-----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, V+lH3th7fRUTbEaj7OfPSK3Huo9hOOfX2fNdh0ABx3G0pEfUuDz0ZpfuXKr5q+yX ns+Npx5nhzHu6sjtmAcUtg== 0000809558-98-000009.txt : 19980615 0000809558-98-000009.hdr.sgml : 19980615 ACCESSION NUMBER: 0000809558-98-000009 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19980612 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEIN ROE INSTITUTIONAL TRUST CENTRAL INDEX KEY: 0001020521 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 333-13331 FILM NUMBER: 98647121 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-07823 FILM NUMBER: 98647122 BUSINESS ADDRESS: STREET 1: ONE SOUTH WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 8003382550 MAIL ADDRESS: STREET 1: ONE SOUTH WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 485APOS 1 1933 Act Registration No. 333-13331 1940 Act File No. 811-07823 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Post-Effective Amendment No. 6 [X] and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X] Amendment No. 7 [X] STEIN ROE INSTITUTIONAL TRUST (Exact Name of Registrant as Specified in Charter) One South Wacker Drive, Chicago, Illinois 60606 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: 1-800-338-2550 Heidi J. Walter Cameron S. Avery Vice-President & Secretary Bell, Boyd & Lloyd Stein Roe Institutional Trust Three First National Plaza One South Wacker Drive 70 W. Madison Street, Suite 3300 Chicago, Illinois 60606 Chicago, Illinois 60602 (Name and Address of Agents for Service) It is proposed that this filing will become effective (check appropriate box): [ ] immediately upon filing pursuant to paragraph (b) [ ] on (date) pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [X] on August 26, 1998 pursuant to paragraph (a)(2) of rule 485 Registrant has previously elected to register pursuant to Rule 24f- 2 an indefinite number of shares of beneficial interest of the series Stein Roe Institutional High Yield Fund. Registrant elects to register pursuant to Rule 24f-2 an indefinite number of shares of beneficial interest of the series Stein Roe Institutional Asia Pacific Fund. This Registration Statement has also been signed by SR&F Base Trust as it relates to Stein Roe Institutional High Yield Fund and Stein Roe Institutional Asia Pacific Fund. STEIN ROE INSTITUTIONAL TRUST CROSS REFERENCE SHEET ITEM NO. CAPTION - ----- ------- PART A (PROSPECTUS) 1 Front cover 2 Fee Table; Summary 3 (a) [Institutional High Yield Fund] Financial Highlights; [Institutional Asia Pacific Fund] none (b) Inapplicable (c) Investment Return (d) Inapplicable 4 Organization and Description of Shares; The Fund; Investment Policies; Investment Restrictions; Risks and Investment Considerations; Portfolio Investments and Strategies; Summary--Investment Risks 5 (a) Management--Trustees and Investment Adviser (b) Management--Trustees and Investment Adviser, Fees and Expenses (c) Management--Portfolio Manager (d) Inapplicable (e) Management--Transfer Agent (f) Management--Fees and Expenses; [Institutional High Yield Fund] Financial Highlights (g) Inapplicable 5A Inapplicable 6 (a) Organization and Description of Shares; see statement of additional information: General Information and History (b) Inapplicable (c) Organization and Description of Shares (d) Inapplicable (e) For More Information (f) Distributions and Income Taxes (g) Distributions and Income Taxes (h) Master Fund/Feeder Fund: Structure and Risk Factors 7 How to Purchase Shares (a) Management--Distributor (b) How to Purchase Shares; Net Asset Value (c) Inapplicable (d) How to Purchase Shares (e) Inapplicable (f) Inapplicable (g) Inapplicable 8 How to Redeem Shares 9 Inapplicable PART B (STATEMENT OF ADDITIONAL INFORMATION) 10 Cover page 11 Table of Contents 12 General Information and History 13 Investment Policies; Portfolio Investments and Strategies; Investment Restrictions 14 Management 15 Principal Shareholders 16(a) Investment Advisory Services; Management; see prospectus: Management, Fee Table (b) Investment Advisory Services (c) Inapplicable (d) Investment Advisory Services (e) Inapplicable (f) Inapplicable (g) Inapplicable (h) Custodian; Independent Auditors (i) Transfer Agent 17(a) Portfolio Transactions (b) Inapplicable (c) Portfolio Transactions (d) Inapplicable (e) Inapplicable 18 General Information and History 19(a) Purchases and Redemptions; see prospectus: How to Purchase Shares, How to Redeem Shares (b) Purchases and Redemptions; see prospectus: Net Asset Value (c) Purchases and Redemptions 20 Additional Income Tax Considerations; Portfolio Investments and Strategies--Taxation of Options and Futures 21(a) Distributor (b) Inapplicable (c) Inapplicable 22(a) Inapplicable (b) Investment Performance 23 [Institutional High Yield Fund] Financial Statements; [Institutional Asia Pacific Fund] none PART C 24 Financial Statements and Exhibits 25 Persons Controlled By or Under Common Control with Registrant 26 Number of Holders of Securities 27 Indemnification 28 Business and Other Connections of Investment Adviser 29 Principal Underwriters 30 Location of Accounts and Records 31 Management Services 32 Undertakings The prospectus and statement of additional information relating to the series of Stein Roe Institutional Trust designated Stein Roe Institutional High Yield Fund are not affected by the filing of this Post-Effective Amendment No. 6. PRELIMINARY PROSPECTUS DATED JUNE 12, 1998 A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALES OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. ------------- Prospectus _______, 1998 Stein Roe Mutual Funds Stein Roe Institutional Asia Pacific Fund The investment objective of Stein Roe Institutional Asia Pacific Fund is to seek growth of capital. The Fund invests all of its net investable assets in SR&F Asia Pacific Portfolio, which has the same investment objective and substantially the same investment policies as the Fund. The investment experience of the Fund will correspond to the Portfolio. (See Master Fund/Feeder Fund: Structure and Risk Factors.) The Portfolio invests primarily in the common stocks and equity-related securities of medium to large capitalization growth companies located in the Pacific Basin. The Fund is a "no-load" fund. There are no sales or redemption charges, and the Fund has no 12b-1 plan. The Fund is a series of Stein Roe Institutional Trust and the Portfolio is a series of SR&F Base Trust. Each Trust is an open-end management investment company. Shares of the Fund are available primarily through Intermediaries who provide accounting, recordkeeping, and other services to investors and who hold Fund shares in omnibus accounts for their clients. (See How to Purchase Shares.) This prospectus contains information you should know before investing in the Fund. Please read it carefully and retain it for future reference. A Statement of Additional Information dated ______, 1998, containing more detailed information, has been filed with the Securities and Exchange Commission and (together with any supplements thereto) is incorporated herein by reference. That information, material incorporated by reference, and other information regarding registrants that file electronically with the SEC is available at the SEC's website, www.sec.gov. You can get a free copy of the Statement of Additional Information by calling 800-338-2550 or by writing to Stein Roe Funds, Suite 3200, One South Wacker Drive, Chicago, Illinois 60606. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS Page Summary ......................................2 Fee Table ...................................3 The Fund .....................................4 Investment Policies ..........................5 Portfolio Investments and Strategies..........5 Investment Restrictions.......................7 Risks and Investment Considerations...........8 How to Purchase Shares ......................10 How to Redeem Shares ........................11 Net Asset Value .............................11 Distributions and Income Taxes ..............12 Investment Return ...........................13 Management ..................................14 Organization and Description of Shares.......15 Master Fund/Feeder Fund: Structure and Risk Factors...............................16 For More Information.........................18 SUMMARY Stein Roe Institutional Asia Pacific Fund (the "Fund") is a series of Stein Roe Institutional Trust (the "Trust"), an open-end management investment company organized as a Massachusetts business trust. The Fund offers institutional investors the advantage of a "no-load" fund, with Stein Roe & Farnham Incorporated and its affiliates providing customized services as investment adviser, administrator, transfer agent, and distributor. (See The Fund and Organization and Description of Shares.) This prospectus is not a solicitation in any jurisdiction in which Fund shares are not qualified for sale. Investment Objective and Policies. The Fund seeks growth of capital. It invests all of its net investable assets in SR&F Asia Pacific Portfolio (the "Portfolio"), which has the same investment objective and substantially the same investment policies as the Fund. The Portfolio invests primarily in the common stocks and equity-related securities of medium to large capitalization growth companies, defined as those companies with market capitalizations of at least $500 million, located in the Pacific Basin. Under normal conditions, the Portfolio will invest at least 65% of its total assets in equity securities issued by companies in the Pacific Basin. There can be no guarantee that the Fund or the Portfolio will achieve their common investment objective. Please see Investment Policies and Portfolio Investments and Strategies for further information. Investment Risks. The Fund is intended for long-term investors seeking international diversification of their investments. It should not be considered a complete investment program. Since the Portfolio invests primarily in foreign securities, investors should understand and consider carefully the risks involved in foreign investing. Investing in foreign securities involves certain risks and opportunities not typically associated with investing in U.S. securities. Such risks include fluctuations in exchange rates on foreign currencies, less public information, less government supervision, less liquidity, and greater price volatility. Investments in securities of emerging markets issuers may present greater risks than investments in more developed foreign markets. Many investments in emerging markets can be considered speculative, and the value of those investments can be more volatile than is typical in the more developed foreign markets. Please see Investment Policies, Portfolio Investments and Strategies, and Risks and Investment Considerations for further information. Purchases and Redemptions. Fund shares are available primarily through pension plan administrators, broker-dealers, or other intermediaries (each an "Intermediary"), who provide accounting, recordkeeping, and other services to investors and who hold Fund shares in omnibus accounts for their clients. For additional information on purchasing (buying) and redeeming (selling) shares, see How to Purchase Shares and How to Redeem Shares. Distributions. Dividends are normally declared and paid annually. Distributions will be reinvested in additional Fund shares unless the Intermediary holding the omnibus account elects to receive them in cash. (See Distributions and Income Taxes.) Management and Fees. Stein Roe & Farnham Incorporated (the "Adviser") provides overall management services to the Portfolio and administrative and bookkeeping and accounting services to the Fund and the Portfolio. Newport Fund Management, Inc. ("Newport") has been engaged as sub-adviser to provide investment advisory services to the Portfolio, subject to overall management by the Adviser. For a description of the Adviser, Newport and their fees, see Management. FEE TABLE Shareholder Transaction Expenses Sales Load Imposed on Purchases.........................None Sales Load Imposed on Reinvested Dividends..............None Deferred Sales Load.....................................None Redemption Fees*........................................None Exchange Fees...........................................None Annual Fund Operating Expenses (as a percentage of average net assets; after fee waiver) Management and Administrative Fees (after fee waiver)...0.18% 12b-1 Fees..............................................None Other Expenses..........................................0.82% ----- Total Fund Operating Expenses (after fee waiver)........1.00% ===== Example. You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return; and (2) redemption at the end of each time period: 1 year 3 years ------ ------- $10 $32 The purpose of the Fee Table is to assist you in understanding the various costs and expenses that you will bear directly or indirectly as an investor in the Fund. The table is based upon an estimate of expenses, assuming net assets of $50 million. The figures assume that the percentage amounts listed under Annual Fund Operating Expenses remain the same during each of the periods and that all income dividends and capital gains distributions are reinvested in additional shares. From time to time, the Adviser may voluntarily undertake to reimburse the Fund for a portion of its operating expenses. The Adviser has undertaken to reimburse the Fund for its operating expenses to the extent that such expenses exceed 2.00% of its average annual net assets. This commitment expires on January 31, 1999, subject to earlier termination by the Adviser on 30 