by reason of their relationships with the Adviser. Messrs. Block, Morley, Nelson, and Worley have been trustees of Income Trust since 1986, of Municipal Trust and Investment Trust since 1987, and of Base Trust since 1993. Messrs. Armour, Boyd, and Cook have been trustees of Income Trust, Municipal Trust and Base Trust since October, 1994 and of Investment Trust since January, 1995. - - HOW OFTEN DO THE TRUSTEES MEET? The Board of each Trust currently has four committees. The Executive Committee has authority, with some exceptions, to exercise the powers of the Board of Trustees 7 between Board meetings. The Audit Committee makes recommendations regarding the selection of auditors, reviews with the auditors the reports issued by the auditors and the financial statements, confers with the auditors regarding the results of the audit and the adequacy of the accounting procedures and controls, and considers related matters. The Nominating Committee, which functions only in an advisory capacity, reviews and recommends to the full Board candidates for election to the Board. The Pricing Committee determines a fair value of the portfolio securities in cases where the Adviser believes that a market quotation or valuation obtained using an approved pricing methodology does not represent a fair value. During the fiscal year ended June 30, 1995, for Income Trust, Municipal Trust and Base Trust, and the fiscal year ended September 30, 1995, for Investment Trust, the Boards and their committees met the following number of times: Investment Income Municipal Base Trust Trust Trust Trust ----------- -------- --------- ------- Board of Trustees 6 6 6 6 Executive Committee 2 0 1 0 Audit Committee 2 3 3 1 Nominating Committee 0 1 1 1 Pricing Committee 2 0 0 0 Each incumbent trustee attended at least 75% of the aggregate of all meetings of each Board and its committees on which he served during the period. - - WHAT ARE THE TRUSTEES PAID? As compensation for their services, trustees of Investment Trust, Income Trust, and Municipal Trust who are not "interested persons" of a Trust or the Adviser are paid an annual retainer of $8,000 per Trust (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 for each Trust. Non-interested trustees of Base Trust do not receive an annual retainer, but are paid an attendance fee for each meeting of a Portfolio using on the same schedule as for the Funds. Trustees who are "interested persons" receive no compensation from any Trust. The following table shows aggregate compensation received by each non-interested trustee during the fiscal year ended June 30, 1995 from Income Trust, Municipal Trust and Base Trust, and during the fiscal year ended September 30, 1995 from Investment Trust. The trustees do not receive any pension or retirement benefits from any Trust. 8 Total Name of Investment Income Municipal Base Compensation Trustee Trust Trust Trust Trust from Complex - ---------------- -------- -------- --------- ------ ------------ Kenneth L. Block $26,800 $23,350 $20,950 $1,700 $72,800 William W. Boyd* 22,050 15,900 13,800 800 52,550 Francis W. Morley 26,200 23,350 22,500 1,700 73,750 Charles R. Nelson 28,550 23,350 20,950 1,700 74,550 Gordon R. Worley 26,200 23,350 20,950 1,700 72,200 ___________ *Mr. Boyd became a trustee of Income Trust, Municipal Trust and Base Trust in October, 1994 and of Investment Trust in January, 1995. - - SHARE OWNERSHIP BY TRUSTEES The following table shows certain information regarding the beneficial ownership of shares of each Fund as of March 29, 1996 by the nominees, the trustees, and all trustees and officers of each Trust as a group. The information on the table is based on information obtained from the nominees, trustees and officers, as determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. Accordingly, all of the shares over which such person, directly or indirectly, had or shared voting or investment power have been deemed beneficially owned. The aggregate number of shares of each Fund over which the trustees and officers as a group, directly or indirectly, had or shared voting or investment power amounted to 1.2% of International Fund and less than 1% of each other Fund.
Fund Mr. Mr. Mr. Mr. Mr. Mr. Dr. Mr. Mr. As a (1) Armour Block Boyd Cook Hacker Morley Nelson Theobald Worley Group (2) - ---- ------ ----- ------ ----- ------ ------ ------ -------- ------ ---------- A 438 0 0 969 0 7,551 0 0 14,803 27,034 B 3,920 33,348 0 1,452 0 0 0 0 4,417 132,007 C 326 0 0 261 0 0 0 0 0 1,662 D 279 12,975 0 867 0 0 1,752 0 928 71,280 E 0 0 0 0 0 1,177 1,043 0 0 9,000 F 422 23,616 0 947 0 958 1,509 0 0 52,071 G 2,056 15,159 0 1,434 0 0 0 0 0 100,041 H 2,609 29,105 1,991 1,215 0 401 1,032 17,452 12,048 161,047 I 692 12,984 0 0 0 0 10,398 0 0 53,572 J 0 0 0 0 0 0 0 0 0 29,075 K 0 11,078 0 0 0 11,066 7,753 0 0 68,698 L 3,397 7,153 0 0 0 11,112 10,890 0 3,775 1,170,637 M 0 0 32,694 0 0 404,650 0 0 0 437,973 N 1,403 0 0 0 0 0 11,461 0 0 37,760 O 0 52,913 51,781 0 0 0 0 0 46,847 171,116 P 0 0 11,299 3,632 0 0 0 0 18,818 53,028 Q 0 0 0 0 0 0 0 0 0 502,140 R 0 21,424 0 0 0 0 0 0 23,931 69,826
(1) Key for Funds: A Growth & Income Fund J Government Income Fund B International Fund K Intermediate Bond Fund C Young Investor Fund L Cash Reserves Fund D Special Venture Fund M Government Reserves Fund E Balanced Fund N Limited Maturity Income Fund F Growth Stock Fund O Intermediate Municipals Fund G Capital Opportunities Fund P High-Yield Municipals Fund H Special Fund Q Municipal Money Market Fund I Income Fund R Managed Municipals Fund 9 (2) Holdings of all current trustees and officers as a group (31 persons for Investment Trust, 25 persons for Income Trust, and 24 persons for Municipal Trust). THE BOARDS OF TRUSTEES RECOMMEND THAT SHAREHOLDERS FOR THE ELECTION OF EACH NOMINEE AS TRUSTEE. 2. AMENDMENT OF: (A) EACH FUND'S FUNDAMENTAL INVESTMENT RESTRICTION REGARDING BORROWING, AND (B) [FOR SHAREHOLDERS OF STEIN ROE MUNICIPAL MONEY FUND ONLY] A SIMILAR RESTRICTION FOR THE PORTFOLIO OF BASE TRUST When available cash is not sufficient to meet shareholder redemptions, it may be advantageous for a Fund to borrow money for a short time instead of raising cash by selling portfolio securities, which could be disruptive to the Fund's portfolio investment strategy. In addition to borrowing from banks for extraordinary or emergency purposes, the fundamental policies of the Funds are proposed to be amended to permit one Fund to borrow cash from another Stein Roe Fund. The trustees believe that a Fund needing cash may be able to obtain lower interest rates on short-term borrowings through an interfund lending program and that the Fund lending cash may be able to obtain a rate of return competitive with interest rates on alternative short-term investments. Thus, interfund lending would be permitted only if the terms are at least as favorable as the terms each Fund could otherwise negotiate with a third party and if the transaction is conducted in accordance with certain conditions set forth in an exemptive order obtained from the Securities and Exchange Commission (the "SEC") by the Funds. The amended fundamental policy would continue to limit a Fund's borrowing to no more than 33 1/3% of its total assets, including borrowings for temporary or emergency purposes, reverse repurchase agreements, and any other investment or transaction that may involve borrowing consistent with the Fund's investment objective. The Board of each Trust has directed that this Proposal be submitted to shareholders of each Fund for approval or disapproval. In addition, the Board of Municipal Trust has recommended that shareholders of Stein Roe Municipal Money Market Fund authorize approval of an identical amendment to the Portfolio's restriction on borrowing. - - CURRENT AND PROPOSED RESTRICTIONS The Funds' current fundamental investment restrictions with respect to borrowing are as follows: Growth & Income Fund, International Fund, Young Investor Fund, Special Venture Fund, Balanced Fund, Growth Stock Fund, Capital Opportunities Fund, and Special Fund: "[The Fund may not] borrow, except that it may (a) borrow up to 33 1/3% of its total assets, taken at market value at the time of such borrowing, as a temporary measure for extraordinary or emergency purposes, but not to 10 increase portfolio income (the total of reverse repurchase agreements /1/ and such borrowings will not exceed 33 1/3% of its total assets, and the Fund will not purchase additional securities when its borrowings, less proceeds receivable from sales of portfolio securities, exceed 5% of its total assets) and (b) enter into transactions in options, futures, and options on futures." Income Fund, Government Income Fund, Intermediate Bond Fund, and Limited Maturity Income Fund: "[The Fund may not] borrow, except that it may (i) borrow up to 33 1/3% of its total assets, taken at market value at the time of such borrowing, 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 its total assets and it will not purchase additional securities at a time when its borrowings exceed 5% of its total assets) and (ii) enter into transactions in options, futures, and options on futures." Cash Reserves Fund and Government Reserves Fund: "[The Fund may not] borrow, except that it may borrow up to 33 1/3% of its total assets, taken at market value at the time of such borrowing, as a temporary measure for extraordinary or emergency purposes but not to increase portfolio income (such borrowings will not exceed 33 1/3% of its total assets and it will not purchase additional securities at a time when its borrowings exceed 5% of its total assets)." Municipal Money Market Fund and the Portfolio: "[The Fund/Portfolio may not] borrow, except that the Fund may 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)." Intermediate Municipals Fund, High-Yield Municipals Fund, and Managed Municipals Fund: "[The Fund may not] 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), and (b) enter into futures and options transactions." - ------------ /1/ In a repurchase agreement, a Fund purchases securities from a bank or broker-dealer with the agreement that the bank or broker- dealer will repurchase the securities at a later date. Reverse repurchase agreements are ordinary repurchase agreements in which a Fund is the seller of rather than the purchaser of securities and agrees to repurchase them at an agreed-upon time and price. Reverse repurchase agreements can avoid certain market risks and transaction costs associated with an outright sale and repurchase. Reverse repurchase agreements, however, may be viewed as borrowings and may increase a Fund's net asset value fluctuation. - -------------- 11 As amended, the fundamental investment restriction on borrowing would be as follows for Cash Reserves Fund, Government Reserves Fund, Municipal Money Market Fund, and the Portfolio: "[The Fund/Portfolio may not] borrow except that it may (a) borrow for non-leveraging, temporary or emergency purposes and (b) engage in reverse repurchase agreements and make other borrowings, provided that the combination of (a) and (b) shall not exceed 33 1/3% of the value of its total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law; it may borrow from banks, other Stein Roe Funds, and other persons to the extent permitted by applicable law." As amended, the fundamental investment restriction on borrowing would be as follows for the other Funds: "[The Fund may not] borrow except that the Fund may (a) borrow for non-leveraging, temporary or emergency purposes, (b) engage in reverse repurchase agreements and make other borrowings, provided that the combination of (a) and (b) shall not exceed 33 1/3% of the value of the Fund's total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law, and (c) enter into futures and options transactions; the Fund may borrow from banks, other Stein Roe Funds, and other persons to the extent permitted by applicable law." - - BORROWING FROM OTHER STEIN ROE FUNDS AS PART OF THE INTERFUND LENDING PROGRAM Currently, the Funds of Municipal Trust and SR&F Municipal Money Market Portfolio may borrow money only from banks. When a Fund borrows money from banks, it typically pays interest on the borrowing at a rate higher than the rate available from investments in repurchase agreements. If the proposed amendment (and the amendment relating to the restriction on lending, as discussed below) is approved, eligible Stein Roe Funds would be permitted to participate in the interfund lending program to allow the Stein Roe Funds, pursuant to a master loan agreement, to lend available cash to, and borrow from, other Stein Roe Funds. Each lending Fund could lend available cash to another Stein Roe Fund only when the "interfund rate" was higher than repurchase agreement rates or rates on other comparable short-term investments. Each borrowing Fund could borrow through the interfund lending program only when the interfund rate was lower than available bank loan rates. In determining to recommend the proposed amendment to shareholders for approval, the trustees of each Trust considered the possible risks to a Fund from participation in the interfund lending program. The Adviser does not view the difference in rates available on bank borrowings and repurchase agreements or other short-term investments as reflecting a material difference in the quality of the risk of the transactions, but rather as an indication of the ability of banks to earn a higher rate of interest on loans than they pay on repurchase agreements or other short-term investments. There is a risk that a lending Fund could experience a delay in obtaining prompt repayment of a loan and, unlike repurchase agreements, 12 the lending Fund would not necessarily have received collateral for its loan, although it could require that collateral be provided as a condition for making a loan. A delay in obtaining prompt payment could cause a lending Fund to miss an investment opportunity or to incur costs to borrow money to replace the delayed payment. There is also a risk that a borrowing Fund could have a loan recalled by another Fund on one day's notice. In these circumstances, the borrowing Fund might have to borrow from a bank at a higher interest cost if money to lend were not available from another Stein Roe Fund. The trustees of each Trust believe that the benefits to the Funds of that Trust from participation in the program outweigh any possible risks that may result from such participation. In order to permit the Stein Roe Funds to engage in interfund borrowing and lending transactions, regulatory approval was required from the SEC because the transactions may be considered to be between affiliated parties, which normally are prohibited by the Investment Company Act. If the amendment is approved by shareholders of a Fund, the interfund lending program would be implemented only to the extent permitted by rule or by order of the SEC and to the extent that the transactions were otherwise consistent with the investment objectives and limitations of each participating Stein Roe Fund. Shareholders are being asked to approve an amendment to each Fund's fundamental policy on borrowing in this Proposal. Shareholders are also being asked to vote separately on a corresponding amendment to each Fund's fundamental policy on lending. If both amendments are adopted, a Fund, subject to its investment objectives and policies, will be able to participate in the interfund lending program either as a lender or as a borrower. If only one of the two Proposals is adopted, then the Fund's participation in the interfund lending program will be confined to the approved activity. The Trustees believe that the proposed amendments will benefit the Funds by facilitating their flexibility to use the most cost- effective alternative to satisfy borrowing requirements. - - OTHER CHANGES The other proposed changes in the fundamental borrowing restrictions would: (1) allow the Funds of the Municipal Trust and the SR&F Municipal Money Market Portfolio to borrow from persons other than banks; (2) allow Cash Reserves Fund and Government Reserves Fund to purchase reverse repurchase agreements; and (3) allow all Stein Roe Funds to engage in other transactions that may involve borrowing. Although not specifically referred to in the proposed new policy, the Funds (other than Cash Reserves Fund, Government Reserves Fund, and Municipal Money Market Fund) would continue to be able to enter into transactions in options, futures, and options on futures. A Fund would not use its increased flexibility to borrow to engage in transactions that could result in leveraging a Fund. All activities of the Funds are, of course, subject to the Investment Company Act and the rules and regulations thereunder as well as various state securities laws. 13 THE BOARDS OF TRUSTEES RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 2. 