days' notice to the Fund. Absent such reimbursement, the Management and Administrative Fees and Total Operating Expenses would be 1.10% and 2.05%, respectively. Any such reimbursement will lower the Fund's overall expense ratio and increase its overall return to investors. (Also see Management-Fees and Expenses.) The Fund pays the Adviser an administrative fee based on the Fund's average daily net assets, and the Portfolio pays the Adviser a management fee based on its average daily net assets. The expenses of both the Fund and the Portfolio are summarized in the Fee Table (the fees are described under Management). The Fund bears its proportionate share of Portfolio fees and expenses. The trustees of the Trust have considered whether the annual operating expenses of the Fund, including its proportionate share of the expenses of the Portfolio, would be more or less than if the Fund invested directly in the securities held by the Portfolio. The trustees concluded that the Fund's expenses would not be greater in such case. The figures in the Example are not necessarily indicative of past or future expenses, and actual expenses may be greater or less than those shown. Although information such as that shown in the Example and Fee Table is useful in reviewing the Fund's expenses and in providing a basis for comparison with other mutual funds, it should not be used for comparison with other investments using different assumptions or time periods. THE FUND Stein Roe Institutional Asia Pacific Fund (the "Fund") is a no- load "mutual fund." The Fund does not impose commissions or charges when shares are purchased or redeemed. The Fund is a series of Stein Roe Institutional Trust (the "Trust"), an open-end management investment company, which is authorized to issue shares of beneficial interest in separate series. Stein Roe & Farnham Incorporated (the "Adviser") provides administrative, overall management and accounting and bookkeeping services to the Fund and the Portfolio. Newport Fund Management, Inc. ("Newport"), as the sub-adviser, has been engaged to provide investment advisory services to the Portfolio, subject to overall management by the Adviser. The Fund is a "feeder fund"-that is, it invests all of its assets in SR&F Asia Pacific Portfolio (the "Portfolio"), a "master fund" that has an investment objective identical to that of the Fund. The Portfolio is a series of SR&F Base Trust ("Base Trust"). Under the "master fund/feeder fund structure," a feeder fund and one or more other feeder funds pool their assets in a master portfolio that has the same investment objective and substantially the same investment policies as the feeder funds. The purpose of such an arrangement is to achieve greater operational efficiencies and reduce costs. (For more information, see Master Fund/Feeder Fund: Structure and Risk Factors.) INVESTMENT POLICIES The Fund seeks growth of capital. It invests all of its net investable assets in the Portfolio, which has the same investment objective and substantially the same investment policies as the Fund. The Portfolio seeks to achieve its objective by investing primarily in the common stocks and equity-related securities of medium to large capitalization growth companies, defined as those companies with market capitalizations of at least $500 million, located in the Pacific Basin. The Portfolio will invest in companies that Newport believes have long-term growth prospects and credible management. The Portfolio seeks to provide investors with international diversification and capital appreciation by investing primarily in equity securities of medium and large capitalization companies in the Pacific Basin, including Japan, Hong Kong/China, Singapore, South Korea, Taiwan, Malaysia, Thailand, Indonesia, the Philippines, Australia, and New Zealand. Under normal conditions, the Portfolio will invest at least 65% of its total assets in equity securities issued by companies in the Pacific Basin. The Portfolio may invest up to 35% of its total assets in equity and debt securities of companies located anywhere in the world, including the United States. Under normal market conditions, the Portfolio intends to be fully invested in equity securities in the Pacific Basin economies. However, should Newport consider that prevailing market, economic, political or currency conditions warrant, the Portfolio may establish and maintain reserves for defensive purposes or to enable it to take advantage of buying opportunities. The Portfolio will consider an issuer of securities to be located in the Pacific Basin if: (i) it is organized under the laws of a country in the Pacific Basin and has a principal office in a country in the Pacific Basin, (ii) it derives 50% or more of its total revenues from business in the Pacific Basin, or (iii) its equity securities are traded principally on a securities exchange in the Pacific Basin. PORTFOLIO INVESTMENTS AND STRATEGIES Debt Securities. In pursuing its investment objective, the Portfolio may invest up to 35% of its total assets in debt securities. The Portfolio has established no minimum rating criteria for the emerging market and domestic debt securities in which it may invest, and such securities may be unrated. The Portfolio does not intend to purchase debt securities that are in default or which the Adviser or Newport believes will be in default. The Portfolio may also invest in "Brady Bonds," which are debt securities issued under the framework of the Brady Plan as a mechanism for debtor countries to restructure their outstanding bank loans. Most "Brady Bonds" have their principal collateralized by zero coupon U.S. Treasury bonds. The risks inherent in debt securities held in the portfolio depend primarily on the term and quality of the particular obligations, as well as on market conditions. A decline in the prevailing levels of interest rates generally increases the value of debt securities. Conversely, an increase in rates usually reduces the value of debt securities. Medium-quality debt securities are considered to have speculative characteristics. Lower-quality debt securities rated lower than Baa by Moody's Investors Service, Inc. or lower than BBB by Standard & Poor's Corp., and unrated securities of comparable quality are considered to be below investment grade. These types of debt securities are commonly referred to as "junk bonds" and involve greater investment risk, including the possibility of issuer default or bankruptcy. During a period of adverse economic changes, issuers of junk bonds may experience difficulty in servicing their principal and interest payment obligations. The Portfolio does not expect to invest more than 5% of its net assets in high-yield ("junk") bonds. Settlement Transactions. When the Portfolio enters into a contract for the purchase or sale of a foreign portfolio security, it usually is required to settle the purchase transaction in the relevant foreign currency or receive the proceeds of the sale in that currency. In either event, the Portfolio is obliged to acquire or dispose of an appropriate amount of foreign currency by selling or buying an equivalent amount of U.S. dollars. At or near the time of the purchase or sale of the foreign portfolio security, the Portfolio may wish to lock in the U.S. dollar value of a transaction at the exchange rate or rates then prevailing between the U.S. dollar and the currency in which the security is denominated. Known as "transaction hedging," this may be accomplished by purchasing or selling such foreign securities on a "spot," or cash, basis. Transaction hedging also may be accomplished on a forward basis, whereby the Portfolio purchases or sells a specific amount of foreign currency, at a price set at the time of the contract, for receipt or delivery at either a specified date or at any time within a specified time period. In so doing, the Portfolio will attempt to insulate itself against possible losses and gains resulting from a change in the relationship between the U.S. dollar and the foreign currency during the period between the date the security is purchased or sold and the date on which payment is made or received. Similar transactions may be entered into by using other currencies if the Portfolio seeks to move investments denominated in one currency to investments denominated in another. Portfolio Turnover. Although the Portfolio does not purchase securities with a view to rapid turnover, there are no limitations on the length of time portfolio securities must be held. Accordingly, the portfolio turnover rate may vary significantly from year to year, but is not expected to exceed 100% under normal market conditions. Flexibility of investment and emphasis on capital appreciation may involve greater portfolio turnover than that of mutual funds that have the objectives of income or maintenance of a balanced investment position. A high rate of portfolio turnover may result in increased transaction expenses and the realization of capital gains and losses. (See Distributions and Income Taxes.) The Fund is not intended to be an income-producing investment. Other Techniques. The Portfolio may make loans of its portfolio securities to broker-dealers and banks subject to certain restrictions described in the Statement of Additional Information, though the Portfolio does not have a current intent to do so. The Portfolio may invest in securities purchased on a when-issued or delayed-delivery basis. Although the payment terms of these securities are established at the time the Portfolio enters into the commitment, the securities may be delivered and paid for a month or more after the date of purchase, when their value may have changed. The Portfolio will make such commitments only with the intention of actually acquiring the securities, but may sell the securities before settlement date if it is deemed advisable for investment reasons. The Portfolio may utilize spot and forward foreign exchange transactions to reduce the risk caused by exchange rate fluctuations between one currency and another when securities are purchased or sold on a when-issued basis. The Portfolio may participate in an interfund lending program, subject to certain restrictions described in the Statement of Additional Information. The Portfolio may also invest in synthetic money market instruments, structured notes, swaps and Eurodollar instruments. The Portfolio may invest in repurchase agreements, provided that it will not invest more than 15% of its net assets in repurchase agreements maturing in more than seven days and any other illiquid securities. The Portfolio does not currently intend to enter into repurchase agreements. In addition, and consistent with its investment objective, the Portfolio may invest in a broad array of financial instruments and securities, including conventional exchange-traded and non- exchange-traded options, futures contracts, futures options, forward contracts, securities collateralized by underlying pools of mortgages or other receivables, floating rate instruments, and other instruments that securitize assets of various types ("Derivatives"). The Portfolio may also sell short securities it owns or has the right to acquire without further consideration, a technique called selling short "against the box." For further information on Derivatives and short sales against the box, see the Statement of Additional Information. The Portfolio may also invest in closed-end investment companies investing primarily in the emerging markets. To the extent it invests in such closed-end investment companies, shareholders will incur certain duplicate fees and expenses. Generally, securities of closed-end investment companies will be purchased only when market access or liquidity restricts direct investment in the market. (See the Statement of Additional Information.) INVESTMENT RESTRICTIONS Each of the Fund and the Portfolio is diversified as that term is defined in the Investment Company Act of 1940. Neither the Fund nor the Portfolio may invest more than 5% of its assets in the securities of any one issuer. This restriction applies only to 75% of the investment portfolio, but does not apply to securities of the U.S. Government or repurchase agreements /1/ for such securities, and would not prevent the Fund from investing all of its assets in shares of another investment company having the identical investment objective under a master/feeder structure. - ------------- /1/ A repurchase agreement involves a sale of securities to the Portfolio in which the seller agrees to repurchase the securities at a higher price, which includes an amount representing interest on the purchase price, within a specified time. In the event of bankruptcy of the seller, the Portfolio could experience both losses and delays in liquidating its collateral. - ------------- Neither the Fund nor the Portfolio may acquire more than 10% of the outstanding voting securities of any one issuer. The Fund may, however, invest all of its assets in shares of another investment company having the identical investment objective under a master/feeder structure. While neither the Fund nor the Portfolio may make loans, each may (1) purchase money market instruments and enter into repurchase agreements; (2) acquire publicly distributed or privately placed debt securities; (3) lend portfolio securities under certain conditions; and (4) participate in an interfund lending program with other Stein Roe Funds or Portfolios. Neither may not borrow money, except for nonleveraging, temporary, or emergency purposes or in connection with participation in the interfund lending program. Neither the aggregate borrowings (including reverse repurchase agreements) nor aggregate loans at any one time may exceed 33 1/3% of the value of total assets. Additional securities may not be purchased when borrowings, less proceeds receivable from sales of portfolio securities, exceed 5% of total assets. The Portfolio may invest in repurchase agreements, provided that it will not invest more than 15% of net assets in illiquid securities, including repurchase agreements maturing in more than seven days. An investment in illiquid securities could involve relatively greater risks and costs. The investment restrictions described in the second through fourth paragraphs of this section are fundamental policies and, as such, can be changed only with the approval of a "majority of the outstanding voting securities" as defined in the Investment Company Act of 1940. The common investment objective of the Fund and the Portfolio is nonfundamental and, as such, may be changed by the Board of Trustees without shareholder approval, subject, however, to at least 30 days' advance written notice to shareholders. All of the investment restrictions are set forth in the Statement of Additional Information. Nothing in the investment restrictions shall be deemed to prohibit the Portfolio from purchasing the securities of any issuer pursuant to the exercise of subscription rights distributed to it by the issuer. No such purchase may be made if, as a result, the Fund will no longer be a diversified investment company as defined in the Investment Company Act of 1940 or would fail to meet the diversification requirements of the Internal Revenue Code. RISKS AND INVESTMENT CONSIDERATIONS All investments, including those in mutual funds, have risks. No investment is suitable for all investors. The Fund is intended for long-term investors and not for short-term trading purposes. It should not be considered a complete investment program. While the Fund offers the potential for substantial price appreciation over time, it also involves above-average investment risk. Of course, there can be no guarantee that the Fund or the Portfolio will achieve its objective. The Portfolio does not concentrate investments in any particular industry. Foreign Investing. The Fund provides long-term investors with an opportunity to invest a portion of their assets in a diversified portfolio of foreign securities. Non-U.S. investments may be attractive because they increase diversification, as compared to a portfolio comprised solely of U.S. investments. In addition, many foreign economies have, from time to time, grown faster than the U.S. economy, and the returns on investments in these countries have exceeded those of similar U.S. investments. In addition, many emerging market countries have experienced economic growth rates well in excess of those found in the U.S. and other developed markets. There can be no assurance, however, that these conditions will continue. International diversification also allows the Fund and an investor to take advantage of changes in foreign economies and market conditions. Investors should understand and consider carefully the greater risks involved in foreign investing. Investing in foreign securities-positions which are generally denominated in foreign currencies-and utilization of forward foreign currency exchange contracts involve certain risks and opportunities not typically associated with investing in U.S. securities. These considerations include: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulations or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers, and issuers of securities; lack of uniform accounting, auditing, and financial reporting standards; lack of uniform settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets than in the United States; possible imposition of foreign taxes; possible investment in the securities of companies in developing as well as developed countries; and sometimes less advantageous legal, operational, and financial protections applicable to foreign sub-custodial arrangements. These risks are greater for emerging market countries. Investments in emerging markets securities include special risks in addition to those generally associated with foreign investing. Many investments in emerging markets can be considered speculative, and the value of those investments can be more volatile than is typical in more developed foreign markets. This difference reflects the greater uncertainties of investing in less established markets and economies. Emerging markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have not kept pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when a portion of the assets is uninvested and no return is earned thereon. The inability of the Portfolio to make intended security purchases due to settlement problems could cause it to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses due to subsequent declines in the value of those securities or, if the Portfolio has entered into a contract to sell a security, in possible liability to the purchaser. Costs associated with transactions in emerging markets securities are typically higher than costs associated with transactions in U.S. securities. Such transactions also involve additional costs for the purchase or sale of foreign currency. Volume and liquidity of securities transactions in most emerging markets are lower than in the U.S. In addition, many emerging markets have experienced substantial rates of inflation. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, adverse effects on the economies and securities markets of certain emerging market countries. Investments in foreign securities expose the Portfolio to the possibility of expropriation or confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, establishment of exchange controls, the adoption of foreign government restrictions, and other adverse political, social or diplomatic developments that could adversely affect investment in these nations. The strategy for selecting investments will be based on various criteria. A company considered for investment should have a good market position in a fast-growing segment of the economy, strong management, preferably a leading position in its business, prospects of superior financial returns, and securities available for purchase at an attractive market valuation. Information on some of the above factors may be difficult, if not impossible, to obtain. To the extent portfolio securities are issued by foreign issuers or denominated in foreign currencies, investment performance is affected by the strength or weakness of the U.S. dollar against these currencies. If the dollar falls relative to the Japanese yen, for example, the dollar value of a yen- denominated stock held in the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar value of the yen- denominated stock will fall. (See the discussion of portfolio and transaction hedging under Portfolio Investments and Strategies.) Certain foreign markets (including emerging markets) may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in an emerging market's balance of payments or for other reasons, a country could impose temporary restrictions on foreign capital remittances. The Portfolio could be adversely affected by delays in, or a refusal to grant, required governmental approval for repatriation of capital, as well as by the application to the Portfolio of any restrictions on investments. HOW TO PURCHASE SHARES Fund shares are available primarily through pension plan administrators, broker-dealers, or other intermediaries (each an "Intermediary") who provide accounting, recordkeeping, and other services to investors and who hold Fund shares in omnibus accounts for their clients. Shares may also be available to clients of the Adviser if, in the judgment of the Adviser, the sale of shares to such clients would not adversely affect the Fund or its shareholders. The initial purchase minimum is $250,000 and the minimum subsequent investment is $10,000. The Trust reserves the right to waive or lower its investment minimum for any reason. Investors may be charged a fee if they effect transactions in Fund shares through a broker or agent. The Adviser and the Fund do not recommend, endorse, or receive compensation from any Intermediary. Each Intermediary will establish its own procedures applicable to its clients for the purchase of Fund shares in its account, including minimum initial and additional investments and the acceptable methods of payment for shares. Shares are purchased at the net asset value next determined after receipt of your order by the Fund's transfer agent. Net asset value is calculated as of the close of regular session trading on the New York Stock Exchange ("NYSE"), generally 3:00 p.m., central time. Your Intermediary may be closed on days when the NYSE is open. As a result, prices for Fund shares may be significantly affected on days when you have no access to your Intermediary to buy shares. An Intermediary, who accepts orders that are processed at the net asset value next determined after receipt of the order by the Intermediary, accepts such orders as agent or authorized designee of the Fund. The Intermediary is required to segregate any orders received on a business day after the close of regular session trading on the New York Stock Exchange and transmit those orders separately for execution at the net asset value next determined after that business day. The Fund will not issue a certificate for your shares. Any purchase of shares must be paid for in U.S. dollars. The Fund has the right to suspend the offering of its shares for a period of time. The Fund also has the right to accept or reject a purchase order in its sole discretion, including certain purchase orders using an exchange of shares. HOW TO REDEEM SHARES If you purchased shares through an Intermediary, you can redeem (sell) all or some of your Fund shares only through an account with that Intermediary and in accordance with procedures established by the Intermediary applicable to its clients for the redemption of Fund shares. Shares are redeemed at the net asset value next calculated after a redemption order is received and accepted by the Fund's transfer agent. Your Intermediary may be closed on days when the NYSE is open. As a result, prices for Fund shares may be significantly affected on days when you have no access to your Intermediary to redeem shares. Redemption proceeds will be paid to Intermediaries as agreed with the Fund, but in any case within seven calendar days. The Fund may suspend redemptions or postpone payments on days when the NYSE is closed (other than weekends and holidays), when trading on the NYSE is restricted, or as permitted by the Securities and Exchange Commission. The Trust reserves the right to redeem shares in any account and send the proceeds to the appropriate Intermediary if shares in that account do not have a value of at least $250,000. An Intermediary would be notified that its account is below the minimum and would be allowed 30 days to increase the account before the redemption is processed. For information regarding exchanging shares of the Fund for shares of another Stein Roe Fund, please see the Statement of Additional Information. NET ASSET VALUE The purchase or redemption price of Fund shares is the net asset value per share. The net asset value of a share of the Fund is determined as of the close of regular session trading on the NYSE (currently 3:00 p.m., central time) by dividing the difference between the values of its assets and liabilities by the number of shares outstanding. The Portfolio allocates net asset value, income, and expenses to the Fund and any other feeder funds in proportion to their respective interests in the Portfolio. Net asset value will not be determined on days when the NYSE is closed unless, in the judgment of the Board of Trustees, the net asset value should be determined on any such day, in which case the determination will be made at 3:00 p.m., central time. In computing the net asset value, the values of portfolio securities are generally based upon market quotations. Depending upon local convention or regulation, these market quotations may be the last sale price, last bid or asked price, or the mean between the last bid and asked prices as of, in each case, the close of the appropriate exchange or other designated time. Trading in securities on Far Eastern securities exchanges and over-the-counter markets is normally completed at various times before the close of business on each day on which the NYSE is open. Trading of these securities may not take place on every NYSE business day. In addition, trading may take place in various foreign markets on Saturdays or on other days when the NYSE is not open and on which net asset value is not calculated. Therefore, such calculation does not take place contemporaneously with the determination of the prices of many of the portfolio securities used in such calculation and the value of the investment portfolio may be significantly affected on days when shares of the Fund may not be purchased or redeemed. DISTRIBUTIONS AND INCOME TAXES Distributions. Income dividends are normally declared and paid annually. The Fund intends to distribute by the end of each calendar year at least 98% of any net capital gains realized from the sale of securities during the 12-month period ended Oct. 31 in that year. It intends to distribute any undistributed net investment income and net realized capital gains in the following year. All income dividends and capital gains distributions will be reinvested in additional shares of the Fund unless the Intermediary or other account holder elects to have