3. AMENDMENT OF: (A) EACH FUND'S FUNDAMENTAL INVESTMENT RESTRICTION REGARDING THE MAKING OF LOANS, AND (B) [FOR SHAREHOLDERS OF STEIN ROE MUNICIPAL MONEY FUND ONLY] A SIMILAR RESTRICTION FOR THE PORTFOLIO OF BASE TRUST The Board of Trustees has proposed a corresponding amendment to each Fund's fundamental investment restriction relating to making loans in order to permit the Fund to participate as a lender in the interfund lending program involving the Stein Roe Funds and to make certain other clarifying changes. The nature of this program and the benefits and risks associated with the Funds' participation are set forth under Proposal 2 beginning on page 9. Shareholders of each Fund are being asked to consider separately the Fund's participation in the interfund lending program as a borrower and as a lender. The Board of each Trust has directed that this Proposal be submitted to shareholders of each Fund for approval or disapproval. In addition, the Board of Municipal Trust has recommended that shareholders of Stein Roe Municipal Money Market Fund authorize approval of an identical amendment to the Portfolio's restriction on lending. - - CURRENT AND PROPOSED RESTRICTIONS The Funds' current investment restrictions are as follows: Growth & Income Fund, International Fund, Young Investor Fund, Special Venture Fund, Balanced Fund, Growth Stock Fund, Capital Opportunities Fund, and Special Fund: "[The Fund may not] make loans, but this restriction shall not prevent the Fund from (a) buying a part of an issue of bonds, debentures, or other obligations which are publicly distributed, or from investing up to an aggregate of 15% of its total assets (taken at market value at the time of each purchase) in parts of issues of bonds, debentures or other obligations of a type privately placed with financial institutions, (b) investing in repurchase agreements, or (c) lending portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan)." Income Fund, Government Income Fund, Intermediate Bond Fund, and Limited Maturity Income Fund: "[The Fund may not] make loans to other persons, except that it reserves freedom of action, consistent with its other investment policies and restrictions, to (i) invest up to 100% of its net assets in debt obligations, including those which are either publicly offered or of a type customarily purchased by institutional investors, even though the purchase of such debt obligations may be deemed to be the making of loans, (ii) enter into repurchase agreements and (iii) lend portfolio securities, provided that it may not lend securities if, as a result, the 14 aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan)." Cash Reserves Fund: "[The Fund may not] make loans to other persons, provided that it may purchase money market securities or enter into repurchase agreements." Government Reserves Fund: "[The Fund may not] make loans to other persons, provided that, as described [under its investment policies], it may purchase instruments and may enter into repurchase agreements." Intermediate Municipals Fund, High-Yield Municipals Fund, Municipal Money Market Fund, Managed Municipals Fund, and the Portfolio: "[The Fund/Portfolio may not] make loans to other persons, except that the Fund may invest up to 100% of its assets in debt obligations, including money market instruments." As amended, the fundamental investment restriction on loans would be as follows for Growth & Income Fund, International Fund, Young Investor Fund, Special Venture Fund, Balanced Fund, Growth Stock Fund, Capital Opportunities Fund, Special Fund, Income Fund, Government Income Fund, Intermediate Bond Fund, and Limited Maturity Income Fund: "[The Fund may not] make loans, although the Fund may (a) lend portfolio securities and participate in an interfund lending program with other Stein Roe Funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of the Fund's total assets (taken at market value at the time of such loans); (b) purchase money market instruments and enter into repurchase agreements; and (c) acquire publicly-distributed or privately-placed debt securities." As amended, the fundamental investment restriction on loans would be as follows for Cash Reserves Fund, Government Reserves Fund, Intermediate Municipals Fund, High-Yield Municipals Fund, Municipal Money Market Fund, Managed Municipals Fund, and the Portfolio: "[The Fund/Portfolio may not] make loans, although it may (a) participate in an interfund lending program with other Stein Roe Funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets; (b) purchase money market instruments and enter into repurchase agreements; and (c) acquire publicly-distributed or privately-placed debt securities." - - OTHER MATTERS The proposed restriction omits the private placement limitation in the current lending restriction of the Funds of Investment Trust. Under that limitation, none of those Funds may invest more than 15% of its net assets in privately placed debt securities. However, each of those Funds has a non-fundamental restriction that limits the Fund's investments in illiquid securities to 15% of the Fund's net assets. Cash Reserves Fund, Government Reserves Fund, and Municipal Money Market 15 Fund, in accordance with Rule 2a-7 under the Investment Company Act, will continue to purchase only money market instruments. THE BOARDS OF TRUSTEES RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSAL 3. 4 AND 5. APPROVAL OF PROPOSED AGREEMENTS (FOR SHAREHOLDERS OF STEIN ROE INTERNATIONAL FUND, STEIN ROE SPECIAL VENTURE FUND, STEIN ROE INCOME FUND, STEIN ROE GOVERNMENT INCOME FUND, STEIN ROE INTERMEDIATE BOND FUND, STEIN ROE CASH RESERVES FUND, STEIN ROE GOVERNMENT RESERVES FUND, STEIN ROE LIMITED MATURITY INCOME FUND, STEIN ROE INTERMEDIATE MUNICIPALS FUND, STEIN ROE HIGH-YIELD MUNICIPALS FUND, AND STEIN ROE MANAGED MUNICIPALS FUND [REFERRED TO HEREIN AS THE "APPLICABLE FUNDS"]) - - WHAT ARE THE TERMS OF THE PRESENT AGREEMENTS? Currently each Trust, on behalf of each Applicable Fund, has an Investment Advisory Agreement (the "Present Agreement") with the Adviser. Under the Present Agreement the Adviser furnishes to each Applicable Fund both portfolio management services and administrative services and related facilities required in connection with the Fund's operations. The Present Agreements for Stein Roe International Fund and Stein Roe Special Venture Fund are dated February 1, 1995 and were approved by shareholders on January 17, 1995. The Present Agreements for Stein Roe Income Fund, Stein Roe Government Income Fund, Stein Roe Intermediate Bond Fund, Stein Roe Limited Maturity Income Fund, Stein Roe Intermediate Municipals Fund, Stein Roe High-Yield Municipals Fund, Stein Roe Managed Municipals Fund, are dated November 1, 1994 and were approved by shareholders on October 25, 1994. The Present Agreements for Stein Roe Cash Reserves Fund and Stein Roe Government Reserves Fund are dated November 1, 1995; they were approved by shareholders on October 25, 1994 and were amended by the Board of Trustees of Income Trust on November 1, 1995. Continuance of each Present Agreement was approved by the Board of Trustees on April 17, 1996. - - WHY ARE THE PROPOSED AGREEMENTS BEING RECOMMENDED? Proposals 4(a) and (b) request that shareholders of each Applicable Fund approve the replacement of the Fund's Present Agreement with a separate Management Agreement and Administrative Agreement between the Trust and the Adviser relating to the Applicable Fund; Proposal 5 seeks approval of a Management Agreement between the Adviser and SR&F Base Trust (these three agreements are referred to as the "Proposed Agreements"). Shareholders will vote separately on each Proposed Agreement. The Proposed Agreements for each Applicable Fund provides for substantially the same services as furnished under the Present Agreements, and are being recommended to facilitate the possible conversion of the Fund at some future time into a "feeder" fund in a "master/feeder fund" structure, as explained below. The forms of the Proposed Agreements are attached to this proxy statement as Appendices A, B, and C. Further information about the Trusts and services provided to the Funds 16 by the Adviser and its affiliates may be found under "Further Information about the Trusts and the Adviser" on page 23. MASTER/FEEDER FUND STRUCTURE - - WHAT IS A MASTER/FEEDER FUND STRUCTURE? Under a master/feeder fund structure, the assets of mutual funds with common investment objectives and substantially the same investment policies are pooled together and, rather than being managed separately, are "fed" into a combined pool for portfolio management purposes. The individual funds are known as "feeder" funds and the pool is known as a "master" fund. - - WHY IS THIS ADVANTAGEOUS? Generally, it is believed that the larger the pool of assets being managed, the more efficiently and cost-effectively it can be run. Because a master fund pools the assets of multiple feeder funds, it provides an effective means of creating large asset pools. - - DOES THIS MEAN MY FUND WILL CONVERT IMMEDIATELY TO A FEEDER FUND? By asking you to approve the Proposed Agreements, the trustees are asking that you grant them the ability to convert your Fund to a "master/feeder fund" structure when and if, in their view, it makes sense to do so at some point in the future. Obviously, the timing of any such conversion would depend upon the existence of opportunities to pool assets with those of other feeder funds. So, while the trustees believe converting to a master/feeder fund structure would be desirable given the right opportunity, there are no formal plans to effect such a conversion of any Applicable Fund. Approval of the Proposed Agreements would provide the trustees the ability to move opportunistically when the right opportunity comes about. You would receive at least 30 days' advance notice if your Fund were to be converted. - - IF MY FUND DOES CONVERT TO A FEEDER FUND, IS THERE ANY INCREASED COST TO THE FUND OR TO ME? The primary motivation for considering a master/feeder fund structure is to seek to achieve the operating and expense economies that can be gained by managing larger pools of assets. The trustees' decision to convert your Fund would be based upon their belief that it would be in the best interests of both the Fund and its shareholders. - - WHAT OTHER CHANGES WOULD RESULT FROM IMPLEMENTING A MASTER/FEEDER FUND STRUCTURE? The other changes are mostly technical and legal in nature. To put it as simply as possible, moving to a master/feeder fund structure would require termination of the Management Agreement in place at that time between the Investment Trust and the Adviser relating to your Fund, and replacing it with a new Management Agreement relating to the master fund in which your Fund would invest. This new Management Agreement would be between the Adviser and the Base Trust, which 17 was created to offer mutual funds serving as the master funds in a master/feeder fund structure. As a result, you are being asked to approve for your Applicable Fund three new agreements: - - an Administrative Agreement between the Trust and the Adviser; - - a Management Agreement between the Trust and the Adviser; and - - a Management Agreement between Base Trust and the Adviser for the master fund in which the Fund would invest. The Administrative Agreement would become effective July l, l996, and would remain in place whether or not your Fund converts to the master/feeder fund structure. The Management Agreement between the Trust and the Adviser would become effective on July l, l996, and would remain in place for your Fund unless and until your Fund were converted into a master/feeder fund structure. If your Fund were converted into a master/feeder fund structure, the Management Agreement between the Trust and the Adviser relating to your Fund would be terminated and replaced by the Management Agreement between Base Trust and the Adviser relating to the master fund in which your Fund would then invest. - - WOULD MY FUND BE MANAGED ANY DIFFERENTLY UNDER A MASTER/FEEDER FUND STRUCTURE? No. The master fund in which the assets of your Fund would be invested would have the identical investment objective and substantially the same investment policies as your Fund. This means that the assets of the master fund would be invested in the same types of securities in which your Fund is currently authorized to invest. - - ADDITIONAL INFORMATION ABOUT THE MASTER/FEEDER FUND STRUCTURE. Under a master/feeder fund structure, instead of investing directly in a portfolio of securities, a Fund would invest substantially all of its assets in a portfolio (the Fund's "master fund") of Base Trust having the same investment objective and substantially the same investment policies as the Fund. The Adviser would continue to manage the investment portfolio at the master fund level, where Fund assets would be pooled with assets of other institutional investors having common investment objectives and policies. The Trusts and Base Trust each have the same trustees. A Fund may withdraw its investment in a master fund at any time if its Board of Trustees determines that it is in the best interests of the shareholders of the Fund to do so or if the investment policies or restrictions of the master fund were changed so that they were inconsistent with the policies and restrictions of the Fund. Upon any such withdrawal, the Board of Trustees of that Trust would consider what action might be taken, including the investment of all of the assets of the Fund in another pooled investment entity having substantially the same investment objectives and policies as the Fund or the investment of the Fund's assets directly in accordance with its investment objective and policies. If another pooled investment vehicle with substantially the same investment objectives and policies could not be found, the shareholders of the Fund would not be able to derive the benefits of the master/feeder fund structure. 18 IF YOU HAVE ANY QUESTIONS ABOUT THE MASTER/FEEDER FUND STRUCTURE, PLEASE CALL US AT OUR TOLL-FREE NUMBER, 800-338-2550. - - HOW ARE THE FEES OF THE ADVISER BEING CHANGED? The Proposed Agreements for each Applicable Fund will replace that Fund's Present Agreement, BUT DO NOT CALL FOR ANY INCREASE IN AGGREGATE FEES PAID TO THE ADVISER. The following table shows the aggregate fees paid to the Adviser under each Fund's Present Agreement during its last fiscal year; the annual rate of fees payable under the Present Agreements and the Proposed Agreements as a percentage of average net assets; and the net assets of each Fund as of March 31, 1996:
CURRENT FEE SCHEDULE NET AGGREGATE (DOLLAR AMOUNTS ASSETS FEES PAID IN MILLIONS) PROPOSED FEE SCHEDULE AT TO ADVISER MANAGEMENT AND (DOLLAR AMOUNTS IN MILLIONS) 3/31/96 DURING LAST ADMINISTRATIVE MANAGEMENT ADMINISTRATIVE TOTAL IN FUND FISCAL YEAR FEE FEE FEE FEES MILLIONS) - ----------- ----------- ---------------- --------------- ------------------ -------------- ---------- International Fund $ 732,347 1.00% .850% .150% 1.00% $113,591 Special Venture Fund 295,409 .900% .750% .150% .900% 93,301 Income Fund 1,011,101 .650% up to $100, .500% up to $100, .150% up to $100, .650% up to $100, .600% thereafter .475% thereafter .125% thereafter .600% thereafter 302,798 Government Income Fund 253,463 .600% up to $100, .450% up to $100, .150% up to $100, .600% up to $100, 34,211 .550% thereafter .425% thereafter .125% thereafter .550% thereafter Intermediate Bond Fund 1,491,075 .500% .350% .150% .500% 308,611 Cash Reserves Fund 2,648,885 .500% up to $500, .250% 250% up to $500, .500% up to $500, 492,184 .450% next $500, .200% next $500, .450% next $500, .400% thereafter . .150% thereafter .400% thereafter Government Reserves Fund 513,808 .500% up to $500, .250% .250% up to $500, .500% up to $500, 71,633 .450% next $500, .200% next $500, .450% next $500, .400% thereafter .150% thereafter .400% thereafter Limited Maturity Income Fund 172,301 .600% up to $100, .450% up to $100, .150% up to $100, .600% up to $100, 32,922 .550% next $100, .425% next $100, .125% next $100, .550% next $100, .500% thereafter .400% thereafter .100% thereafter .500% thereafter Intermediate Municipals Fund 1,248,808 .600% up to $100, .450% up to $100, .150% up to $100, .600% up to $100, 214,398 .550% next $100, .425% next $100, .125% next $100, .550% next $100, .500% thereafter .400% thereafter .100% thereafter .500% thereafter High-Yield Municipals Fund 1,587,995 .600% up to $100, .450% up to $100, .150% up to $100, .600% up to $100, 274,003 .550% next $100, .425% next $100, .125% next $100, .550% next $100, .500% thereafter .400% thereafter .100% thereafter .500% thereafter Managed Municipals Fund 3,392,060 .600% up to $100, .450% up to $100, .150% up to $100, .600% up to $100, 612,535 .550% next $100, .425% next $100, .125% next $100, .550% next $100, .500% next $800, .400% next $800, .100% next $800, .500% next $800, .450% thereafter .375% thereafter .075% thereafter .450% thereafter