distributions paid in cash. Reinvestment normally occurs on the payable date. The Trust reserves the right to reinvest the proceeds and future distributions in additional Fund shares if checks mailed to you for distributions are returned as undeliverable or are not presented for payment within six months. No interest will accrue on amounts represented by uncashed distribution or redemption checks. U.S. Federal Income Taxes. Your distributions will be taxable to you, under income tax law, whether received in cash or reinvested in additional shares. For federal income tax purposes, any distribution that is paid in January but was declared in the prior calendar year is deemed paid in the prior calendar year. You will be subject to federal income tax at ordinary rates on income dividends and distributions of net short-term capital gains. Distributions of net long-term capital gains will be taxable to you as long-term capital gains regardless of the length of time you have held your shares. You will be advised annually as to the source of distributions for tax purposes. If you are not subject to tax on your income, you will not be required to pay tax on these amounts. If you realize a loss on the sale or exchange of Fund shares held for six months or less, your short-term loss is recharacterized as long-term to the extent of any long-term capital gains distributions you have received with respect to those shares. The Taxpayer Relief Act of 1997 (the "Act") reduced from 28% to 20% the maximum tax rate on long-term capital gains. This reduced rate generally applies to securities held for more than 18 months. For federal income tax purposes, the Fund is treated as a separate taxable entity distinct from the other series of the Trust. Foreign Income Taxes. Investment income received by the Fund from sources within foreign countries may be subject to foreign income taxes withheld at the source. The United States has entered into tax treaties with many foreign countries that entitle the Fund to a reduced rate of tax or exemption from tax on such income. It is impossible to determine the effective rate of foreign tax in advance since the amount of assets to be invested within various countries will fluctuate and the extent to which tax refunds will be recovered is uncertain. The Fund intends to operate so as to qualify for treaty-reduced tax rates where applicable. To the extent that the Fund is liable for foreign income taxes withheld at the source, it also intends to operate so as to meet the requirements of the U.S. Internal Revenue Code to "pass through" to shareholders the foreign income taxes paid, but there can be no assurance that it will be able to do so. This discussion of U.S. and foreign taxation is not intended to be a full discussion of income tax laws and their effect on shareholders. You may wish to consult your own tax advisor. The foregoing information applies to U.S. shareholders. Foreign shareholders should consult their tax advisors as to the tax consequences of ownership of Fund shares. INVESTMENT RETURN The total return from an investment in the Fund is measured by the distributions received (assuming reinvestment of dividends and capital gains), plus or minus the change in the net asset value per share for a given period. A total return percentage may be calculated by dividing the value of a share at the end of the period (including reinvestment of distributions) by the value of the share at the beginning of the period and subtracting one. For a given period, an average annual total return may be calculated by finding the average annual compounded rate that would equate a hypothetical $1,000 investment to the ending redeemable value. Comparison of the Fund's total return with alternative investments should consider differences between the Fund and the alternative investments, the periods and methods used in calculation of the return being compared, and the impact of taxes on alternative investments. Of course, past performance is no guarantee of future results. MANAGEMENT Trustees and Adviser. The Board of Trustees of the Trust and the Board of Trustees of Base Trust have overall management responsibility for the Fund and the Portfolio, respectively. See the Statement of Additional Information for the names of and additional information about the trustees and officers. Since the Trust and Base Trust have the same trustees, the trustees have adopted conflict of interest procedures to monitor and address potential conflicts between the interests of the Fund and the Portfolio. The Adviser, Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago, Illinois 60606, is responsible for managing the business affairs of the Fund, the Portfolio, and the Trusts, subject to the direction of the respective Boards. The Adviser is registered as an investment adviser under the Investment Advisers Act of 1940. The Adviser (or its predecessor) has advised and managed mutual funds since 1949. The Adviser is a wholly owned indirect subsidiary of Liberty Financial Companies, Inc. ("Liberty Financial"), which in turn is a majority owned indirect subsidiary of Liberty Mutual Insurance Company. The sub-adviser, Newport Fund Management, Inc., 580 California Street, Suite 1960, San Francisco, California 94104, is subject to the overall supervision of the Adviser and provides the Portfolio with investment advisory services, including portfolio management. Newport is registered as an investment adviser under the Investment Advisers Act of 1940 and specializes in investing in the Pacific region. Newport, an affiliate of the Adviser, is a wholly owned indirect subsidiary of Liberty Financial. As noted above, Liberty Financial is a majority owned indirect subsidiary of Liberty Mutual Insurance Company. As of March 31, 1998, Newport managed approximately $1.5 billion in assets, all of which were invested in foreign securities. Portfolio Managers. John M. Mussey, Thomas R. Tuttle, Christopher Legallet, and David Smith have been portfolio managers of the Fund since its inception in 1998. Mr. Mussey is President and Chief Investment Officer and a Director of Newport and of Newport Pacific Management, Inc. ("Newport Pacific"), Newport's immediate parent. Mr. Mussey founded Newport Pacific in 1983. He received a B.A. from the University of Redlands in 1963 and an M.B.A. from University of California at Berkley in 1965. Mr. Tuttle is Senior Vice President of Newport and of Newport Pacific. Mr. Tuttle has been affiliated with Newport since 1983. He received a B.S. from Williams College in 1964. Mr. Legallet is a Senior Vice President of Newport. Prior to his affiliation with Newport, Mr. Legallet was a Managing Director of Jupiter Tyndall (Asia) Ltd. in Hong Kong, serving as lead manager for investment in Asia and, prior to 1992, a Vice President of Salomon Brothers Inc. in New York. He received his B.A. from UCLA in 1983 and an M.B.A. from UCLA in 1988. Mr. Smith is a Senior Vice President of Newport, which he joined in 1994. He has 29 years of experience in the investment business as a money manager, institutional broker, and investment banker. He graduated from San Francisco State University with a degree in finance and economics. Fees and Expenses. In return for its services, the Adviser is entitled to receive an administrative fee from the Fund at an annual rate of .150% of average net assets; and a management fee from the Portfolio at an annual rate of 0.95% of average net assets. The Adviser pays Newport a fee of 0.55% of average net assets. The Adviser provides office space and executive and other personnel to the Trust. All Fund expenses (other than those paid by the Adviser), including, but not limited to, printing and postage charges, securities registration fees, custodian and transfer agency fees, legal and auditing fees, compensation of trustees not affiliated with the Adviser, and expenses incidental to its organization, are paid out of the Fund's assets. Under a separate agreement with each Trust, the Adviser provides certain accounting and bookkeeping services to the Fund and the Portfolio, including computation of net asset value and calculation of its net income and capital gains and losses on disposition of assets. Portfolio Transactions. Newport places the orders for the purchase and sale of portfolio securities and options and futures transactions. In doing so, Newport seeks to obtain the best combination of price and execution, which involves a number of judgmental factors. Transfer Agent. SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois 60606, a wholly owned subsidiary of Liberty Financial, is the agent of the Trust for the transfer of shares, disbursement of dividends, and maintenance of shareholder accounting records. Distributor. Shares of the Fund are distributed by Liberty Funds Distributor, Inc., One Financial Center, Boston, Massachusetts 02111, a subsidiary of Colonial Management Associates, Inc., which is an indirect subsidiary of Liberty Financial. Shares of the Fund are offered for sale without any sales commissions or charges to the Fund or to its shareholders. All distribution and promotional expenses are paid by the Adviser, including payments to the Distributor for sales of shares. All correspondence (including purchase and redemption orders) should be mailed to SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts 02205. Custodian. State Street Bank and Trust Company (the "Bank"), 225 Franklin Street, Boston, Massachusetts 02101, is the custodian for the Fund and the Portfolio. Foreign securities are maintained in the custody of foreign banks and trust companies that are members of the Bank's Global Custody Network or foreign depositories used by such members. (See Custodian in the Statement of Additional Information.) ORGANIZATION AND DESCRIPTION OF SHARES The Trust is a Massachusetts business trust organized under an Agreement and Declaration of Trust ("Declaration of Trust") dated July 31, 1996, which provides that each shareholder shall be deemed to have agreed to be bound by the terms thereof. The Declaration of Trust may be amended by a vote of either the Trust's shareholders or its trustees. The Trust may issue an unlimited number of shares, in one or more series as the Board may authorize. Currently, two series are authorized and outstanding. Under Massachusetts law, shareholders of a Massachusetts business trust such as the Trust could, in some circumstances, be held personally liable for unsatisfied obligations of the trust. The Declaration of Trust provides that persons extending credit to, contracting with, or having any claim against, the Trust or any particular series shall look only to the assets of the Trust or of the respective series for payment under such credit, contract or claim, and that the shareholders, trustees and officers shall have no personal liability therefor. The Declaration of Trust requires that notice of such disclaimer of liability be given in each contract, instrument or undertaking executed or made on behalf of the Trust. The Declaration of Trust provides for indemnification of any shareholder against any loss and expense arising from personal liability solely by reason of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the Trust was unable to meet its obligations. The risk of a particular series incurring financial loss on account of unsatisfied liability of another series of the Trust also is believed to be remote, because it would be limited to claims to which the disclaimer did not apply and to circumstances in which the other series was unable to meet its obligations. As a business trust, the Trust is not required to hold annual shareholder meetings. However, special meetings may be called for purposes such as electing or removing trustees, changing fundamental policies, or approving an investment advisory contract. MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS The Fund, which is an open-end management investment company, seeks to achieve its objective by investing all of its assets in another mutual fund having an investment objective identical to that of the Fund. The shareholders of the Fund approved this policy of permitting the Fund to act as a feeder fund by investing in the Portfolio. Please refer to Investment Policies, Portfolio Investments and Strategies, and Investment Restrictions for a description of the investment objectives, policies, and restrictions of the Fund and the Portfolio. The management fees and expenses of the Fund and the Portfolio are described under Fee Table and Management. The Fund bears its proportionate share of the Portfolio's expenses. The Adviser has provided investment management services in connection with other mutual funds employing the master fund/feeder fund structure since 1991. The Portfolio is a separate series of SR&F Base Trust ("Base Trust"), a Massachusetts common law trust organized under an Agreement and Declaration of Trust ("Declaration of Trust") dated Aug. 23, 1993. The Declaration of Trust of Base Trust provides that the Fund and other investors in the Portfolio will be liable for all obligations of the Portfolio that are not satisfied by the Portfolio. However, the risk of the Fund incurring financial loss on account of such liability is limited to circumstances in which liability was inadequately insured and the Portfolio was unable to meet its obligations. Accordingly, the trustees of the Trust believe that neither the Fund nor its shareholders will be adversely affected by reason of the Fund's investing in the Portfolio. The Declaration of Trust of Base Trust provides that the Portfolio will terminate 120 days after the withdrawal of the Fund or any other investor in the Portfolio, unless the remaining investors vote to agree to continue the business of the Portfolio. The trustees of the Trust may vote the Fund's interests in the Portfolio for such continuation without approval of the Fund's shareholders. The common investment objective of the Fund and the Portfolio is nonfundamental and may be changed without shareholder approval, subject, however, to at least 30 days' advance written notice to the Fund's shareholders. The fundamental policies of the Fund and the corresponding fundamental policies of the Portfolio can be changed only with shareholder approval. If the Fund, as a Portfolio investor, is requested to vote on a change in a fundamental policy of the Portfolio or any other matter pertaining to the Portfolio (other than continuation of the business of the Portfolio after withdrawal of another investor), the Fund will solicit proxies from its shareholders and vote its interest in the Portfolio for and against such matters proportionately to the instructions to vote for and against such matters received from Fund shareholders. The Fund will vote shares for which it receives no voting instructions in the same proportion as the shares for which it receives voting instructions. There can be no assurance that any matter receiving a majority of votes cast by Fund shareholders will receive a majority of votes cast by all investors in the Portfolio. If other investors hold a majority interest in the Portfolio, they could have voting control over the Portfolio. In the event that the Portfolio's fundamental policies were changed so as to be inconsistent with those of the Fund, the Board of Trustees of the Trust would consider what action might be taken, including changes to the Fund's fundamental policies, withdrawal of the Fund's assets from the Portfolio and investment of such assets in another pooled investment entity, or the retention of an investment adviser to invest those assets directly in a portfolio of securities. Any of these actions would require the approval of the Fund's shareholders. The Fund's inability to find a substitute master fund or comparable investment management could have a significant impact upon its shareholders' investments. Any withdrawal of the Fund's assets could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) to the Fund. Should such a distribution occur, the Fund would incur brokerage fees or other transaction costs in converting such securities to cash. In addition, a distribution in kind could result in a less diversified portfolio of investments for the Fund and could affect the liquidity of the Fund. Each investor in the Portfolio, including the Fund, may add to or reduce its investment in the Portfolio on each day the NYSE is open for business. The investor's percentage of the aggregate interests in the Portfolio will be computed as the percentage equal to the fraction (i) the numerator of which is the beginning of the day value of such investor's investment in the Portfolio on such day plus or minus, as the case may be, the amount of any additions to or withdrawals from the investor's investment in the Portfolio effected on such day; and (ii) the denominator of which is the aggregate beginning of the day net asset value of the Portfolio on such day plus or minus, as the case may be, the amount of the net additions to or withdrawals from the aggregate investments in the Portfolio by all investors in the Portfolio. The percentage so determined will then be applied to determine the value of the investor's interest in the Portfolio as of the close of business. Base Trust may permit other investment companies and/or other institutional investors to invest in the Portfolio, but members of the general public may not invest directly in the Portfolio. Other investors in the Portfolio are not required to sell their shares at the same public offering price as the Fund, might incur different administrative fees and expenses than the Fund, and might charge a sales commission. Therefore, the Fund shareholders might have different investment returns than shareholders in another investment company that invests exclusively in the Portfolio. Investment by such other investors in the Portfolio would provide funds for the purchase of additional portfolio securities and would tend to reduce the operating expenses as a percentage of the Portfolio's net assets. Conversely, large-scale redemptions by any such other investors in the Portfolio could result in untimely liquidations of the Portfolio's security holdings, loss of investment flexibility, and increases in the operating expenses of the Portfolio as a percentage of the Portfolio's net assets. As a result, the Portfolio's security holdings may become less diverse, resulting in increased risk. Information regarding other investors in the Portfolio may be obtained by writing to SR&F Base Trust at Suite 3200, One South Wacker Drive, Chicago, IL 60606, or by calling 800-338-2550. The Adviser may provide administrative or other services to one or more of such investors. FOR MORE INFORMATION Contact Stein Roe Advisor and Dealer Services at 800-322-0593 for more information about the Fund. Stein Roe Mutual Funds P.O. Box 8900 Boston, Massachusetts 02205-0593 Financial Advisors call: 1-800-322-0593 Shareholders call: 1-800-338-2550 In Chicago, visit our Fund Center at One South Wacker Drive, Suite 3200 Liberty Funds Distributor, Inc., Distributor PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED JUNE 12, 1998 A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALES OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. --------------- Statement of Additional Information Dated ______, 1998 STEIN ROE INSTITUTIONAL TRUST Suite 3200, One South Wacker Drive, Chicago, Illinois 60606 800-338-2550 Stein Roe Institutional Asia Pacific Fund This Statement of Additional Information is not a prospectus, but provides additional information that should be read in conjunction with the prospectus of Stein Roe Institutional Asia Pacific Fund dated ______, 1998, and any supplements thereto ("Prospectus"). The Prospectus may be obtained at no charge by telephoning Stein Roe Advisor and Dealer Services 800-322-0593. TABLE OF CONTENTS Page General Information and History............................2 Investment Policies........................................3 Portfolio Investments and Strategies.......................3 Investment Restrictions...................................23 Additional Investment Considerations......................26 Purchases and Redemptions.................................27 Management................................................28 Principal Shareholders....................................30 Investment Advisory Services..............................31 Distributor...............................................33 Transfer Agent............................................33 Custodian.................................................33 Independent Public Accountants............................34 Portfolio Transactions....................................34 Additional Income Tax Considerations......................36 Investment Performance....................................37 Appendix-Ratings..........................................40 GENERAL INFORMATION AND HISTORY Stein Roe Institutional Asia Pacific Fund (the "Fund") is a series of Stein Roe Institutional Trust (the "Trust"). As of the date of this Statement of Additional Information, two series of the Trust are authorized and outstanding. Each share of a series, without par value, is entitled to participate pro rata in any dividends and other distributions declared by the Board on shares of that series, and all shares of a series have equal rights in the event of liquidation of that series. Each whole share (or fractional share) outstanding on the record date established in accordance with the By-Laws shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the share (or fractional share) in United States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes). As a business trust, the Trust is not required to hold annual shareholder meetings. However, special meetings may be called for purposes such as electing or removing trustees, changing fundamental policies, or approving an investment advisory contract. If requested to do so by the holders of at least 10% of its outstanding shares, the Trust will call a special meeting for the purpose of voting upon the question of removal of a trustee or trustees and will assist in the communications with other shareholders as if the Trust were subject to Section 16(c) of the Investment Company Act of 1940. All shares of all series of the Trust are voted together in the election of trustees. On any other matter submitted to a vote of shareholders, shares are voted in the aggregate and not by individual series, except that shares are voted by individual series when required by the Investment Company Act of 1940 or other applicable law, or when the Board of Trustees determines that the matter affects only the interests of one or more series, in which case shareholders of the unaffected series are not entitled to vote on such matters. Special Considerations Regarding Master Fund/Feeder Fund Structure The Fund is a "feeder fund"; that is, rather than invest in securities directly, it seeks to achieve its objective by pooling its assets with those of other investment companies for investment in a separate "master fund" having the same investment objective and substantially the same investment policies as its feeder funds. The purpose of such an arrangement is to achieve greater operational efficiencies and reduce costs. The Fund's master fund, SR&F Asia Pacific Portfolio (the "Portfolio"), is a series of SR&F Base Trust. For more information, please refer to the Prospectus under the caption Master Fund/Feeder Fund: Structure and Risk Factors. Stein Roe & Farnham Incorporated (the "Adviser") provides overall management services to the Portfolio and administrative and bookkeeping and accounting services to the Fund and the Portfolio. Newport Fund Management, Inc. ("Newport"), has been engaged as sub-adviser to provide investment advisory services to the Portfolio, subject to overall management by the Adviser. INVESTMENT POLICIES The Fund seeks to achieve its objective by investing in the Portfolio, which has the same investment objective and substantially the same investment policies. The investment objective and policies are described in the prospectus under Investment Policies. In pursuing its objective, the Portfolio may also employ the investment techniques described under Portfolio Investments and Strategies in the Prospectus and this Statement of Additional Information. The investment objective is a nonfundamental policy and may be changed by the Board of Trustees without the approval of a "majority of the outstanding voting securities." - ------------ /1/ A "majority of the outstanding voting securities" means the approval of the lesser of (i) 67% or more of the shares at a meeting if the holders of more than 50% of the outstanding shares are present or represented by proxy or (ii) more than 50% of the outstanding shares. - ------------ PORTFOLIO INVESTMENTS AND STRATEGIES Debt Securities In pursuing its investment objective, the Portfolio may invest up to 35% of its total assets in debt securities. The Portfolio has established no minimum rating criteria for the emerging market and domestic debt securities in which it may invest, and such securities may be unrated. The Portfolio does not intend to purchase debt securities that are in default or which the Adviser or Newport believes will be in default. The Portfolio may also invest in "Brady Bonds," which are debt securities issued under the framework of the Brady Plan as a mechanism for debtor countries to restructure their outstanding bank loans. Most "Brady Bonds" have their principal collateralized by zero coupon U.S. Treasury bonds. The risks inherent in debt securities held in the portfolio depend primarily on the term and quality of the particular obligations, as well as on market conditions. A decline in the prevailing levels of interest rates generally increases the value of debt securities. Conversely, an increase in rates usually reduces the value of debt securities. Medium-quality debt securities are considered to have speculative characteristics. Lower-quality debt securities rated lower than Baa by Moody's Investors Service, Inc. or lower than BBB by Standard & Poor's Corp., and unrated securities of comparable quality are considered to be below investment grade. These types of debt securities are commonly referred to as "junk bonds" and involve greater investment risk, including the possibility of issuer default or bankruptcy. During a period of adverse economic changes, issuers of junk bonds may experience difficulty in servicing their principal and interest payment obligations. The Portfolio does not expect to invest more than 5% of its net assets in high-yield ("junk") bonds. When Newport determines that adverse market or economic conditions exist and considers a temporary defensive position advisable, the Portfolio may invest without limitation in high- quality fixed income securities or hold assets in cash or cash equivalents. Derivatives Consistent with its objective, the Portfolio may invest in a broad array of financial instruments and securities, including conventional exchange-traded and non-exchange-traded options; futures contracts; futures options; securities collateralized by underlying pools of mortgages or other receivables; floating rate instruments; and other instruments that securitize assets of