- - WHAT DO MANAGEMENT AND ADMINISTRATIVE FEES PAY FOR? The fees paid to the Adviser compensate it for the services that the Adviser provides in conducting the day-to-day operations of a Fund (or of a Fund's master fund). These services include: providing personnel, equipment and office facilities necessary for managing the investment portfolio and related research; compliance services; preparing reports to shareholders; complying with state and federal tax 19 and legal requirements relating to maintaining the Trust as a Massachusetts business trust and as a registered open- end investment company; making arrangements and preparation of materials for meetings of the Board of Trustees and of shareholders; calculating and paying Fund expenses and income and capital gain distributions to shareholders; overseeing third party service providers to the Trust; and handling other related business affairs of the Fund. The Present Agreement for each Fund provides that the Adviser shall reimburse the Trust to the extent that the total expenses of the Fund (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 the Adviser) for any fiscal year of the Fund exceed the applicable limits prescribed by any state in which shares of the Fund are being offered for sale; however, the reimbursement for any year shall not exceed the Adviser's fees under the agreement for that year. The Fund's Proposed Administrative Agreement (but not the Proposed Management Agreement) contains a similar provision. The Trusts believe that at the present time, the most restrictive state limits are those imposed by California, which are 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, the Adviser has agreed to voluntarily absorb the expenses of certain Funds to the extent that they exceed a certain percentage of the Funds' average annual net assets as follows: Expense Fund Limitation Expiration* ------------------------- ------------ ----------- International Fund 1.65% 01/31/97 Special Venture Fund 1.25% 01/31/97 Income Fund 0.82% 10/31/98 Government Income Fund 1.00% 10/31/96 Intermediate Bond Fund 0.70% 10/31/96 Government Reserves Fund 0.70% 10/31/96 Limited Maturity Income Fund 0.65% 10/31/96 Intermediate Municipals Fund 0.70% 10/31/96 ____________________________ *Each expense undertaking is subject to earlier termination by the Adviser on 30 days' notice, except for that relating to Income Fund. Prior to November 1, 1995, the Adviser undertook to reimburse Limited Maturity Income Fund for expenses in excess of 0.45%. - - WHAT FACTORS DID THE TRUSTEES CONSIDER IN APPROVING THE PROPOSED AGREEMENTS? In considering the Proposed Agreements, the trustees recognized the potential economic advantage to each Fund and its shareholders of being able to readily convert the Fund to a master/feeder fund structure by having separate Administrative and Management Agreements. In connection with approval of the specific terms of the Proposed Agreements, the trustees placed primary emphasis upon the nature and quality of the services to be provided by the Adviser under each agreement, including the relative complexity of managing each Fund, and a comparison of recent investment performance, fees and other expenses payable by each Fund under the Proposed Agreements and actual (and pro forma) expense ratios, with those of similar funds managed by other 20 investment advisers. The mutual fund comparative study was prepared at the request of the trustees by Lipper Analytical Services, an independent analytical service that specializes in the mutual fund industry. The trustees also considered, among other things, information provided by the Adviser regarding the profitability to the Adviser under both the Present and the Proposed Agreements and under separate agreements relating to bookkeeping and accounting and transfer agency services furnished to each Fund by the Adviser or one of its affiliates. In addition, the trustees considered benefits to the Adviser and its affiliates resulting from their relationship with each Fund. Those considerations were made without regard to the costs incurred by the Adviser and its affiliates in connection with the distribution of Fund shares. On April 16, 1996, the trustees, including the five trustees who are not "interested persons" of the Adviser, unanimously approved the Proposed Agreements and recommended that the shareholders approve the agreements. - - ADDITIONAL INFORMATION ON THE PRESENT AND PROPOSED AGREEMENTS The only material differences between each Fund's Present Agreement and the Proposed Agreements considered together are that (a) the Administrative Agreement provides for the Adviser to furnish administrative services and facilities to the Fund under a separate contract and not under the Fund's Present Agreement and (b) the Management Agreement relating to Base Trust provides for the Adviser to furnish portfolio management services to the Fund's master fund (in which the Fund would invest substantially all of its assets), instead of furnishing such services directly to the Fund. In addition, each Proposed Agreement reflects a new effective date and a new date stated for termination in the absence of annual approval of continuation after the initial term. The current term of each Fund's Present Agreement expires on June 30, 1996. The initial term of each Management Agreement will not be longer than two years. Each Administrative Agreement will continue until it is terminated by either or both parties. Each Present Agreement and each Management Agreement provides that it may be continued after its initial term from year to year only so long as its continuance is approved annually (a) by the vote of a majority of the non-interested trustees of the Trust, cast in person at a meeting called for the purpose of voting on such approval, and (b) by the Board of Trustees of the Trust or by a vote of a "majority" of the outstanding shares of the Fund, as defined below. In addition, each of those agreements would terminate in the event of its assignment and may be terminated without penalty by the Board of Trustees of the Trust, or by a vote of a majority of the outstanding shares of the Fund on 60 days' written notice to the Adviser, or by the Adviser at any time on 60 days' written notice to the Trust./2/ - --------------- /2/ In the case of a Fund that has been converted into a feeder fund, continuation or termination of the Management Agreement for that Fund's Master Fund would instead require approval of the Trustees of Base Trust or the shareholders of the Fund's Master Fund. The Adviser could terminate that Agreement by 60 days' written notice to Base Trust. - ------------------------ 21 - - WHAT HAPPENS IF SHAREHOLDERS DO NOT APPROVE THE PROPOSED AGREEMENTS? The trustees believe it is in the best interests of each Fund and its shareholders for the Proposed Agreements to be approved. However, if a Fund's shareholders do not approve both the Administrative Agreement and the Management Agreement between the applicable Trust and the Adviser, neither agreement will take effect and the Fund's Present Agreement will continue in effect. If the shareholders of a Fund approve the Proposed Agreements relating to the Fund between the applicable Trust and the Adviser but do not approve the Management Agreement between the Base Trust and the Adviser relating to that Fund's master fund, the Fund would not be able to readily convert into a master/feeder fund structure. THE BOARDS RECOMMEND THAT SHAREHOLDERS VOTE FOR PROPOSALS 4 AND 5. FURTHER INFORMATION ABOUT VOTING AND THE SHAREHOLDER MEETING VOTING REQUIREMENTS. All Funds in a Trust vote together on matters that affect the Trust as a whole, such as the election of Trustees. The Board of Trustees of each Trust has determined that Proposals 2, 3, 4, and 5 affect only the individual interests of the shareholders of each respective Fund and, therefore, that shareholders of each Fund should vote separately on each of those Proposals. In such cases, shareholders may vote only on matters that concern the Funds in which they held shares as of the record date. Each share is entitled to a number of votes on any matter that comes before the meeting equal to the net asset value of the share as of the record date of the meeting. With respect to proposals relating to the Portfolio of Base Trust, Stein Roe Municipal Money Market Fund will vote its interest in the Portfolio for and against such matters proportionately to the instructions to vote for and against such matters received from Fund shareholders. The Fund will vote shares for which it receives no voting instructions in the same proportion as the shares for which it receives voting instructions. There can be no assurance that any matter receiving a majority of votes cast by Fund shareholders will receive a majority of votes cast by all Portfolio investors. Approval of each of the items in Proposals 2, 3, 4, and 5 with respect to a Fund (or the Portfolio) requires a "yes" vote of a "majority" of the outstanding shares of the Fund (or the Portfolio) as defined in the Investment Company Act. For this purpose, this means the lesser of (a) 67% of the shares of the Fund (or the Portfolio) present at the meeting, in person or by proxy, if the holders of more than 50% of the outstanding shares of the Fund (or the Portfolio) are present, or (b) more than 50% of the outstanding shares of the Fund (or the Portfolio). QUORUM AND METHOD OF TABULATION. Although 30% of the shares of a Fund entitled to vote, present in person or represented by proxy, constitutes a quorum for the transaction of business by that Fund's shareholders at the meeting, the affirmative vote of a "majority" of the shares entitled to vote, as defined above, is necessary to approve Proposals 2, 3, 4, and 5. 22 For purposes of determining the approval of a Proposal, abstentions will have the same effect as voting against the Proposal. "Broker non-votes" (shares held by brokers or nominees as to which (i) instructions have not been received from the beneficial owners or the persons entitled to vote and (ii) the broker or nominee does not have the discretionary voting power on a particular matter) will also have the same effect as voting against the Proposal. OTHER BUSINESS. The trustees do not know of any other business to be brought before the meeting. However, if any other matters properly come before the meeting, it is their intention that proxies that do not contain specific restrictions to the contrary will be voted on such matters in accordance with the judgment of the persons named as proxies in the enclosed form of proxy. SOLICITATION OF PROXIES. In addition to soliciting proxies by mail, the trustees and employees of the Adviser may solicit proxies in person or by telephone but will not be additionally compensated therefor. The Trusts may also arrange to have votes recorded by telephone. The telephone voting procedure is designed to authenticate shareholders' identities, to allow shareholders to authorize the voting of their shares in accordance with their instructions and to confirm that their instructions have been properly recorded. Persons holding shares as nominees will upon request be reimbursed for their reasonable expenses in soliciting instructions from their principals. The Trusts may engage D.F. King & Co., Inc. to render proxy solicitation services at a fee estimated at $75,000. The expenses of the meeting or any adjournment thereof and of any proxy solicitation will be borne by the Funds. REVOCATION OF PROXIES. Proxies, including proxies given by telephone, may be revoked at any time before they are voted by a written revocation received by the Secretary of the applicable Trust, by properly executing a later-dated proxy, or by attending the meeting and voting in person. DATE FOR RECEIPT OF SHAREHOLDERS' PROPOSALS FOR SUBSEQUENT MEETINGS OF SHAREHOLDERS. The Agreement and Declaration of Trust of each Trust does not provide for annual meetings of shareholders, and the Trust does not currently intend to hold such a meeting in 1997. Shareholder proposals for inclusion in the proxy statement for any subsequent meeting must be received by the Trust within a reasonable period of time prior to any such meeting. Shareholders wishing to submit the name of a candidate for consideration by the Nominating Committee should submit their recommendations to the Secretary of the applicable Trust. ADJOURNMENT. If sufficient votes in favor of a Proposal for any Fund set forth in the Notice of the Meeting are not received by the time scheduled for the meeting, the persons named as proxies may propose adjournments of the meeting for a period or periods of not more than 60 days in the aggregate to permit further solicitation of proxies with respect to the Proposal. Any adjournment will require the affirmative vote of a majority of the votes cast on the question in person or by proxy at the session of the meeting to be adjourned. The persons named as proxies will vote in favor of such adjournment those proxies that they are entitled to vote in 23 favor of the Proposal. They will vote against any such adjournment those proxies required to be voted against the Proposal. FURTHER INFORMATION ABOUT THE TRUSTS AND THE ADVISER THE ADVISER. Stein Roe & Farnham Incorporated is a wholly-owned subsidiary of SteinRoe Services Inc. ("SSI"), the Trusts' transfer agent, which is a wholly-owned subsidiary of Liberty Financial Companies, Inc. ("Liberty Financial"), which is a majority-owned subsidiary of Liberty Mutual Equity Corporation ("Liberty Equity"), which is a wholly-owned subsidiary of Liberty Mutual Insurance Company ("Liberty Mutual"). Liberty Mutual is a mutual insurance company, principally in the property/casualty insurance field. The address of the Adviser and of SSI is One South Wacker Drive, Chicago, Illinois 60606; the address of Liberty Financial and Liberty Equity is Federal Reserve Plaza, Boston, Massachusetts 02210; and the address of Liberty Mutual is 175 Berkeley Street, Boston, Massachusetts 02117. The directors of the Adviser are Kenneth R. Leibler, C. Allen Merritt, Jr., Timothy K. Armour, N. Bruce Callow and Hans P. Ziegler. Mr. Leibler is president and chief executive officer of Liberty Financial; Mr. Merritt is senior vice president and treasurer of Liberty Financial; Mr. Armour is president of the Adviser's Mutual Funds division; Mr. Callow is president of the Adviser's Investment Counsel division; and Mr. Ziegler is chief executive officer of the Adviser. MANAGEMENT AND ADMINISTRATIVE AGREEMENTS. Proposal 4 contains information relating to the current investment advisory agreements of Funds for which new agreements have been proposed. The shareholders of the remaining Stein Roe Funds have previously approved the replacement of their investment advisory agreements with management and administrative agreements. The fees payable under those agreements are as follows: FEE SCHEDULE NET ASSETS AT (DOLLAR AMOUNTS IN MILLIONS) 3/31/96 (IN FUND MANAGEMENT FEE ADMINISTRATIVE FEE TOTAL FEES MILLIONS) - ------------- ---------------- ------------------ ------------- ----------- Growth & Income Fund* .60% up to $500, .15% up to $500, .75% up to $500, $ 165,969 .55% next $500, .125% next $500, .675% next $500, .50% thereafter .100% thereafter .60% thereafter Young Investor Fund * .60% up to $500, .20% up to $500, .80% up to $500, 67,994 .55% next $500, .15% next $500, .70% next $500, .50% thereafter .125% thereafter .625% thereafter Balanced Fund* .55% up to $500, .15% up to $500, .70% up to $500, 231,670 .50% next $500, .125% next $500, .625% next $500, .45% thereafter .100% thereafter .55% thereafter Growth Stock Fund* .60% up to $500, .15% up to $500, .75% up to $500, 389,793 .55% next $500, .125% next $500, .675% next $500, .50% thereafter .100% thereafter .60% thereafter Capital Oppor- tunities Fund* .75% up to $500, .15% up to $500, .90% up to $500, 681,657 .70% next $500, .125% next $500, .825% next $500, .65% next $500, .100% next $500, .75% next $500, .60% thereafter .075% thereafter .675% thereafter 24 Special Fund* .75% up to $500, .15% up to $500, .90% up to $500, 1,124,161 .70% next $500, .125% next $500, .825% next $500, .65% next $500, .100% next $500, .75% next $500, .60% thereafter .075% thereafter .675% thereafter Municipal Money Market Fund N/A** .25 % up to $500, .25 % up to $500, 137,992 .20% next $500, .20% next $500, .15% thereafter .15% thereafter - ----------------- *This Fund's investment advisory agreement was replaced by the management agreement and administrative agreement on September 1, 1995. **On September 28, 1995, Municipal Money Market Fund became a feeder fund, investing all of its assets in the SR&F Municipal Money Market Portfolio ("Portfolio"), a series of Base Trust. Under the Management Agreement between the Adviser and Base Trust, 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%. In addition, the Adviser has agreed to voluntarily absorb the expenses of (a) Young Investor Fund to the extent that they exceed a 1.25% of average annual net assets through January 31, 1997, and (b) Municipal Money Market Fund to the extent that they exceed a 0.70% of average annual net assets through October 31, 1996. Each expense undertaking is subject to earlier termination by the Adviser on 30 days' notice, except for that relating to Income Fund. Prior to February 1, 1996, the limit for Young Investor Fund was 0.99 of 1%. SHAREHOLDER SERVICES. SSI is the agent of each Trust for the transfer of shares, disbursement of dividends, maintenance of shareholder accounting records and shareholder servicing. Prior to May 1, 1995, the fee SSI received from each Fund for performing these services was calculated on the basis of the number of shareholder accounts and the number of various types of transactions in shareholder accounts. Effective May 1, 1995, the trustees approved an amendment to each Trust's agreement with SSI to (a) explicitly provide for certain administrative and shareholder services furnished by SSI, (b) transfer responsibility to SSI for payment of certain out-of-pocket expenses previously paid for by the Funds (aggregating approximately $1 million in the 1994 calendar year), and (c) replace a fee schedule based on transaction activity and number of shareholder accounts with a schedule under which each Fund is charged a monthly fee at an annual rate based on average daily net assets shown in the following table. The following table shows for each Fund (a) annual transfer agency fees payable as a percentage of average net assets, (b) payments made to SSI for services rendered during the last fiscal year (ending June 30, 1995 for Funds of the Income Trust and Municipal Trust and September 30, 1995 for Funds of the Investment Trust), and (c) pro forma payments that would have been made (net of certain Fund out-of-pocket expenses now being assumed by SSI) if the current fee schedules had been in effect throughout the applicable fiscal year: 25 Fee Fees