various types ("Derivatives"). In each case, the value of the instrument or security is "derived" from the performance of an underlying asset or a "benchmark" such as a security index, an interest rate, or a currency. Derivatives are most often used to manage investment risk or to create an investment position indirectly because they are more efficient or less costly than direct investment that cannot be readily established directly due to portfolio size, cash availability, or other factors. They also may be used in an effort to enhance portfolio returns. The successful use of Derivatives depends on Newport's ability to correctly predict changes in the levels and directions of movements in security prices, interest rates and other market factors affecting the Derivative itself or the value of the underlying asset or benchmark. In addition, correlations in the performance of an underlying asset to a Derivative may not be well established. Finally, privately negotiated and over-the-counter Derivatives may not be as well regulated and may be less marketable than exchange-traded Derivatives. The Portfolio currently intends to invest no more than 5% of its net assets in any type of Derivative other than options, futures contracts, futures options, and forward contracts. (See Options and Futures below.) Some mortgage-backed debt securities are of the "modified pass-through type," which means the interest and principal payments on mortgages in the pool are "passed through" to investors. During periods of declining interest rates, there is increased likelihood that mortgages will be prepaid, with a resulting loss of the full-term benefit of any premium paid on purchase of such securities; in addition, the proceeds of prepayment would likely be invested at lower interest rates. Mortgage-backed securities provide either a pro rata interest in underlying mortgages or an interest in collateralized mortgage obligations ("CMOs") that represent a right to interest and/or principal payments from an underlying mortgage pool. CMOs are not guaranteed by either the U.S. Government or by its agencies or instrumentalities, and are usually issued in multiple classes each of which has different payment rights, prepayment risks, and yield characteristics. Mortgage-backed securities involve the risk of prepayment on the underlying mortgages at a faster or slower rate than the established schedule. Prepayments generally increase with falling interest rates and decrease with rising rates but they also are influenced by economic, social, and market factors. If mortgages are pre-paid during periods of declining interest rates, there would be a resulting loss of the full-term benefit of any premium paid on purchase of the CMO, and the proceeds of prepayment would likely be invested at lower interest rates. Non-mortgage asset-backed securities usually have less prepayment risk than mortgage-backed securities, but have the risk that the collateral will not be available to support payments on the underlying loans that finance payments on the securities themselves. Floating rate instruments provide for periodic adjustments in coupon interest rates that are automatically reset based on changes in amount and direction of specified market interest rates. In addition, the adjusted duration of some of these instruments may be materially shorter than their stated maturities. To the extent such instruments are subject to lifetime or periodic interest rate caps or floors, such instruments may experience greater price volatility than debt instruments without such features. Adjusted duration is an inverse relationship between market price and interest rates and refers to the approximate percentage change in price for a 100 basis point change in yield. For example, if interest rates decrease by 100 basis points, a market price of a security with an adjusted duration of 2 would increase by approximately 2%. Convertible Securities By investing in convertible securities, the Portfolio obtains the right to benefit from the capital appreciation potential in the underlying stock upon exercise of the conversion right, while earning higher current income than would be available if the stock were purchased directly. In determining whether to purchase a convertible, Newport will consider substantially the same criteria that would be considered in purchasing the underlying stock. While convertible securities purchased by the Portfolio are frequently rated investment grade, the Portfolio may purchase unrated securities or securities rated below investment grade if the securities meet Newport's other investment criteria. Convertible securities rated below investment grade (a) tend to be more sensitive to interest rate and economic changes, (b) may be obligations of issuers who are less creditworthy than issuers of higher quality convertible securities, and (c) may be more thinly traded due to such securities being less well known to investors than investment grade convertible securities, common stock or conventional debt securities. As a result, Newport's own investment research and analysis tend to be more important in the purchase of such securities than other factors. Foreign Securities The Portfolio invests primarily in foreign securities, which may entail a greater degree of risk (including risks relating to exchange rate fluctuations, tax provisions, or expropriation of assets) than investment in securities of domestic issuers. For this purpose, foreign securities do not include American Depositary Receipts (ADRs) or securities guaranteed by a United States person. ADRs are receipts typically issued by an American bank or trust company evidencing ownership of the underlying securities. The Portfolio may invest in sponsored or unsponsored ADRs. In the case of an unsponsored ADR, the Portfolio is likely to bear its proportionate share of the expenses of the depositary and it may have greater difficulty in receiving shareholder communications than it would have with a sponsored ADR. The Portfolio does not intend to invest more than 5% of its net assets in unsponsored ADRs. It may also purchase foreign securities in the form of European Depositary Receipts (EDRs) or other securities representing underlying shares of foreign issuers. Positions in these securities are not necessarily denominated in the same currency as the common stocks into which they may be converted. EDRs are European receipts evidencing a similar arrangement. Generally, ADRs, in registered form, are designed for the U.S. securities markets and EDRs, in bearer form, are designed for use in European securities markets. With respect to portfolio securities that are issued by foreign issuers or denominated in foreign currencies, investment performance is affected by the strength or weakness of the U.S. dollar against these currencies. For example, if the dollar falls in value relative to the Japanese yen, the dollar value of a yen- denominated stock held in the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar value of the yen- denominated stock will fall. (See discussion of transaction hedging and portfolio hedging under Currency Exchange Transactions.) Investors should understand and consider carefully the risks involved in foreign investing. Investing in foreign securities, positions which are generally denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve certain considerations comprising both risks and opportunities not typically associated with investing in U.S. securities. These considerations include: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulation or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers, and issuers of securities; lack of uniform accounting, auditing, and financial reporting standards; lack of uniform settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets than in the United States; possible imposition of foreign taxes; possible investment in securities of companies in developing as well as developed countries; and sometimes less advantageous legal, operational, and financial protections applicable to foreign sub-custodial arrangements. These risks are greater for emerging markets. Although the Portfolio will try to invest in companies and governments of countries having stable political environments, there is the possibility of expropriation or confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, establishment of exchange controls, the adoption of foreign government restrictions, or other adverse political, social or diplomatic developments that could affect investment in these nations. Investing in Emerging Markets. Investments in emerging markets securities include special risks in addition to those generally associated with foreign investing. Many investments in emerging markets can be considered speculative, and the value of those investments can be more volatile than in more developed foreign markets. This difference reflects the greater uncertainties of investing in less established markets and economies. Emerging markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have not kept pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when a portion of the assets is uninvested and no return is earned thereon. The inability to make intended security purchases due to settlement problems could cause the Portfolio to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to the Portfolio due to subsequent declines in the value of those securities or, if the Portfolio has entered into a contract to sell a security, in possible liability to the purchaser. Costs associated with transactions in emerging markets securities are typically higher than costs associated with transactions in U.S. securities. Such transactions also involve additional costs for the purchase or sale of foreign currency. Certain foreign markets (including emerging markets) may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if a deterioration occurs in an emerging market's balance of payments or for other reasons, a country could impose temporary restrictions on foreign capital remittances. The Portfolio could be adversely affected by delays in, or a refusal to grant, required governmental approval for repatriation of capital, as well as by the application to the Portfolio of any restrictions on investments. The risk also exists that an emergency situation may arise in one or more emerging markets. As a result, trading of securities may cease or may be substantially curtailed and prices for the Portfolio's securities in such markets may not be readily available. The Portfolio may suspend redemption of its shares for any period during which an emergency exists, as determined by the Securities and Exchange Commission (the "SEC"). Accordingly, if the Portfolio believes that appropriate circumstances exist, it will promptly apply to the SEC for a determination that such an emergency is present. During the period commencing from the Portfolio's identification of such condition until the date of the SEC action, the Portfolio's securities in the affected markets will be valued at fair value determined in good faith by or under the direction of the Trust's Board of Trustees. Volume and liquidity in most foreign markets are lower than in the U.S. Fixed commissions on foreign securities exchanges are generally higher than negotiated commissions on U.S. exchanges, although the Portfolio endeavors to achieve the most favorable net results on its portfolio transactions. There is generally less government supervision and regulation of business and industry practices, securities exchanges, brokers, dealers and listed companies than in the U.S. Mail service between the U.S. and foreign countries may be slower or less reliable than within the U.S., thus increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. In addition, with respect to certain emerging markets, there is the possibility of expropriation or confiscatory taxation, political or social instability, or diplomatic developments which could affect the Portfolio's investments in those countries. Moreover, individual emerging market economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Income from securities held by the Portfolio could be reduced by a withholding tax on the source or other taxes imposed by the emerging market countries in which the Portfolio invests. Net asset value may also be affected by changes in the rates of methods or taxation applicable to the Portfolio or to entities in which it has invested. Newport will consider the cost of any taxes in determining whether to acquire any particular investments, but can provide no assurance that the taxes will not be subject to change. Many emerging markets have experienced substantial rates of inflation for many years. Inflation and rapid fluctuations in inflation rates have had and may continue to have adverse effects on the economies and securities markets of certain emerging market countries. In an attempt to control inflation, wage and price controls have been imposed in certain countries. Of these countries, some, in recent years, have begun to control inflation through prudent economic policies. Emerging market governmental issuers are among the largest debtors to commercial banks, foreign governments, international financial organizations and other financial institutions. Certain emerging market governmental issuers have not been able to make payments of interest or principal on debt obligations as those payments have come due. Obligations arising from past restructuring agreements may affect the economic performance and political and social stability of those issuers. Governments of many emerging market countries have exercised and continue to exercise substantial influence over many aspects of the private sector through ownership or control of many companies, including some of the largest in any given country. As a result, government actions in the future could have a significant effect on economic conditions in emerging markets, which in turn, may adversely affect companies in the private sector, general market conditions and prices and yields of certain of the securities in the portfolio. Expropriation, confiscatory taxation, nationalization, political, economic or social instability or other similar developments have occurred frequently over the history of certain emerging markets and could adversely affect the Portfolio's assets should these conditions recur. The ability of emerging market country governmental issuers to make timely payments on their obligations is likely to be influenced strongly by the issuer's balance of payments, including export performance, and its access to international credits and investments. An emerging market whose exports are concentrated in a few commodities could be vulnerable to a decline in the international prices of one or more of those commodities. Increased protectionism on the part of an emerging market's trading partners could also adversely affect the country's exports and diminish its trade account surplus, if any. To the extent that emerging markets receive payment for their exports in currencies other than dollars or non-emerging market currencies, their ability to make debt payments denominated in dollars or non- emerging market currencies could be affected. Another factor bearing on the ability of an emerging market country to repay debt obligations is the level of international reserves of the country. Fluctuations in the level of these reserves affect the amount of foreign exchange readily available for external debt payments and thus could have a bearing on the capacity of emerging market countries to make payments on these debt obligations. To the extent that an emerging market country cannot generate a trade surplus, it must depend on continuing loans from foreign governments, multilateral organizations or private commercial banks, aid payments from foreign governments and on inflows of foreign investment. The access of emerging markets to these forms of external funding may not be certain, and a withdrawal of external funding could adversely affect the capacity of emerging market country governmental issuers to make payments on their obligations. In addition, the cost of servicing emerging market debt obligations can be affected by a change in international interest rates since the majority of these obligations carry interest rates that are adjusted periodically based upon international rates. Currency Exchange Transactions. Currency exchange transactions may be conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market or through forward currency exchange contracts ("forward contracts"). Forward contracts are contractual agreements to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks and broker-dealers, are not exchange traded, and are usually for less than one year, but may be renewed. Foreign currency exchange transactions are limited to transaction and portfolio hedging involving either specific transactions or portfolio positions. Transaction hedging is the purchase or sale of forward contracts with respect to specific receivables or payables of the Portfolio arising in connection with the purchase and sale of its portfolio securities. Portfolio hedging is the use of forward contracts with respect to portfolio security positions denominated or quoted in a particular foreign currency. Portfolio hedging allows the Portfolio to limit or reduce its exposure in a foreign currency by entering into a forward contract to sell such foreign currency (or another foreign currency that acts as a proxy for that currency) at a future date for a price payable in U.S. dollars so that the value of the foreign-denominated portfolio securities can be approximately matched by a foreign-denominated liability. The Portfolio may not engage in portfolio hedging with respect to the currency of a particular country to an extent greater than the aggregate market value (at the time of making such sale) of the securities held in its portfolio denominated or quoted in that particular currency, except that the Portfolio may hedge all or part of its foreign currency exposure through the use of a basket of currencies or a proxy currency where such currencies or currency act as an effective proxy for other currencies. In such a case, the Portfolio may enter into a forward contract where the amount of the foreign currency to be sold exceeds the value of the securities denominated in such currency. The use of this basket hedging technique may be more efficient and economical than entering into separate forward contracts for each currency held in the Portfolio. The Portfolio may not engage in "speculative" currency exchange transactions. At the maturity of a forward contract to deliver a particular currency, the Portfolio may either sell the portfolio security related to such contract and make delivery of the currency, or it may retain the security and either acquire the currency on the spot market or terminate its contractual obligation to deliver the currency by purchasing an offsetting contract with the same currency trader obligating it to purchase on the same maturity date the same amount of the currency. It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of a forward contract. Accordingly, it may be necessary for it to purchase additional currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of currency it is obligated to deliver and if a decision is made to sell the security and make delivery of the currency. Conversely, it may be necessary to sell on the spot market some of the currency received upon the sale of the portfolio security if its market value exceeds the amount of currency the Portfolio is obligated to deliver. If the Portfolio retains the portfolio security and engages in an offsetting transaction, it will incur a gain or a loss to the extent that there has been movement in forward contract prices. If the Portfolio engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the currency. Should forward prices decline during the period between entering into a forward contract for the sale of a currency and the date it enters into an offsetting contract for the purchase of the currency, the Portfolio will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Portfolio will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. A default on the contract would deprive the Portfolio of unrealized profits or force the Portfolio to cover its commitments for purchase or sale of currency, if any, at the current market price. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency should rise. Moreover, it may not be possible for the Portfolio to hedge against a devaluation that is so generally anticipated that the Portfolio is not able to contract to sell the currency at a price above the devaluation level it anticipates. The cost to the Portfolio of engaging in currency exchange transactions varies with such factors as the currency involved, the length of the contract period, and prevailing market conditions. Since currency exchange transactions are usually conducted on a principal basis, no fees or commissions are involved. Synthetic Foreign Money Market Positions. The Portfolio may invest in money market instruments denominated in foreign currencies. In addition to, or in lieu of, such direct investment, it may construct a synthetic foreign money market position by (a) purchasing a money market instrument denominated in one currency, generally U.S. dollars, and (b) concurrently entering into a forward contract to deliver a corresponding amount of that currency in exchange for a different currency on a future date and at a specified rate of exchange. For example, a synthetic money market position in Japanese yen could be constructed by purchasing a U.S. dollar money market instrument, and entering concurrently into a forward contract to deliver a corresponding amount of U.S. dollars in exchange for Japanese yen on a specified date and at a specified rate of exchange. Because of the availability of a variety of highly liquid short-term U.S. dollar money market instruments, a synthetic money market position utilizing such U.S. dollar instruments may offer greater liquidity than direct investment in foreign currency money market instruments. The result of a direct investment in a foreign currency and a concurrent construction of a synthetic position in such foreign currency, in terms of both income yield and gain or loss from changes in currency exchange rates, in general should be similar, but would not be identical because the components of the alternative investments would not be identical. Except to the extent a synthetic foreign money market position consists of a money market instrument denominated in a foreign currency, the synthetic foreign money market position shall not be deemed a "foreign security" for purposes of the policy that, under normal conditions, the Portfolio will invest at least 65% of total assets in foreign securities issued by companies in the Pacific Basin. Structured Notes Structured Notes are Derivatives on which the amount of principal repayment and or interest payments is based upon the movement of one or more factors. These factors include, but are not limited to, currency exchange rates, interest rates (such as the prime lending rate and the London Interbank Offered Rate ("LIBOR")), stock indices such as the S&P 500 Index and the price fluctuations of a particular security. In some cases, the impact of the movements of these factors may increase or decrease through the use of multipliers or deflators. The use of Structured Notes allows the Portfolio to tailor its investments to the specific risks and returns Newport wishes to accept while avoiding or reducing certain other risks. Eurodollar Instruments The Portfolio may make investments in Eurodollar instruments. Eurodollar instruments are U.S. dollar-denominated futures contracts or options thereon which are linked to LIBOR, although foreign currency-denominated instruments are available from time to time. Eurodollar future contracts enable purchasers to obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate for borrowings. The Portfolio might use Eurodollar futures contracts and options thereon to hedge against changes in LIBOR, to which many interest rate swaps and fixed income instruments are linked. Brady Bonds The Portfolio may invest in "Brady Bonds," which are debt securities issued under the framework of the Brady Plan as a mechanism for debtor countries to restructure their outstanding bank loans. Most "Brady Bonds" have their principal collateralized by zero coupon U.S. Treasury bonds. Brady Bonds have been issued only in recent years, and, accordingly, do not have a long payment history. U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par bonds or floating rate discount bonds, are generally collateralized in full as to principal due at maturity by U.S. Treasury zero coupon obligations which have the same maturity as the Brady Bonds. Interest payments on these Brady Bonds generally are collateralized by cash or securities in an amount that, in the case of fixed rate bonds, is equal to at least one year of rolling interest payments or, in the case of floating rate bonds, initially is equal to at least one year's rolling interest payments based on the applicable interest rate at the time and is adjusted at regular intervals thereafter. Certain Brady Bonds are entitled to "value recovery payments" in certain circumstances, which in effect constitute supplemental interest payments but generally are not collateralized. Brady Bonds are often viewed as having three or four valuation components: (i) the collateralized repayment of principal at final maturity; (ii) the collateralized interest payments; (iii) the uncollateralized interest payments; and (iv) any uncollateralized repayment of principal at maturity (these uncollateralized amounts constitute the "residual risk"). In the event of a default with respect to collateralized Brady Bonds as a result of which the payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon obligations held as collateral for the payment of principal will not be distributed to investors, nor will such obligations be sold and the proceeds distributed. The collateral will be held to the scheduled maturity of the defaulted Brady Bonds by the collateral agent, at which time the face amount of the collateral will equal the principal payments which would have then been due on the Brady Bonds in the normal course. In addition, in light of the residual risk of the Brady Bonds and, among other factors, the history of defaults with respect to commercial bank loans by public and private entities of countries issuing Brady Bonds, investments in Brady Bonds will be viewed as speculative. Sovereign Debt Obligations The Portfolio may purchase sovereign debt instruments issued or guaranteed by foreign governments or their agencies, including debt of emerging market countries. Sovereign debt of emerging market countries may involve a high degree of risk, and may be in default or present the risk of default. Governmental entities responsible for repayment of the debt may be unable or unwilling to repay principal and interest when due, and may require renegotiation or rescheduling of debt payments. In addition, prospects for repayment of principal and interest may depend on