Pro-Forma Fund Schedule Paid Fees - ---------------------------------- -------- -------- --------- Stein Roe Growth & Income Fund 0.22% $177,635 $ 245,216 Stein Roe International Fund 0.22% 94,514 139,914 Stein Roe Young Investor Fund 0.22% 85,123 4,994 Stein Roe Special Venture Fund 0.22% 57,453 61,815 Stein Roe Balanced Fund 0.22% 312,020 440,503 Stein Roe Growth Stock Fund 0.22% 442,339 645,206 Stein Roe Capital Opportunities Fund 0.22% 280,457 387,019 Stein Roe Special Fund 0.22% 1,648,983 2,429,153 Stein Roe Income Fund 0.15% 105,994 191,636 Stein Roe Government Income Fund 0.15% 47,036 36,346 Stein Roe Intermediate Bond Fund 0.15% 216,933 363,281 Stein Roe Cash Reserves Fund 0.14% 815,963 615,411 Stein Roe Government Reserves Fund 0.14% 81,530 124,208 Stein Roe Limited Maturity Income Fund 0.15% 34,222 21,365 Stein Roe Intermediate Municipals Fund 0.15% 123,245 274,694 Stein Roe High-Yield Municipals Fund 0.15% 212,135 345,506 Stein Roe Municipal Money Market Fund 0.14% 163,540 199,609 Stein Roe Managed Municipals Fund 0.15% 405,369 818,119 BOOKKEEPING AND ACCOUNTING. The Adviser performs certain bookkeeping and accounting services for each Fund pursuant to a separate agreement with each Trust. For those services the Adviser receives an annual fee of $25,000 plus .0025 of 1% of average net assets of the Fund over $50 million. For services performed under these agreement, the Adviser received aggregate fees of $114,498 and $74,004 from Income Trust and Municipal Trust, respectively, for the fiscal year ended June 30, 1995, and fees of $192,479 from Investment Trust for the fiscal year ended September 30, 1995. DISTRIBUTOR. Shares of each Fund are offered for sale through Liberty Securities Corporation (the "Distributor"), without any sales commissions or charges to the Fund or its shareholders. The Distributor is a wholly-owned indirect subsidiary of Liberty Mutual whose address is 600 Atlantic Avenue, Boston, Massachusetts 02210. The Adviser bears all sales and promotional expenses, including payments to the Distributor for the sales of Fund shares. The Adviser also makes payments to other broker-dealers, banks and institutions for the sales of Fund shares held through those institutions. Each Trust pays all expenses in connection with registration of its shares with the SEC 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. INDEPENDENT PUBLIC ACCOUNTANTS. The trustees of Investment Trust have selected Arthur Andersen & Co. LLP as independent public accountants for the Trust for the current fiscal year, and the trustees of Income Trust and Municipal Trust have selected Ernst & Young LLP as independent auditors for the current fiscal year. No representative of either accounting firm is expected to be present at the shareholder meeting. 26 PORTFOLIO TRANSACTIONS. The Adviser places the orders for the purchase and sale of each Fund's portfolio securities and options and futures contracts. Purchases and sales of portfolio securities for the Funds of Income Trust are ordinarily transacted with the issuer or with a primary market maker acting as principal or agent for the securities on a net basis, with no brokerage commission being paid by a Fund. Transactions placed through dealers reflect the spread between the bid and asked prices. Occasionally, a Fund may make purchases of underwritten issues at prices that include underwriting discounts or selling concessions. Portfolio securities for the Funds of Municipal Trust are purchased both in underwritings and in the over-the-counter market. 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 brokerage commissions, if any, and other transaction costs, normally is an important factor in this decision, but a number of other judgmental factors may also enter into the decision. These include: the Adviser's knowledge of negotiated commission rates currently available and other current transaction costs; the nature of the security being traded; the size of the transaction; the desired timing of the trade; the activity existing and expected in the market for the particular security; confidentiality; the execution, clearance and settlement capabilities of the broker or dealer selected and others 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 may pay a brokerage commission in excess of that which another broker or dealer may have charged for effecting the same transaction. Evaluations of the reasonableness of brokerage commissions, based on the foregoing factors, are made on an ongoing basis by the Adviser's staff while effecting portfolio transactions. The general level of brokerage commissions paid is reviewed by the Adviser, and reports are made annually to the Board of Trustees. With respect to issues of securities involving brokerage commissions, when more than one broker or dealer is believed to be capable of providing the best combination of price and execution with respect to a particular portfolio transaction for a Fund, the Adviser often selects a broker or dealer that has furnished it with research products or services such as research reports, subscriptions to financial publications and research compilations, compilations of securities prices, earnings, dividends, and similar data, and computer data bases, 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 27 agreement or understanding with any of the brokers or dealers; however, the Adviser uses an internal allocation procedure to identify those brokers or dealers who provide it with research products or services and the amount of research products or services they provide, and endeavors to direct sufficient commissions generated by its clients' accounts in the aggregate, including the Funds, to such brokers or dealers to ensure the continued receipt of research products or services the Adviser feels are useful. In certain instances, the Adviser receives from brokers and dealers products or services that 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 by clients (including the Funds), while the portions of the costs attributable to non-research usage of such products or services is paid by the Adviser in cash. No person acting on behalf of a Fund is authorized, in recognition of the value of research products or services, to pay a commission 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 may be used in servicing any or all of the clients of the Adviser and not all such research products or services are used in connection with the management of the Funds. With respect to a Fund's purchases and sales of portfolio securities transacted with a broker or dealer on a net basis, the Adviser may also consider the part, if any, played by the broker or dealer in bringing the security involved to the Adviser's attention, including investment research related to the security and provided to the Fund. The Boards of Income Trust and Municipal Trust have reviewed the legal developments pertaining to and the practicability of attempting to recapture underwriting discounts or selling concessions when portfolio securities are purchased in underwritten offerings. The Board has been advised by counsel that recapture by a mutual fund currently is not permitted under the Rules of Fair Practice of the National Association of Securities Dealers ("NASD"). Therefore, except with respect to purchases by the Income Fund of municipal securities which are not subject to NASD Rules, the Funds will not attempt to recapture underwriting discounts or selling concessions. If the Income Fund were to purchase municipal securities, it would attempt to recapture selling concessions included in prices paid by the Income Fund in underwritten offerings; however, the Adviser would not be able to negotiate discounts from the fixed offering price for those issuers for which there is a strong demand, and will not allow the failure to obtain a discount to prejudice its ability to purchase an issue for the Income Fund. OFFICERS OF THE TRUSTS. The following persons are officers of the Trusts: 28 Gary A. Anetsberger 40 Senior Vice-President of each Trust Vice President Timothy K. Armour 47 President of each Trust President, Mutual Funds division Jilaine Hummel 40 Executive Vice-President General Counsel, Senior Bauer and Secretary of each Vice President, and Secretary Trust Ann H. Benjamin 38 Vice-President of Income Trust Senior Vice President Bruno Bertocci 41 Vice-President of Investment Trust Senior Vice President David P. Brady 32 Vice-President of Investment Trust Vice President Thomas W. Butch 39 Vice-President of each Trust Senior Vice President N. Bruce Callow 50 Executive Vice-President of President, Investment each Trust Counsel division Daniel K. Cantor 36 Vice-President of Investment Trust Senior Vice President Joanne T. Costopoulos 49 Vice-President of Municipal Trust Vice President E. Bruce Dunn 62 Vice-President of Investment Trust Senior Vice President Erik P. Gustafson 32 Vice-President of Investment Trust Vice President David P. Harris 31 Vice-President of Investment Trust Vice President Philip D. Hausken 38 Vice-President of each Trust Vice President; Corporate Counsel Harvey B. Hirschhorn 46 Vice-President of Investment Trust Executive Vice President Michael T. Kennedy 34 Vice-President of Income Trust Senior Vice President Stephen P. Lautz 39 Vice-President of each Trust Vice President Steven P. Luetger 42 Vice-President of Income Trust Senior Vice President Eric S. Maddix 32 Vice-President of Investment Trust Vice President Lynn C. Maddox 55 Vice-President of each Trust Senior Vice President Anne E. Marcel 38 Vice-President of each Trust Manager, Mutual Fund Sales and Services M. Jane McCart 40 Vice-President of Municipal Trust Senior Vice President Jane M. Naeseth 46 Vice-President of Income Trust Senior Vice President Nicolette D. Parrish 46 Vice-President and Assistant Senior Compliance Administrator; Secretary of each Trust Assistant Secretary Richard B. Peterson 55 Vice-President of Investment Trust Senior Vice President Sharon R. Robertson 34 Controller of each Trust Accounting Manager Janet B. Rysz 40 Assistant Secretary of each Trust Senior Compliance Administrator; Assistant Secretary Gloria J. Santella 38 Vice-President of Investment Trust Senior Vice President Thomas P. Sorbo 35 Vice-President of each Trust Senior Vice President Veronica M. Wallace 49 Vice-President of Municipal Trust Trader in taxable money market instruments Hans P. Ziegler 55 Executive Vice-President of Chief Executive Officer each Trust Margaret O. Zwick 29 Treasurer of each Trust Compliance Manager
SHAREHOLDINGS. As of March 29, 1996, the following persons were known to own beneficially 5% or more of the outstanding shares of a Fund, as determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934: 29 APPROXIMATE PERCENTAGE OF OUTSTANDING NAME AND ADDRESS FUND SHARES HELD - --------------------- ---------------------- ------------- The Northern Trust Co. Income Fund 25.98% F/B/O Liberty Mutual Special Venture Fund 13.59% Daily Valuation Transitions P.O. Box 92956 Chicago, IL 60675 Dunspaugh-Dalton Government Income Fund 6.41% Foundation, Inc. 9040 Sunset Drive Miami, FL 33173 Keyport Life Insurance Young Investor Fund 9.64% Company Federal Reserve Plaza 600 Atlantic Avenue Boston, MA 02210 30 APPENDIX A ADMINISTRATIVE AGREEMENT BETWEEN STEIN ROE ______ TRUST AND STEIN ROE & FARNHAM INCORPORATED STEIN ROE ______ TRUST, a Massachusetts business trust registered under the Securities Act of 1933 ("1933 Act") and the Investment Company Act of 1940 ("1940 Act") (the "Trust"), hereby appoints STEIN ROE & FARNHAM INCORPORATED, a Delaware corporation, of Chicago, Illinois ("Administrator"), to furnish certain administrative services with respect to the Trust and the series of the Trust listed in Schedule A hereto, as such schedule may be amended from time to time (each such series hereinafter referred to as "Fund"). The Trust and Administrator hereby agree that: 1. ADMINISTRATIVE SERVICES. Subject to the terms of this Agreement and the supervision and control of the Trust's Board of Trustees ("Trustees"), Administrator shall provide the following services with respect to the Trust: (a) Preparation and maintenance of the Trust's registration statement with the Securities and Exchange Commission ("SEC"); (b) Preparation and periodic updating of the prospectus and statement of additional information for the Fund ("Prospectus"); (c) Preparation, filing with appropriate regulatory authorities, and dissemination of various reports for the Fund, including but not limited to semiannual reports to shareholders under Section 30(d) of the 1940 Act, annual and semiannual reports on Form N-SAR, and notices pursuant to Rule 24f-2; (d) Arrangement for all meetings of shareholders, including the collection of all information required for preparation of proxy statements, the preparation and filing with appropriate regulatory agencies of such proxy statements, the supervision of solicitation of shareholders and shareholder nominees in connection therewith, tabulation (or supervision of the tabulation) of votes, response to all inquiries regarding such meetings from shareholders, the public and the media, and preparation and retention of all minutes and all other records required to be kept in connection with such meetings; (e) Maintenance and retention of all Trust charter documents and the filing of all documents required to maintain the Trust's status as a Massachusetts business trust and as a registered open-end investment company; (f) Arrangement and preparation and dissemination of all materials for meetings of the Board of Trustees and committees thereof and preparation and retention of all minutes and other records thereof; (g) Preparation and filing of the Trust's Federal, state, and local income tax returns and calculation of any tax required to be paid in connection therewith; (h) Calculation of all Trust and Fund expenses and arrangement for the payment thereof; (i) Calculation of and arrangement for payment of all income, capital gain, and other distributions to shareholders of each Fund; 31 (j) Determination, after consultation with the officers of the Trust, of the jurisdictions in which shares of beneficial interest of each Fund ("Shares") shall be registered or qualified for sale, or may be sold pursuant to an exemption from such registration or qualification, and preparation and maintenance of the registration or qualification of the Shares for sale under the securities laws of each such jurisdiction; (k) Provision of the services of persons who may be appointed as officers of the Trust by the Board of Trustees (it is agreed that some person or persons may be officers of both the Trust and the Administrator, and that the existence of any such dual interest shall not affect the validity of this Agreement except as otherwise provided by specific provision of applicable law); (l) Preparation and, subject to approval of the Trust's Chief Financial Officer, dissemination of the Trust's and each Fund's quarterly financial information to the Board of Trustees and preparation of such other reports relating to the business and affairs of the Trust and each Fund as the officers and Board of Trustees may from time to time reasonably request; (m) Administration of the Trust's Code of Ethics and periodic reporting to the Board of Trustees of Trustee and officer compliance therewith; (n) Provision of internal legal, accounting, compliance, audit, and risk management services and periodic reporting to the Board of Trustees with respect to such services; (o) Negotiation, administration, and oversight of third party services to the Trust including, but not limited to, custody, tax, transfer agency, disaster recovery, audit, and legal services; (p) Negotiation and arrangement for insurance desired or required of the Trust and administering all claims thereunder; (q) Response to all inquiries by regulatory agencies, the press, and the general public concerning the business and affairs of the Trust, including the oversight of all periodic inspections of the operations of the Trust and its agents by regulatory authorities and responses to subpoenas and tax levies; (r) Handling and resolution of any complaints registered with the Trust by shareholders, regulatory authorities, and the general public; (s) Monitoring legal, tax, regulatory, and industry developments related to the business affairs of the Trust and communicating such developments to the officers and Board of Trustees as they may reasonably request or as the Administrator believes appropriate; (t) Administration of operating policies of the Trust and recommendation to the officers and the Board of Trustees of the Trust of modifications to such policies to facilitate the protection of shareholders or market competitiveness of the Trust and Fund and to the extent necessary to comply with new legal or regulatory requirements; (u) Responding to surveys conducted by third parties and reporting of Fund performance and other portfolio information; and (v) Filing of claims, class actions involving portfolio securities, and handling administrative matters in connection with the litigation or settlement of such claims. 32 2. USE OF AFFILIATED COMPANIES AND SUBCONTRACTORS. In connection with the services to be provided by Administrator under this Agreement, Administrator may, to the extent it deems appropriate, and subject to compliance with the requirements of applicable laws and regulations and upon receipt of approval of the trustees, make use of (i) its affiliated companies and their directors, trustees, officers, and employees and (ii) subcontractors selected by Administrator, provided that Administrator shall supervise and remain fully responsible for the services of all such third parties in accordance with and to the extent provided by this Agreement. All costs and expenses associated with services provided by any such third parties shall be borne by Administrator or such parties. 3. INSTRUCTIONS, OPINIONS OF COUNSEL, AND SIGNATURES. At any time Administrator may apply to a duly authorized agent of Trust for instructions regarding the Trust, and may consult counsel for the Trust or its own counsel, in respect of any matter arising in connection with this Agreement, and it shall not be liable for any action taken or omitted by it in good faith in accordance with such instructions or with the advice or opinion of such counsel. Administrator shall be protected in acting upon any such instruction, advice, or opinion and upon any other paper or document delivered by the Trust or such counsel believed by Administrator to be genuine and to have been signed by the proper person or persons and shall not be held to have notice of any change of authority of any officer or agent of the Trust, until receipt of written notice thereof from the Trust. 4. EXPENSES BORNE BY TRUST. Except to the extent expressly assumed by Administrator herein or under a separate agreement between the Trust and Administrator and except to the extent required by law to be paid by Administrator, the Trust shall pay all costs and expenses incidental to its organization, operations and business. Without limitation, such costs and expenses shall include but not be limited to: (a) All charges of depositories, custodians and other agencies for the safekeeping and servicing of its cash, securities, and other property; (b) All charges for equipment or services used for obtaining price quotations or for communication between Administrator or the Trust and the custodian, transfer agent or any other agent selected by the Trust; (c) All charges for investment advisory, portfolio management, and accounting services provided to the Trust by the Administrator, or any other provider of such services; (d) All charges for services of the Trust's independent auditors and for services to the Trust by legal counsel; (e) All compensation of Trustees, other than those affiliated with Administrator, all expenses incurred in connection with their services to the Trust, and all expenses of meetings of the Trustees or committees thereof; (f) All expenses incidental to holding meetings of shareholders, including printing and of supplying each record-date shareholder with notice and proxy solicitation material, and all other proxy solicitation expenses; (g) All expenses of printing of annual or more frequent revisions of the Trust's prospectus(es) and of supplying each then- existing shareholder with a copy of a revised prospectus; 33 (h) All expenses related to preparing and transmitting certificates representing the Trust's shares; (i) All expenses of bond and insurance coverage required by law or deemed advisable by the Board of Trustees; (j) All brokers' commissions and other normal charges incident to the purchase, sale, or lending of Fund securities; (k) All taxes and governmental fees payable to Federal, state or other governmental agencies, domestic or foreign, including all stamp or other transfer taxes; (l) All expenses of registering and maintaining the registration of the Trust under the 1940 Act and, to the extent no exemption is available, expenses of registering the Trust's shares under the 1933 Act, of qualifying and maintaining qualification of the Trust and of the Trust's shares for sale under securities laws of various states or other jurisdictions and of registration and qualification of the Trust under all other laws applicable to the Trust or its business activities; (m) All interest on indebtedness, if any, incurred by the Trust or a Fund; and (n) All fees, dues and other expenses incurred by the Trust in connection with membership of the Trust in any trade association or other investment company organization. 5. ALLOCATION OF EXPENSES BORNE BY TRUST. Any expenses borne by the Trust that are attributable solely to the organization, operation or business of a Fund shall be paid solely out of Fund assets. Any expense borne by the Trust which is not solely attributable to a Fund, nor solely to any other series of shares of the Trust, shall be apportioned in such manner as Administrator determines is fair and appropriate, or as otherwise specified by the Board of Trustees. 6. EXPENSES BORNE BY ADMINISTRATOR. Administrator at its own expense shall furnish all executive and other personnel, office space, and office facilities required to render the services set forth in this Agreement. However, Administrator shall not be required to pay or provide any credit for services provided by the Trust's custodian or other agents without additional cost to the Trust. In the event that Administrator pays or assumes any expenses of the Trust or a Fund not required to be paid or assumed by Administrator under this Agreement, Administrator shall not be obligated hereby to pay or assume the same or similar expense in the future; provided that nothing contained herein shall be deemed to relieve Administrator of any obligation to the Trust or a Fund under any separate agreement or arrangement between the parties. 7. ADMINISTRATION FEE. For the services rendered, facilities provided, and charges assumed and paid by Administrator hereunder, the Trust shall pay to Administrator out of the assets of each Fund fees at the annual rate for such Fund as set forth in Schedule B to this Agreement. For each Fund, the administrative fee shall accrue on each calendar day, and shall be payable monthly on the first business day of the next succeeding calendar month. The daily fee accrual shall be computed by multiplying the fraction of one divided by the number of days in the calendar year by the applicable annual rate of fee, and multiplying this product by the net assets of the Fund, determined in the manner established by the Board of Trustees, as of the close of business 34 on the last preceding business day on which the Fund's net asset value was determined. 8. STATE EXPENSE LIMITATION. If for any fiscal year of a Fund, its aggregate operating expenses ("Aggregate Operating Expenses") exceed the applicable percentage expense limit imposed under the securities law and regulations of any state in which Shares of the Fund are qualified for sale (the "State Expense Limit"), the Administrator shall pay such Fund the amount of such excess. For purposes of this State Expense Limit, Aggregate Operating Expenses shall (a) include (i) any fees or expense reimbursements payable to Administrator pursuant to this Agreement and (ii) to the extent the Fund invests all or a portion of its assets in another investment company registered under the 1940 Act, the pro rata portion of that company's operating expenses allocated to the Fund, and (iii) any compensation payable to Administrator pursuant to any separate agreement relating to the Fund's investment operations and portfolio management, but (b) exclude any interest, taxes, brokerage commissions, and other normal charges incident to the purchase, sale or loan of securities, commodity interests or other investments held by the Fund, litigation and indemnification expense, and other extraordinary expenses not incurred in the ordinary course of business. Except as otherwise agreed to by the parties or unless otherwise required by the law or regulation of any state, any reimbursement by Administrator to a Fund under this section shall not exceed the administrative fee payable to Administrator by the Fund under this Agreement. Any payment to a Fund by Administrator hereunder shall be made monthly, by annualizing the Aggregate Operating Expenses for each month as of the last day of the month. An adjustment for payments made during any fiscal year of the Fund shall be made on or before the last day of the first month following such fiscal year of the Fund if the Annual Operating Expenses for such fiscal year (i) do not exceed the State Expense Limitation or (ii) for such fiscal year there is no applicable State Expense Limit. 9. NON-EXCLUSIVITY. The services of Administrator to the Trust hereunder are not to be deemed exclusive and Administrator shall be free to render similar services to others. 10. STANDARD OF CARE. Neither Administrator, nor any of its directors, officers or stockholders, agents or employees shall be liable to the Trust, any Fund, or its shareholders for any action taken or thing done by it or its subcontractors or agents on behalf of the Trust or the Fund in carrying out the terms and provisions of this Agreement if done in good faith and without negligence or misconduct on the part of Administrator, its subcontractors, or agents. 11. INDEMNIFICATION. The Trust shall indemnify and hold Administrator and its controlling persons, if any, harmless from any and all claims, actions, suits, losses, costs, damages, and expenses, including reasonable expenses for counsel, incurred by it in connection with its acceptance of this Agreement, in connection with any action or omission by it or its agents or subcontractors in the performance of its duties hereunder to the Trust, or as a result of acting upon any instruction believed by it to have been executed by a duly authorized agent of the Trust or as a result of acting upon 35 information provided by the Trust in form and under policies agreed to by Administrator and the Trust, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate solely to a particular Fund or group of Funds, such indemnification shall be only out of the assets of that Fund or group of Funds; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of Administrator or its agents or subcontractors, including but not limited to willful misfeasance, bad faith, or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) Administrator shall give the Trust prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of Administrator. Administrator shall indemnify and hold harmless the Trust from and against any and all claims, demands, expenses and liabilities which such Trust may sustain or incur arising out of, or incurred because of, the negligence or misconduct of Administrator or its agents or subcontractors, provided that such Trust shall give Administrator prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of such Trust. 12. EFFECTIVE DATE, AMENDMENT, AND TERMINATION. This Agreement shall become effective as to any Fund as of the effective date for that Fund specified in Schedule A hereto and, unless terminated as hereinafter provided, shall remain in effect with respect to such Fund thereafter from year to year so long as such continuance is specifically approved with respect to that Fund at least annually by a majority of the Trustees who are not interested persons of Trust or Administrator. As to any Trust or Fund of that Trust, this Agreement may be modified or amended from time to time by mutual agreement between the Administrator and the Trust and may be terminated by Administrator or Trust by at least sixty (60) days' written notice given by the terminating party to the other party. Upon termination as to any Fund, the Trust shall pay to Administrator such compensation as may be due under this Agreement as of the date of such termination and shall reimburse Administrator for its costs, expenses, and disbursements payable under this Agreement to such date. In the event that, in connection with a termination, a successor to any of the duties or responsibilities of Administrator hereunder is designated by the Trust by written notice to Administrator, upon such termination Administrator shall promptly, and at the expense of the Trust or Fund with respect to which this Agreement is terminated, transfer to such successor all relevant books, records, and data established or maintained by Administrator under this Agreement and shall cooperate in the transfer of such duties and responsibilities, including provision, at the expense of such Fund, for assistance from Administrator personnel in the establishment of books, records, and other data by such successor. 13. ASSIGNMENT. Any interest of Administrator under this Agreement shall not be assigned either voluntarily or involuntarily, by operation of law or otherwise, without the prior written consent of Trust. 14. BOOKS AND RECORDS. Administrator shall maintain, or oversee the maintenance by such other persons as may from time to time be approved by the Board of Trustees 36 to maintain, the books, documents, records, and data required to be kept by the Trust under the 1940 Act, the laws of the Commonwealth of Massachusetts or such other authorities having jurisdiction over the Trust or the Fund or as may otherwise be required for the proper operation of the business and affairs of the Trust or the Fund (other than those required to be maintained by any investment adviser retained by the Trust on behalf of a Fund in accordance with Section 15 of the 1940 Act). Administrator will periodically send to the Trust all books, documents, records, and data of the Trust and each of its Funds listed in Schedule A that are no longer needed for current purposes or required to be retained as set forth herein. Administrator shall have no liability for loss or destruction of said books, documents, records, or data after they are returned to such Trust. Administrator agrees that all such books, documents, records, and data which it maintains shall be maintained in accordance with Rule 31a-3 of the 1940 Act and that any such items maintained by it shall be the property of the Trust. Administrator further agrees to surrender promptly to the Trust any such items it maintains upon request, provided that the Administrator shall be permitted to retain a copy of all such items. Administrator agrees to preserve all such items maintained under Rule 31a-1 for the period prescribed under Rule 31a-2 of the 1940 Act. Trust shall furnish or otherwise make available to Administrator such copies of the financial statements, proxy statements, reports, and other information relating to the business and affairs of each Fund of the Trust as Administrator may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement. 15. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any obligation of Trust hereunder shall be binding only upon the assets of Trust (or the applicable Fund thereof) and shall not be binding upon any Trustee, officer, employee, agent or shareholder of Trust. Neither the authorization of any action by the Trustees or shareholders of Trust nor the execution of this Agreement on behalf of Trust shall impose any liability upon any Trustee or any shareholder. 16. USE OF ADMINISTRATOR'S NAME. The Trust may use its name and the names of its Funds listed in Schedule A or any other name derived from the name "Stein Roe & Farnham" only for so long as this Agreement or any extension, renewal, or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of Administrator as it relates to the services it has agreed to furnish under this Agreement. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, Trust will cease to use any name derived from the name "Stein Roe & Farnham" or otherwise connected with Administrator, or with any organization which shall have succeeded to Administrator's business herein described. 17. REFERENCES AND HEADINGS. In this Agreement and in any such amendment, references to this Agreement and all expressions such as "herein," "hereof," and 37 "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: _______________ STEINROE _________ TRUST By ___________________________ Attest: ____________________________ STEIN ROE & FARNHAM INCORPORATED By ___________________________ Attest: ____________________________ 38 ADMINISTRATIVE AGREEMENT SCHEDULE A The Funds of the Trust currently subject to this Agreement are as follows: STEIN ROE INVESTMENT TRUST Effective Date Stein Roe Growth & Income Fund 9/1/95 Stein Roe Young Investor Fund 9/1/95 Stein Roe Balanced Fund 9/1/95 Stein Roe Growth Stock Fund 9/1/95 Stein Roe Capital Opportunities Fund 9/1/95 Stein Roe Special Fund 9/1/95 Stein Roe International Fund Stein Roe Special Venture Fund Dated: STEIN ROE INCOME TRUST Effective Date Stein Roe Income Fund Stein Roe Government Income Fund Stein Roe Intermediate Bond Fund Stein Roe Cash Reserves Fund Stein Roe Government Reserves Fund Stein Roe Limited Maturity Income Fund Dated: STEIN ROE MUNICIPAL TRUST Effective Date Stein Roe Municipal Money Market Fund 9/27/95 Stein Roe Intermediate Municipals Fund Stein Roe High-Yield Municipals Fund Stein Roe Managed Municipals Fund Dated: 39 ADMINISTRATIVE AGREEMENT SCHEDULE B Compensation pursuant to Section 7 of this Agreement shall be calculated with respect to each Fund in accordance with the following schedule applicable to average daily net assets of the Fund: STEIN ROE INVESTMENT TRUST Fund Administrative Fee Schedule B1 Stein Roe Young Investor Fund 0.200% of first $500 million, 0.150% of next $500 million, 0.125% thereafter Fund Administrative Fee Schedule B2 Stein Roe Growth Stock Fund 0.150% of first $500 million, Stein Roe Growth & Income Fund 0.125 of next $500 million, Stein Roe Balanced Fund 0.100% thereafter Fund Administrative Fee Schedule B3 Stein Roe Special Fund 0.150% of first $500 million, Stein Roe Capital Opportunities 0.125% of next $500 million, Fund 0.100% of next $500 million, 0.075% thereafter Fund Administrative Fee Schedule B4 Stein Roe International Fund 0.150% Stein Roe Special Venture Fund Dated: STEIN ROE INCOME TRUST Fund Administrative Fee Schedule Stein Roe Cash Reserves Fund 0.250% of first $500 million Stein Roe Government Reserves Fund 0.200% of next $500 million, 0.150% thereafter Fund Administrative Fee Schedule Stein Roe Income Fund 0.150% of first $100 million, Stein Roe Government Income Fund 0.125% thereafter Fund Administrative Fee Schedule Stein Roe Intermediate Bond Fund 0.150% Fund Administrative Fee Schedule Stein Roe Limited Maturity Income 0.150% of first $100 million, Fund 0.125% of next $100 million, 0.100% thereafter Dated: 40 STEIN ROE MUNICIPAL TRUST Fund Administrative Fee Schedule Stein Roe Municipal Money 0.250% of first $500 million, Market Fund 0.200% of next $500 million, 0.150% thereafter Fund Administrative Fee Schedule SteinRoe Intermediate Municipals 0.150% of first $100 million, Fund 0.125% of next $100 million, Stein Roe High-Yield Municipals 0.100% thereafter Fund Fund Administrative Fee Schedule Stein Roe Managed Municipals Fund 0.150% of first $100 million, 0.125% of next $100 million, 0.100% of next $800 million, 0.075% thereafter Dated: 41 APPENDIX B MANAGEMENT AGREEMENT BETWEEN STEIN ROE _________ TRUST AND STEIN ROE & FARNHAM INCORPORATED STEIN ROE _______ TRUST, a Massachusetts business trust registered under the Investment Company Act of 1940 ("1940 Act") as an open-end diversified management investment company ("Trust"), hereby appoints STEIN ROE & FARNHAM INCORPORATED, a Delaware corporation registered under the Investment Advisers Act of 1940 as an investment adviser, of Chicago, Illinois ("Manager"), to furnish investment advisory and portfolio management services with respect to the portion of its assets represented by the shares of beneficial interest issued in each series listed in Schedule A hereto, as such schedule may be amended from time to time (each such series hereinafter referred to as "Fund"). Trust and Manager hereby agree that: 1. INVESTMENT MANAGEMENT SERVICES. Manager shall manage the investment operations of Trust and each Fund, subject to the terms of this Agreement and to the supervision and control of Trust's Board of Trustees ("Trustees"). Manager agrees to perform, or arrange for the performance of, the following services with respect to each Fund: (a) to obtain and evaluate such information relating to economies, industries, businesses, securities and commodities markets, and individual securities, commodities and indices as it may deem necessary or useful in discharging its responsibilities hereunder; (b) to formulate and maintain a continuing investment program in a manner consistent with and subject to (i) Trust's agreement and declaration of trust and by-laws; (ii) the Fund's investment objectives, policies, and restrictions as set forth in written documents furnished by the Trust to Manager; (iii) all securities, commodities, and tax laws and regulations applicable to the Fund and Trust; and (iv) any other written limits or directions furnished by the Trustees to Manager; (c) unless otherwise directed by the Trustees, to determine from time to time securities, commodities, interests or other investments to be purchased, sold, retained or lent by the Fund, and to implement those decisions, including the selection of entities with or through which such purchases, sales or loans are to be effected; (d) to use reasonable efforts to manage the Fund so that it will qualify as a regulated investment company under subchapter M of the Internal Revenue Code of 1986, as amended; (e) to make recommendations as to the manner in which voting rights, rights to consent to Trust or Fund action, and any other rights pertaining to Trust or the Fund shall be exercised; (f) to make available to Trust promptly upon request all of the Fund's records and ledgers and any reports or information reasonably requested by the Trust; and (g) to the extent required by law, to furnish to regulatory authorities any information or reports relating to the services provided pursuant to this Agreement. 42 Except as otherwise instructed from time to time by the Trustees, with respect to execution of transactions for Trust on behalf of a Fund, Manager shall place, or arrange for the placement of, all orders for purchases, sales, or loans with issuers, brokers, dealers or other counterparties or agents selected by Manager. In connection with the selection of all such parties for the placement of all such orders, Manager shall attempt to obtain most favorable execution and price, but may nevertheless in its sole discretion as a secondary factor, purchase and sell portfolio securities from and to brokers and dealers who provide Manager with statistical, research and other information, analysis, advice, and similar services. In recognition of such services or brokerage services provided by a broker or dealer, Manager is hereby authorized to pay such broker or dealer a commission or spread in excess of that which might be charged by another broker or dealer for the same transaction if the Manager determines in good faith that the commission or spread is reasonable in relation to the value of the services so provided. Trust hereby authorizes any entity or person associated with Manager that is a member of a national securities exchange to effect any transaction on the exchange for the account of a Fund to the extent permitted by and in accordance with Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder. Trust hereby consents to the retention by such entity or person of compensation for such transactions in accordance with Rule 11a-2- 2(T)(a)(iv). Manager may, where it deems to be advisable, aggregate orders for its other customers together with any securities of the same type to be sold or purchased for Trust or one or more Funds in order to obtain best execution or lower brokerage commissions. In such event, Manager shall allocate the shares so purchased or sold, as well as the expenses incurred in the transaction, in a manner it considers to be equitable and fair and consistent with its fiduciary obligations to Trust, the Funds, and Manager's other customers. Manager shall for all purposes be deemed to be an independent contractor and not an agent of Trust and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent Trust in any way. 2. ADMINISTRATIVE SERVICES. Manager shall supervise the business and affairs of Trust and each Fund and shall provide such services and facilities as may be required for effective administration of Trust and Funds as are not provided by employees or other agents engaged by Trust; provided that Manager shall not have any obligation to provide under this Agreement any such services which are the subject of a separate agreement or arrangement between Trust and Manager, any affiliate of Manager, or any third party administrator ("Administrative Agreements"). 3. USE OF AFFILIATED COMPANIES AND SUBCONTRACTORS. In connection with the services to be provided by Manager under this Agreement, Manager may, to the extent it deems appropriate, and subject to compliance with the requirements of applicable laws and regulations and upon receipt of written approval of the Trustees, make use of (i) its affiliated companies and their directors, trustees, officers, and employees and (ii) subcontractors selected by Manager, provided that Manager shall supervise and 43 remain fully responsible for the services of all such third parties in accordance with and to the extent provided by this Agreement. All costs and expenses associated with services provided by any such third parties shall be borne by Manager or such parties. 4. EXPENSES BORNE BY TRUST. Except to the extent expressly assumed by Manager herein or under a separate agreement between Trust and Manager and except to the extent required by law to be paid by Manager, Manager shall not be obligated to pay any costs or expenses incidental to the organization, operations or business of the Trust. Without limitation, such costs and expenses shall include but not be limited to: (a) all charges of depositories, custodians and other agencies for the safekeeping and servicing of its cash, securities, and other property; (b) all charges for equipment or services used for obtaining price quotations or for communication between Manager or Trust and the custodian, transfer agent or any other agent selected by Trust; (c) all charges for administrative and accounting services provided to Trust by Manager, or any other provider of such services; (d) all charges for services of Trust's independent auditors and for services to Trust by legal counsel; (e) all compensation of Trustees, other than those affiliated with Manager, all expenses incurred in connection with their services to Trust, and all expenses of meetings of the Trustees or committees thereof; (f) all expenses incidental to holding meetings of holders of units of interest in the Trust ("Unitholders"), including printing and of supplying each record-date Unitholder with notice and proxy solicitation material, and all other proxy solicitation expense; (g) all expenses of printing of annual or more frequent revisions of Trust prospectus(es) and of supplying each then-existing Unitholder with a copy of a revised prospectus; (h) all expenses related to preparing and transmitting certificates representing Trust shares; (i) all expenses of bond and insurance coverage required by law or deemed advisable by the Board of Trustees; (j) all brokers' commissions and other normal charges incident to the purchase, sale, or lending of portfolio securities; (k) all taxes and governmental fees payable to Federal, state or other governmental agencies, domestic or foreign, including all stamp or other transfer taxes; (l) all expenses of registering and maintaining the registration of Trust under the 1940 Act and, to the extent no exemption is available, expenses of registering Trust's shares under the 1933 Act, of qualifying and maintaining qualification of Trust and of Trust's shares for sale under securities laws of various states or other jurisdictions and of registration and qualification of Trust under all other laws applicable to Trust or its business activities; (m) all interest on indebtedness, if any, incurred by Trust or a Fund; and (n) all fees, dues and other expenses incurred by Trust in connection with membership of Trust in any trade association or other investment company organization. 44 5. ALLOCATION OF EXPENSES BORNE BY TRUST. Any expenses borne by Trust that are attributable solely to the organization, operation or business of a Fund shall be paid solely out of Fund assets. Any expense borne by Trust which is not solely attributable to a Fund, nor solely to any other series of shares of Trust, shall be apportioned in such manner as Manager determines is fair and appropriate, or as otherwise specified by the Board of Trustees. 6. EXPENSES BORNE BY MANAGER. Manager at its own expense shall furnish all executive and other personnel, office space, and office facilities required to render the investment management and administrative services set forth in this Agreement. Manager shall pay all expenses of establishing, maintaining, and servicing the accounts of Unitholders in each Fund listed in Exhibit A. However, Manager shall not be required to pay or provide any credit for services provided by Trust's custodian or other agents without additional cost to Trust. In the event that Manager pays or assumes any expenses of Trust or a Fund not required to be paid or assumed by Manager under this Agreement, Manager shall not be obligated hereby to pay or assume the same or similar expense in the future; provided that nothing contained herein shall be deemed to relieve Manager of any obligation to Trust or a Fund under any separate agreement or arrangement between the parties. 7. MANAGEMENT FEE. For the services rendered, facilities provided, and charges assumed and paid by Manager hereunder, Trust shall pay to Manager out of the assets of each Fund fees at the annual rate for such Fund as set forth in Schedule B to this Agreement. For each Fund, the management fee shall accrue on each calendar day, and shall be payable monthly on the first business day of the next succeeding calendar month. The daily fee accrual shall be computed by multiplying the fraction of one divided by the number of days in the calendar year by the applicable annual rate of fee, and multiplying this product by the net assets of the Fund, determined in the manner established by the Board of Trustees, as of the close of business on the last preceding business day on which the Fund's net asset value was determined. 8. RETENTION OF SUB-ADVISER. Subject to obtaining the initial and periodic approvals required under Section 15 of the 1940 Act, Manager may retain one or more sub-advisers at Manager's own cost and expense for the purpose of furnishing one or more of the services described in Section 1 hereof with respect to Trust or one or more Funds. Retention of a sub-adviser shall in no way reduce the responsibilities or obligations of Manager under this Agreement, and Manager shall be responsible to Trust and its Funds for all acts or omissions of any sub-adviser in connection with the performance of Manager's duties hereunder. 9. NON-EXCLUSIVITY. The services of Manager to Trust hereunder are not to be deemed exclusive and Manager shall be free to render similar services to others. 10. STANDARD OF CARE. Neither Manager, nor any of its directors, officers, stockholders, agents or employees shall be liable to Trust or its Unitholders for any error of judgment, mistake of law, loss arising out of any investment, or any other act or omission in the performance by Manager of its duties under this Agreement, except for loss 45 or liability resulting from willful misfeasance, bad faith or gross negligence on Manager's part or from reckless disregard by Manager of its obligations and duties under this Agreement. 11. AMENDMENT. This Agreement may not be amended as to Trust or any Fund without the affirmative votes (a) of a majority of the Board of Trustees, including a majority of those Trustees who are not "interested persons" of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) of a "majority of the outstanding shares" of Trust or, with respect to an amendment affecting an individual Fund, a "majority of the outstanding shares" of that Fund. The terms "interested persons" and "vote of a majority of the outstanding shares" shall be construed in accordance with their respective definitions in the 1940 Act and, with respect to the latter term, in accordance with Rule 18f-2 under the 1940 Act. 12. EFFECTIVE DATE AND TERMINATION. This Agreement shall become effective as to any Fund as of the effective date for that Fund specified in Schedule A hereto. This Agreement may be terminated at any time, without payment of any penalty, as to any Fund by the Board of Trustees of Trust, or by a vote of a majority of the outstanding shares of that Fund, upon at least sixty (60) days' written notice to Manager. This Agreement may be terminated by Manager at any time upon at least sixty (60) days' written notice to Trust. This Agreement shall terminate automatically in the event of its "assignment" (as defined in the 1940 Act). Unless terminated as hereinbefore provided, this Agreement shall continue in effect with respect to any Fund until the end of the initial term applicable to that Fund specified in Schedule A and thereafter from year to year only so long as such continuance is specifically approved with respect to that Fund at least annually (a) by a majority of those Trustees who are not interested persons of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the Board of Trustees of Trust or by a "vote of a majority of the outstanding shares" of the Fund. 13. OWNERSHIP OF RECORDS; INTERPARTY REPORTING. All records required to be maintained and preserved by Trust pursuant to the provisions of rules or regulations of the Securities and Exchange Commission under Section 31(a) of the 1940 Act or other applicable laws or regulations which are maintained and preserved by Manager on behalf of Trust and any other records the parties mutually agree shall be maintained by Manager on behalf of Trust are the property of Trust and shall be surrendered by Manager promptly on request by Trust; provided that Manager may at its own expense make and retain copies of any such records. Trust shall furnish or otherwise make available to Manager such copies of the financial statements, proxy statements, reports, and other information relating to the business and affairs of each Unitholder in a Fund as Manager may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement. Manager shall prepare and furnish to Trust as to each Fund statistical data and other information in such form and at such intervals as Trust may reasonably request. 46 14. NON-LIABILITY OF TRUSTEES AND UNITHOLDERS. Any obligation of Trust hereunder shall be binding only upon the assets of Trust (or the applicable Fund thereof) and shall not be binding upon any Trustee, officer, employee, agent or Unitholder of Trust. Neither the authorization of any action by the Trustees or Unitholders of Trust nor the execution of this Agreement on behalf of Trust shall impose any liability upon any Trustee or any Unitholder. 15. USE OF MANAGER'S NAME. Trust may use the name "Stein Roe ____ Trust" and the Fund names listed in Schedule A or any other name derived from the name "Stein Roe & Farnham" only for so long as this Agreement or any extension, renewal, or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of Manager as investment adviser. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, Trust will cease to use any name derived from the name "Stein Roe & Farnham" or otherwise connected with Manager, or with any organization which shall have succeeded to Manager's business as investment adviser. 16. REFERENCES AND HEADINGS. In this Agreement and in any such amendment, references to this Agreement and all expressions such as "herein," "hereof," and "hereunder" shall be deemed to refer to this Agreement as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this Agreement. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. Dated: ________________ STEINROE _________ TRUST By ___________________________ Attest: ____________________________ STEIN ROE & FARNHAM INCORPORATED By ___________________________ Attest: ____________________________ 47 MANAGEMENT AGREEMENT SCHEDULE A The Funds of the Trust currently subject to this Agreement are as follows: STEIN ROE INVESTMENT TRUST Effective End of Date Initial Term --------- ------------ Stein Roe Growth & Income Fund 9/1/95 6/30/97 Stein Roe Young Investor Fund 9/1/95 6/30/97 Stein Roe Balanced Fund 9/1/95 6/30/97 Stein Roe Growth Stock Fund 9/1/95 6/30/97 Stein Roe Capital Opportunities Fund 9/1/95 6/30/97 Stein Roe Special Fund 9/1/95 6/30/97 Stein Roe International Fund Stein Roe Special Venture Fund Dated: __________ STEIN ROE INCOME TRUST Effective End of Date Initial Term --------- ------------ Stein Roe Income Fund Stein Roe Government Income Fund Stein Roe Intermediate Bond Fund Stein Roe Cash Reserves Fund Stein Roe Government Reserves Fund Stein Roe Limited Maturity Income Fund Dated: __________ STEIN ROE MUNICIPAL TRUST Effective End of Date Initial Term --------- ------------ Stein Roe Municipal Money Market Fund 9/28/95 6/30/97 Stein Roe Intermediate Municipals Fund Stein Roe High-Yield Municipals Fund Stein Roe Managed Municipals Fund Dated:________ 48 MANAGEMENT AGREEMENT SCHEDULE B Compensation pursuant to Section 7 of this Agreement shall be calculated in accordance with the following schedules applicable to average daily net assets of the Funds: STEIN ROE INVESTMENT TRUST Schedule B1 (Stein Roe Capital Opportunities Fund, Stein Roe Special Fund) 0.750% on first $500 million of average daily net assets 0.700% on next $500 million of average daily net assets 0.650% on next $500 million of average daily net assets 0.600% thereafter Schedule B2 (Stein Roe Growth Stock Fund, Stein Roe Young Investor Fund, Stein Roe Growth & Income Fund) 0.600% on first $500 million of average daily net assets 0.550% on next $500 million of average daily net assets 0.500% thereafter Schedule B3 (Stein Roe Balanced Fund) 0.550% on first $500 million of average daily net assets 0.500% on next $500 million of average daily net assets 0.450% on average daily net assets in excess of $1 billion Schedule B4 (Stein Roe Special Venture Fund) 0.750% of average daily net assets Schedule B5 (Stein Roe International Fund) 0.850% of average daily net assets Dated ___________________________ STEIN ROE INCOME TRUST Schedule (Stein Roe Cash Reserves Fund, Stein Roe Government Reserves Fund) 0.250% of average daily net assets Schedule (Stein Roe Income Fund) 0.500% on first $100 million of average daily net assets 0.475% thereafter Schedule (Stein Roe Government Income Fund) 0.450% on first $100 million of average daily net assets 0.425% thereafter Schedule (Stein Roe Intermediate Bond Fund) 0.350% of average daily net assets 49 Schedule (Stein Roe Limited Maturity Income Fund) 0.450% on first $100 million of average daily net assets 0.425% on next $100 million of average daily net assets 0.400% thereafter Dated ___________________________ STEIN ROE MUNICIPAL TRUST Schedule (Stein Roe Intermediate Municipals Fund, Stein Roe High- Yield Municipals Fund) 0.450% on first $100 million of average daily net assets 0.425% on next $100 million of average daily net assets 0.400% thereafter Schedule (Stein Roe Managed Municipals Fund) 0.450% on first $100 million of average daily net assets 0.425% on next $100 million of average daily net assets 0.400% on next $800 million of average net assets 0.375% thereafter Dated ___________________________ 50 APPENDIX C MANAGEMENT AGREEMENT BETWEEN SR&F BASE TRUST AND STEIN ROE & FARNHAM INCORPORATED SR&F BASE TRUST, a Massachusetts common law trust registered under the Investment Company Act of 1940 ("1940 Act") as an open- end diversified management investment company ("Trust"), hereby appoints STEIN ROE & FARNHAM INCORPORATED, a Delaware corporation registered under the Investment Advisers Act of 1940 as an investment adviser, of Chicago, Illinois ("Manager"), to furnish investment advisory and portfolio management services with respect to the portion of its assets represented by the shares of beneficial interest issued in each series listed in Schedule A hereto, as such schedule may be amended from time to time (each such series hereinafter referred to as "Portfolio"). Trust and Manager hereby agree that: 1. INVESTMENT MANAGEMENT SERVICES. Manager shall manage the investment operations of Trust and each Portfolio, subject to the terms of this Agreement and to the supervision and control of Trust's Board of Trustees ("Trustees"). Manager agrees to perform, or arrange for the performance of, the following services with respect to each Portfolio: (a) to obtain and evaluate such information relating to economies, industries, businesses, securities and commodities markets, and individual securities, commodities and indices as it may deem necessary or useful in discharging its responsibilities hereunder; (b) to formulate and maintain a continuing investment program in a manner consistent with and subject to (i) Trust's agreement and declaration of trust and by-laws; (ii) the Portfolio's investment objectives, policies, and restrictions as set forth in written documents furnished by the Trust to Manager; (iii) all securities, commodities, and tax laws and regulations applicable to the Portfolio and Trust; and (iv) any other written limits or directions furnished by the Trustees to Manager; (c) unless otherwise directed by the Trustees, to determine from time to time securities, commodities, interests or other investments to be purchased, sold, retained or lent by the Portfolio, and to implement those decisions, including the selection of entities with or through which such purchases, sales or loans are to be effected; (d) to use reasonable efforts to manage the Portfolio so that it will qualify as a regulated investment company under subchapter M of the Internal Revenue Code of 1986, as amended; (e) to make recommendations as to the manner in which voting rights, rights to consent to Trust or Portfolio action, and any other rights pertaining to Trust or the Portfolio shall be exercised; (f) to make available to Trust promptly upon request all of the Portfolio's records and ledgers and any reports or information reasonably requested by the Trust; and (g) to the extent required by law, to furnish to regulatory authorities any information or reports relating to the services provided pursuant to this Agreement. 51 Except as otherwise instructed from time to time by the Trustees, with respect to execution of transactions for Trust on behalf of a Portfolio, Manager shall place, or arrange for the placement of, all orders for purchases, sales, or loans with issuers, brokers, dealers or other counterparties or agents selected by Manager. In connection with the selection of all such parties for the placement of all such orders, Manager shall attempt to obtain most favorable execution and price, but may nevertheless in its sole discretion as a secondary factor, purchase and sell Portfolio securities from and to brokers and dealers who provide Manager with statistical, research and other information, analysis, advice, and similar services. In recognition of such services or brokerage services provided by a broker or dealer, Manager is hereby authorized to pay such broker or dealer a commission or spread in excess of that which might be charged by another broker or dealer for the same transaction if the Manager determines in good faith that the commission or spread is reasonable in relation to the value of the services so provided. Trust hereby authorizes any entity or person associated with Manager that is a member of a national securities exchange to effect any transaction on the exchange for the account of a Portfolio to the extent permitted by and in accordance with Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder. Trust hereby consents to the retention by such entity or person of compensation for such transactions in accordance with Rule 11a-2-2(T)(a)(iv). Manager may, where it deems to be advisable, aggregate orders for its other customers together with any securities of the same type to be sold or purchased for Trust or one or more Portfolios in order to obtain best execution or lower brokerage commissions. In such event, Manager shall allocate the shares so purchased or sold, as well as the expenses incurred in the transaction, in a manner it considers to be equitable and fair and consistent with its fiduciary obligations to Trust, the Portfolios, and Manager's other customers. Manager shall for all purposes be deemed to be an independent contractor and not an agent of Trust and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent Trust in any way. 2. ADMINISTRATIVE SERVICES. Manager shall supervise the business and affairs of Trust and each Portfolio and shall provide such services and facilities as may be required for effective administration of Trust and Portfolios as are not provided by employees or other agents engaged by Trust; provided that Manager shall not have any obligation to provide under this Agreement any such services which are the subject of a separate agreement or arrangement between Trust and Manager, any affiliate of Manager, or any third party administrator ("Administrative Agreements"). 3. USE OF AFFILIATED COMPANIES AND SUBCONTRACTORS. In connection with the services to be provided by Manager under this Agreement, Manager may, to the extent it deems appropriate, and subject to compliance with the requirements of applicable laws and regulations and upon receipt of written approval of the Trustees, make use of (i) its affiliated companies and their directors, trustees, officers, and employees and (ii) 52 subcontractors selected by Manager, provided that Manager shall supervise and remain fully responsible for the services of all such third parties in accordance with and to the extent provided by this Agreement. All costs and expenses associated with services provided by any such third parties shall be borne by Manager or such parties. 4. EXPENSES BORNE BY TRUST. Except to the extent expressly assumed by Manager herein or under a separate agreement between Trust and Manager and except to the extent required by law to be paid by Manager, Manager shall not be obligated to pay any costs or expenses incidental to the organization, operations or business of the Trust. Without limitation, such costs and expenses shall include but not be limited to: (a) all charges of depositories, custodians and other agencies for the safekeeping and servicing of its cash, securities, and other property; (b) all charges for equipment or services used for obtaining price quotations or for communication between Manager or Trust and the custodian, transfer agent or any other agent selected by Trust; (c) all charges for administrative and accounting services provided to Trust by Manager, or any other provider of such services; (d) all charges for services of Trust's independent auditors and for services to Trust by legal counsel; (e) all compensation of Trustees, other than those affiliated with Manager, all expenses incurred in connection with their services to Trust, and all expenses of meetings of the Trustees or committees thereof; (f) all expenses incidental to holding meetings of holders of units of interest in the Trust ("Unitholders"), including printing and of supplying each record-date Unitholder with notice and proxy solicitation material, and all other proxy solicitation expense; (g) all expenses of printing of annual or more frequent revisions of Trust prospectus(es) and of supplying each then-existing Unitholder with a copy of a revised prospectus; (h) all expenses related to preparing and transmitting certificates representing Trust shares; (i) all expenses of bond and insurance coverage required by law or deemed advisable by the Board of Trustees; (j) all brokers' commissions and other normal charges incident to the purchase, sale, or lending of portfolio securities; (k) all taxes and governmental fees payable to Federal, state or other governmental agencies, domestic or foreign, including all stamp or other transfer taxes; (l) all expenses of registering and maintaining the registration of Trust under the 1940 Act and, to the extent no exemption is available, expenses of registering Trust's shares under the 1933 Act, of qualifying and maintaining qualification of Trust and of Trust's shares for sale under securities laws of various states or other jurisdictions and of registration and qualification of Trust under all other laws applicable to Trust or its business activities; (m) all interest on indebtedness, if any, incurred by Trust or a Portfolio; and (n) all fees, dues and other expenses incurred by Trust in connection with membership of Trust in any trade association or other investment company organization. 53 5. ALLOCATION OF EXPENSES BORNE BY TRUST. Any expenses borne by Trust that are attributable solely to the organization, operation or business of a Portfolio shall be paid solely out of Portfolio assets. Any expense borne by Trust which is not solely attributable to a Portfolio, nor solely to any other series of shares of Trust, shall be apportioned in such manner as Manager determines is fair and appropriate, or as otherwise specified by the Board of Trustees. 6. EXPENSES BORNE BY MANAGER. Manager at its own expense shall furnish all executive and other personnel, office space, and office facilities required to render the investment management and administrative services set forth in this Agreement. Manager shall pay all expenses of establishing, maintaining, and servicing the accounts of Unitholders in each Portfolio listed in Exhibit A. However, Manager shall not be required to pay or provide any credit for services provided by Trust's custodian or other agents without additional cost to Trust. In the event that Manager pays or assumes any expenses of Trust or a Portfolio not required to be paid or assumed by Manager under this Agreement, Manager shall not be obligated hereby to pay or assume the same or similar expense in the future; provided that nothing contained herein shall be deemed to relieve Manager of any obligation to Trust or a Portfolio under any separate agreement or arrangement between the parties. 7. MANAGEMENT FEE. For the services rendered, facilities provided, and charges assumed and paid by Manager hereunder, Trust shall pay to Manager out of the assets of each Portfolio fees at the annual rate for such Portfolio as set forth in Schedule B to this Agreement. For each Portfolio, the management fee shall accrue on each calendar day, and shall be payable monthly on the first business day of the next succeeding calendar month. The daily fee accrual shall be computed by multiplying the fraction of one divided by the number of days in the calendar year by the applicable annual rate of fee, and multiplying this product by the net assets of the Portfolio, determined in the manner established by the Board of Trustees, as of the close of business on the last preceding business day on which the Portfolio's net asset value was determined. 8. RETENTION OF SUB-ADVISER. Subject to obtaining the initial and periodic approvals required under Section 15 of the 1940 Act, Manager may retain one or more sub-advisers at Manager's own cost and expense for the purpose of furnishing one or more of the services described in Section 1 hereof with respect to Trust or one or more Portfolios. Retention of a sub-adviser shall in no way reduce the responsibilities or obligations of Manager under this Agreement, and Manager shall be responsible to Trust and its Portfolios for all acts or omissions of any sub-adviser in connection with the performance of Manager's duties hereunder. 9. NON-EXCLUSIVITY. The services of Manager to Trust hereunder are not to be deemed exclusive and Manager shall be free to render similar services to others. 10. STANDARD OF CARE. Neither Manager, nor any of its directors, officers, stockholders, agents or employees shall be liable to Trust or its Unitholders for any error of judgment, mistake of law, loss arising out of any investment, or any other act or 54 omission in the performance by Manager of its duties under this Agreement, except for loss or liability resulting from willful misfeasance, bad faith or gross negligence on Manager's part or from reckless disregard by Manager of its obligations and duties under this Agreement. 11. AMENDMENT. This Agreement may not be amended as to Trust or any Portfolio without the affirmative votes (a) of a majority of the Board of Trustees, including a majority of those Trustees who are not "interested persons" of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) of a "majority of the outstanding shares" of Trust or, with respect to an amendment affecting an individual Portfolio, a "majority of the outstanding shares" of that Portfolio. The terms "interested persons" and "vote of a majority of the outstanding shares" shall be construed in accordance with their respective definitions in the 1940 Act and, with respect to the latter term, in accordance with Rule 18f-2 under the 1940 Act. 12. EFFECTIVE DATE AND TERMINATION. This Agreement shall become effective as to any Portfolio as of the effective date for that Portfolio specified in Schedule A hereto. This Agreement may be terminated at any time, without payment of any penalty, as to any Portfolio by the Board of Trustees of Trust, or by a vote of a majority of the outstanding shares of that Portfolio, upon at least sixty (60) days' written notice to Manager. This Agreement may be terminated by Manager at any time upon at least sixty (60) days' written notice to Trust. This Agreement shall terminate automatically in the event of its "assignment" (as defined in the 1940 Act). Unless terminated as hereinbefore provided, this Agreement shall continue in effect with respect to any Portfolio until the end of the initial term applicable to that Portfolio specified in Schedule A and thereafter from year to year only so long as such continuance is specifically approved with respect to that Portfolio at least annually (a) by a majority of those Trustees who are not interested persons of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the Board of Trustees of Trust or by a "vote of a majority of the outstanding shares" of the Portfolio. 13. OWNERSHIP OF RECORDS; INTERPARTY REPORTING. All records required to be maintained and preserved by Trust pursuant to the provisions of rules or regulations of the Securities and Exchange Commission under Section 31(a) of the 1940 Act or other applicable laws or regulations which are maintained and preserved by Manager on behalf of Trust and any other records the parties mutually agree shall be maintained by Manager on behalf of Trust are the property of Trust and shall be surrendered by Manager promptly on request by Trust; provided that Manager may at its own expense make and retain copies of any such records. Trust shall furnish or otherwise make available to Manager such copies of the financial statements, proxy statements, reports, and other information relating to the business and affairs of each Unitholder in a Portfolio as Manager may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement. Manager shall prepare and furnish to Trust as to each Portfolio statistical data and other information in such form and at such intervals as Trust may reasonably request. 55 14. NON-LIABILITY OF TRUSTEES AND UNITHOLDERS. Any obligation of Trust hereunder shall be binding only upon the assets of Trust (or the applicable Portfolio thereof) and shall not be binding upon any Trustee, officer, employee, agent or Unitholder of Trust. Neither the authorization of any action by the Trustees or Unitholders of Trust nor the execution of this Agreement on behalf of Trust shall impose any liability upon any Trustee or any Unitholder. 15. USE OF MANAGER'S NAME. Trust may use the name "SR&F Base Trust" and the Portfolio names listed in Schedule A or any other name derived from the name "Stein Roe & Farnham" only for so long as this Agreement or any extension, renewal, or amendment hereof remains in effect, including any similar agreement with any organization which shall have succeeded to the business of Manager as investment adviser. At such time as this Agreement or any extension, renewal or amendment hereof, or such other similar agreement shall no longer be in effect, Trust will cease to use any name derived from the name "Stein Roe & Farnham" or otherwise connected with Manager, or with any organization which shall have succeeded to Manager's business as investment adviser. 16. REFERENCES AND HEADINGS. In this Agreement and in any such amendment, references to this Agreement and all expressions such as "herein," "hereof," and "hereunder" shall be deemed to refer to this Agreement as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this Agreement. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. Dated: _______________, 19__. SSR&F BASE TRUST By ___________________________ Attest: ____________________________ STEIN ROE & FARNHAM INCORPORATED By ___________________________ Attest: ____________________________ 56 SR&F BASE TRUST MANAGEMENT AGREEMENT SCHEDULE A The Series of SR&F Base Trust currently subject to this Agreement are as follows: Effective End of Date Initial Term --------- ------------ Equity Portfolios: Capital Appreciation Portfolio I (Special) Capital Appreciation Portfolio II (Capital Opportunities) Growth Portfolio I (Young Investor) Growth Portfolio II (Growth Stock) Growth Portfolio III (Growth & Income Fund) Balanced Portfolio Bond Portfolios: Income Portfolio Government Income Portfolo Intermediate Bond Portfolio Limited Maturity Income Portfolio Money Market Portfolios Cash Reserves Portfolio Government Reserves Portfolio Municipal Portfolios: Municipal Money Market Portfolio 9/28/95 6/30/97 Intermediate Municipals Portfolio High-Yield Municipals Portfolio Managed Municipals Portfolio Dated: _____________ 57 SR&F BASE TRUST MANAGEMENT AGREEMENT SCHEDULE B Compensation pursuant to Section 7 of this Agreement shall be calculated in accordance with the following schedules applicable to average daily net assets of the Portfolio: Schedule B1 (Capital Appreciation Portfolios I and II) 0.750% on first $500 million 0.700% on next $500 million 0.650% on next $500 million 0.600% thereafter Schedule B2 (Growth Portfolios I, II, and III) 0.600% on first $500 million 0.550% on next $500 million 0.500% thereafter Schedule B3 (Balanced Portfolio) 0.550% on first $500 million of average daily net assets 0.500% on next $500 million of average daily net assets 0.450% on average daily net assets in excess of $1 billion Schedule B4 (Special Venture Portfolio) 0.750% of average daily net assets Schedule B5 (International Portfolio) 0.850% of average daily net assets Schedule (Cash Reserves Portfolio, Government Reserves Portfolio) 0.250% of average daily net assets Schedule (Income Portfolio) 0.500% on first $100 million of average daily net assets 0.475% thereafter Schedule (Government Income Portfolio) 0.450% on first $100 million of average daily net assets 0.425% thereafter Schedule (Intermediate Bond Portfolio) 0.350% of average daily net assets Schedule (Limited Maturity Income Portfolio) 0.450% on first $100 million of average daily net assets 0.425% on next $100 million of average daily net assets 0.400% thereafter 58 Schedule (Municipal Money Market Portfolio) 0.250% of average net assets Schedule (Intermediate Municipals Portfolio, High-Yield Municipals Portfolio) 0.450% on first $100 million of average daily net assets 0.425% on next $100 million of average daily net assets 0.400% thereafter Schedule (Managed Municipals Portfolo) 0.450% on first $100 million of average daily net assets 0.425% on next $100 million of average daily net assets 0.400% on next $800 million of average net assets 0.375% thereafter Dated ___________________________ Preliminary copy-- STEIN ROE INTERMEDIATE MUNICIPALS FUND SPECIAL MEETING OF SHAREHOLDERS OF JUNE 18, 1996 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF STEIN ROE MUNICIPAL TRUST Please vote, sign, date, and detach the lower portion of this card and return it in the envelope provided. You shares will be voted as indicated by your mark. If you make no mark, your shares will be voted as recommended by the Board. The Board of Trustees recommends voting FOR the election of trustees and FOR Proposals 2, 3, 4, and 5. (1) For election as trustees, the nominees are: (A) Timothy K. Armour (B) Kenneth L. Block (C) William W. Boyd (D) Lindsay Cook (E) Douglas A. Hacker (F) Francis W. Morley (G) Charles R. Nelson (H) Thomas C. Theobald (I) Gordon R. Worley To vote, mark an X in blue or black ink in the appropriate box on the proxy card below. Keep this portion for your records. - -------------------------------------------------------------- (Detach here and return this portion only) Stein Roe Intermediate Municipals Fund To withhold authority to vote on any individual nominee, mark appropriate box below VOTE ON TRUSTEES WITH- FOR FOR HOLD ALL ALL ALL EXCEPT (A) (B) (C) (D) (E) (F) (G) (H) (I) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] VOTE ON PROPOSALS FOR AGAINST ABSTAIN [ ] [ ] [ ] 2. To amend the Fund's fundamental investment restriction regarding borrowing. [ ] [ ] [ ] 3. To amend the Fund's fundamental investment restriction regarding lending. 4. To approve each of the following agreements between the Trust and Stein Roe & Farnham Incorporated ("Adviser") relating to the Fund: [ ] [ ] [ ] A. Administrative Agreement [ ] [ ] [ ] B. Management Agreement [ ] [ ] [ ] 5. To approve a Management Agreement between SR&F Base Trust and the Adviser relating to the Fund if and when the Fund converts to a master fund/feeder fund structure. _________________________ ____________________________________ SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE Please sign name(s) as printed above. Where shares are registered with joint owners, all joint owners should sign. Persons signing as executor, administrator, trustee, or other representative should give full title as such. By signing and dating on the reverse side, you authorize Gary A. Anetsberger, Timothy K. Armour, and Jilaine Hummel Bauer, or any of them, each with power of substitution, to vote your shares of the Fund at the scheduled meeting of shareholders of the Fund and at any adjournment of the meeting. They shall vote as recommended by the Board unless otherwise indicated on the reverse side, and in their discretion upon such other business as may properly come before the meeting. Preliminary copy-- STEIN ROE HIGH-YIELD MUNICIPALS FUND SPECIAL MEETING OF SHAREHOLDERS OF JUNE 18, 1996 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF STEIN ROE MUNICIPAL TRUST Please vote, sign, date, and detach the lower portion of this card and return it in the envelope provided. You shares will be voted as indicated by your mark. If you make no mark, your shares will be voted as recommended by the Board. The Board of Trustees recommends voting FOR the election of trustees and FOR Proposals 2, 3, 4, and 5. (1) For election as trustees, the nominees are: (A) Timothy K. Armour (B) Kenneth L. Block (C) William W. Boyd (D) Lindsay Cook (E) Douglas A. Hacker (F) Francis W. Morley (G) Charles R. Nelson (H) Thomas C. Theobald (I) Gordon R. Worley To vote, mark an X in blue or black ink in the appropriate box on the proxy card below. Keep this portion for your records. - -------------------------------------------------------------- (Detach here and return this portion only) Stein Roe High-Yield Municipals Fund To withhold authority to vote on any individual nominee, mark appropriate box below VOTE ON TRUSTEES WITH- FOR FOR HOLD ALL ALL ALL EXCEPT (A) (B) (C) (D) (E) (F) (G) (H) (I) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] VOTE ON PROPOSALS FOR AGAINST ABSTAIN [ ] [ ] [ ] 2. To amend the Fund's fundamental investment restriction regarding borrowing. [ ] [ ] [ ] 3. To amend the Fund's fundamental investment restriction regarding lending. 4. To approve each of the following agreements between the Trust and Stein Roe & Farnham Incorporated ("Adviser") relating to the Fund: [ ] [ ] [ ] A. Administrative Agreement [ ] [ ] [ ] B. Management Agreement [ ] [ ] [ ] 5. To approve a Management Agreement between SR&F Base Trust and the Adviser relating to the Fund if and when the Fund converts to a master fund/feeder fund structure. _________________________ ____________________________________ SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE Please sign name(s) as printed above. Where shares are registered with joint owners, all joint owners should sign. Persons signing as executor, administrator, trustee, or other representative should give full title as such. By signing and dating on the reverse side, you authorize Gary A. Anetsberger, Timothy K. Armour, and Jilaine Hummel Bauer, or any of them, each with power of substitution, to vote your shares of the Fund at the scheduled meeting of shareholders of the Fund and at any adjournment of the meeting. They shall vote as recommended by the Board unless otherwise indicated on the reverse side, and in their discretion upon such other business as may properly come before the meeting. Preliminary copy-- STEIN ROE MUNICIPAL MONEY MARKET FUND SPECIAL MEETING OF SHAREHOLDERS OF JUNE 18, 1996 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF STEIN ROE MUNICIPAL TRUST Please vote, sign, date, and detach the lower portion of this card and return it in the envelope provided. You shares will be voted as indicated by your mark. If you make no mark, your shares will be voted as recommended by the Board. The Board of Trustees recommends voting FOR the election of trustees and FOR Proposals 2 and 3. (1) For election as trustees, the nominees are: (A) Timothy K. Armour (B) Kenneth L. Block (C) William W. Boyd (D) Lindsay Cook (E) Douglas A. Hacker (F) Francis W. Morley (G) Charles R. Nelson (H) Thomas C. Theobald (I) Gordon R. Worley To vote, mark an X in blue or black ink in the appropriate box on the proxy card below. Keep this portion for your records. - -------------------------------------------------------------- (Detach here and return this portion only) Stein Roe Municipal Money Market Fund VOTE ON TRUSTEES WITH- FOR FOR HOLD ALL ALL ALL EXCEPT (A) (B) (C) (D) (E) (F) (G) (H) (I) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] VOTE ON PROPOSALS FOR AGAINST ABSTAIN [ ] [ ] [ ] 2. A. To amend the Fund's fundamental investment restriction regarding borrowing. [ ] [ ] [ ] B. To authorize the Fund to vote for approval of a similar amendment to the fundamental investment restriction of SR&F Municipal Money Market Portfolio. [ ] [ ] [ ] 3 A. To amend the Fund's fundamental investment restriction regarding lending. [ ] [ ] [ ] B. To authorize the Fund to vote for approval of a similar amendment to the fundamental investment restriction of SR&F Municipal Money Market Portfolio. _________________________ ____________________________________ SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE Please sign name(s) as printed above. Where shares are registered with joint owners, all joint owners should sign. Persons signing as executor, administrator, trustee, or other representative should give full title as such. By signing and dating on the reverse side, you authorize Gary A. Anetsberger, Timothy K. Armour, and Jilaine Hummel Bauer, or any of them, each with power of substitution, to vote your shares of the Fund at the scheduled meeting of shareholders of the Fund and at any adjournment of the meeting. They shall vote as recommended by the Board unless otherwise indicated on the reverse side, and in their discretion upon such other business as may properly come before the meeting. Preliminary copy-- STEIN ROE MANAGED MUNICIPALS FUND SPECIAL MEETING OF SHAREHOLDERS OF JUNE 18, 1996 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF STEIN ROE MUNICIPAL TRUST Please vote, sign, date, and detach the lower portion of this card and return it in the envelope provided. You shares will be voted as indicated by your mark. If you make no mark, your shares will be voted as recommended by the Board. The Board of Trustees recommends voting FOR the election of trustees and FOR Proposals 2, 3, 4, and 5. (1) For election as trustees, the nominees are: (A) Timothy K. Armour (B) Kenneth L. Block (C) William W. Boyd (D) Lindsay Cook (E) Douglas A. Hacker (F) Francis W. Morley (G) Charles R. Nelson (H) Thomas C. Theobald (I) Gordon R. Worley To vote, mark an X in blue or black ink in the appropriate box on the proxy card below. Keep this portion for your records. - -------------------------------------------------------------- (Detach here and return this portion only) Stein Roe Managed Municipals Fund To withhold authority to vote on any individual nominee, mark appropriate box below VOTE ON TRUSTEES WITH- FOR FOR HOLD ALL ALL ALL EXCEPT (A) (B) (C) (D) (E) (F) (G) (H) (I) [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] VOTE ON PROPOSALS FOR AGAINST ABSTAIN [ ] [ ] [ ] 2. To amend the Fund's fundamental investment restriction regarding borrowing. [ ] [ ] [ ] 3. To amend the Fund's fundamental investment restriction regarding lending. 4. To approve each of the following agreements between the Trust and Stein Roe & Farnham Incorporated ("Adviser") relating to the Fund: [ ] [ ] [ ] A. Administrative Agreement [ ] [ ] [ ] B. Management Agreement [ ] [ ] [ ] 5. To approve a Management Agreement between SR&F Base Trust and the Adviser relating to the Fund if and when the Fund converts to a master fund/feeder fund structure. _________________________ ____________________________________ SIGNATURE DATE SIGNATURE (JOINT OWNER) DATE Please sign name(s) as printed above. Where shares are registered with joint owners, all joint owners should sign. Persons signing as executor, administrator, trustee, or other representative should give full title as such. By signing and dating on the reverse side, you authorize Gary A. Anetsberger, Timothy K. Armour, and Jilaine Hummel Bauer, or any of them, each with power of substitution, to vote your shares of the Fund at the scheduled meeting of shareholders of the Fund and at any adjournment of the meeting. They shall vote as recommended by the Board unless otherwise indicated on the reverse side, and in their discretion upon such other business as may properly come before the meeting. -----END PRIVACY-ENHANCED MESSAGE-----