political as well as economic factors. Closed-End Investment Companies The Portfolio may also invest in closed-end investment companies investing primarily in the emerging markets. To the extent the Portfolio invests in such closed-end investment companies, shareholders will incur certain duplicate fees and expenses. Generally, securities of closed-end investment companies will be purchased only when market access or liquidity restricts direct investment in the market. Swaps, Caps, Floors and Collars The Portfolio may enter into swaps and may purchase or sell related caps, floors and collars. The Portfolio would enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio, to protect against currency fluctuations, as a duration management technique or to protect against any increase in the price of securities it purchases at a later date. The Portfolio intends to use these techniques as hedges and not as speculative investments and will not sell interest rate income stream the Portfolio may be obligated to pay. A swap agreement is generally individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Depending on its structure, a swap agreement may increase or decrease the Portfolio's exposure to changes in the value of an index of securities in which it might invest, the value of a particular security or group of securities, or foreign currency values. Swap agreements can take many different forms and are known by a variety of names. The Portfolio may enter into any form of swap agreement if Newport determines it is consistent with its investment objective and policies. A swap agreement tends to shift the Portfolio's investment exposure from one type of investment to another. For example, if the Portfolio agrees to exchange payments in dollars at a fixed rate for payments in a foreign currency the amount of which is determined by movements of a foreign securities index, the swap agreement would tend to increase exposure to foreign stock market movements and foreign currencies. Depending on how it is used, a swap agreement may increase or decrease the overall volatility of the Portfolio's investments and its net asset value. The performance of a swap agreement is determined by the change in the specific currency, market index, security, or other factors that determine the amounts of payments due to and from the Portfolio. If a swap agreement calls for payments by the Portfolio, it must be prepared to make such payments when due. If the counterparty's creditworthiness declines, the value of a swap agreement would be likely to decline, potentially resulting in a loss. The Portfolio will not enter into any swap, cap, floor or collar transaction unless, at the time of entering into such transaction, the unsecured long-term debt of the counterparty, combined with any credit enhancements, is rated at least A by S&P or Moody's or has an equivalent rating from a nationally recognized statistical rating organization or is determined to be of equivalent credit quality by Newport. The purchase of a cap entitles the purchaser to receive payments on a notional principal amount from the party selling the cap to the extent that a specified index exceeds a predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive payments on a notional principal amount from the party selling such floor to the extent that a specified index falls below a predetermined interest rate or amount. A collar is a combination of a cap and floor that preserves a certain return within a predetermined range of interest rates or values. At the time the Portfolio enters into swap arrangements or purchases or sells caps, floors or collars, liquid assets having a value at least as great as the commitment underlying the obligations will be segregated on the books of the Portfolio and held by the custodian throughout the period of the obligation. Lending of Portfolio Securities Subject to restriction (5) under Investment Restrictions in this Statement of Additional Information, the Portfolio may lend its portfolio securities to broker-dealers and banks. Any such loan must be continuously secured by collateral in cash or cash equivalents maintained on a current basis in an amount at least equal to the market value of the securities loaned by the Portfolio. The Portfolio would continue to receive the equivalent of the interest or dividends paid by the issuer on the securities loaned, and would also receive an additional return that may be in the form of a fixed fee or a percentage of the collateral. The Portfolio would have the right to call the loan and obtain the securities loaned at any time on notice of not more than five business days. The Portfolio would not have the right to vote the securities during the existence of the loan but would call the loan to permit voting of the securities if, in Newport's judgment, a material event requiring a shareholder vote would otherwise occur before the loan was repaid. In the event of bankruptcy or other default of the borrower, the Portfolio could experience both delays in liquidating the loan collateral or recovering the loaned securities and losses, including (a) possible decline in the value of the collateral or in the value of the securities loaned during the period while the Portfolio seeks to enforce its rights thereto, (b) possible subnormal levels of income and lack of access to income during this period, and (c) expenses of enforcing its rights. The Portfolio does not currently intend to loan more than 5% of its net assets. Repurchase Agreements The Portfolio may invest in repurchase agreements, provided that it will not invest more than 15% of net assets in repurchase agreements maturing in more than seven days and any other illiquid securities. A repurchase agreement is a sale of securities to the Portfolio in which the seller agrees to repurchase the securities at a higher price, which includes an amount representing interest on the purchase price, within a specified time. In the event of bankruptcy of the seller, the Portfolio could experience both losses and delays in liquidating its collateral. When-Issued and Delayed-Delivery Securities; Reverse Repurchase Agreements The Portfolio may purchase securities on a when-issued or delayed-delivery basis. Although the payment and interest terms of these securities are established at the time the Portfolio enters into the commitment, the securities may be delivered and paid for a month or more after the date of purchase, when their value may have changed. The Portfolio makes such commitments only with the intention of actually acquiring the securities, but may sell the securities before settlement date if Newport deems it advisable for investment reasons. The Portfolio does not currently intend to have commitments to purchase when-issued securities in excess of 5% of its net assets. It may utilize spot and forward foreign currency exchange transactions to reduce the risk inherent in fluctuations in the exchange rate between one currency and another when securities are purchased or sold on a when-issued or delayed-delivery basis. The Portfolio may enter into reverse repurchase agreements with banks and securities dealers. A reverse repurchase agreement is a repurchase agreement in which it is the seller of, rather than the investor in, securities and agrees to repurchase them at an agreed-upon time and price. Use of a reverse repurchase agreement may be preferable to a regular sale and later repurchase of securities because it avoids certain market risks and transaction costs. At the time the Portfolio enters into a binding obligation to purchase securities on a when-issued basis or enters into a reverse repurchase agreement, liquid assets (cash, U.S. Government securities or other "high-grade" debt obligations) of the Portfolio having a value at least as great as the purchase price of the securities to be purchased will be segregated on the books of the Portfolio and held by the custodian throughout the period of the obligation. The use of these investment strategies, as well as borrowing under a line of credit as described below, may increase net asset value fluctuation. Short Sales "Against the Box" The Portfolio may sell securities short against the box; that is, enter into short sales of securities that it currently owns or has the right to acquire through the conversion or exchange of other securities that it owns at no additional cost. The Portfolio may make short sales of securities only if at all times when a short position is open it owns at least an equal amount of such securities or securities convertible into or exchangeable for securities of the same issue as, and equal in amount to, the securities sold short, at no additional cost. In a short sale against the box, the Portfolio does not deliver from its portfolio the securities sold. Instead, the Portfolio borrows the securities sold short from a broker-dealer through which the short sale is executed, and the broker-dealer delivers such securities, on behalf of the Portfolio, to the purchaser of such securities. The Portfolio is required to pay to the broker-dealer the amount of any dividends paid on shares sold short. Finally, to secure its obligation to deliver to such broker-dealer the securities sold short, the Portfolio must deposit and continuously maintain in a separate account with its custodian an equivalent amount of the securities sold short or securities convertible into or exchangeable for such securities at no additional cost. The Portfolio is said to have a short position in the securities sold until it delivers to the broker- dealer the securities sold. The Portfolio may close out a short position by purchasing on the open market and delivering to the broker-dealer an equal amount of the securities sold short, rather than by delivering portfolio securities. Short sales may protect the Portfolio against the risk of losses in the value of its portfolio securities because any unrealized losses with respect to such portfolio securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such portfolio securities should be wholly or partially offset by a corresponding loss in the short position. The extent to which such gains or losses are offset will depend upon the amount of securities sold short relative to the amount the Portfolio owns, either directly or indirectly, and, in the case where it owns convertible securities, changes in the conversion premium. Short sale transactions involve certain risks. If the price of the security sold short increases between the time of the short sale and the time the Portfolio replaces the borrowed security, it will incur a loss and if the price declines during this period, it will realize a short-term capital gain. Any realized short-term capital gain will be decreased, and any incurred loss increased, by the amount of transaction costs and any premium, dividend or interest which the Portfolio may have to pay in connection with such short sale. Certain provisions of the Internal Revenue Code may limit the degree to which the Portfolio is able to enter into short sales. There is no limitation on the amount of assets that, in the aggregate, may be deposited as collateral for the obligation to replace securities borrowed to effect short sales and allocated to segregated accounts in connection with short sales. The Portfolio currently expects that no more than 5% of its total assets would be involved in short sales against the box. Rule 144A Securities The Portfolio may purchase securities that have been privately placed but that are eligible for purchase and sale under Rule 144A under the 1933 Act. That Rule permits certain qualified institutional buyers, such as the Portfolio, to trade in privately placed securities that have not been registered for sale under the 1933 Act. Newport, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the restriction of investing no more than 15% of its net assets in illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, Newport will consider the trading markets for the specific security, taking into account the unregistered nature of a Rule 144A security. In addition, Newport could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, and (4) nature of the security and of marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A securities would be monitored and if, as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the Portfolio's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Portfolio does not invest more than 15% of its assets in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of the Portfolio's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities. The Portfolio does not expect to invest as much as 5% of its total assets in Rule 144A securities that have not been deemed to be liquid by Newport. Line of Credit Subject to restriction (6) under Investment Restrictions in this Statement of Additional Information, the Portfolio may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowing may be preferable to liquidation of portfolio securities. Interfund Borrowing and Lending Program Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Portfolio has received permission to lend money to, and borrow money from, other mutual funds advised by the Adviser. The Portfolio will borrow through the program when borrowing is necessary and appropriate and the costs are equal to or lower than the costs of bank loans. Portfolio Turnover Although the Portfolio does not purchase securities with a view to rapid turnover, there are no limitations on the length of time that portfolio securities must be held. Portfolio turnover can occur for a number of reasons such as general conditions in the securities markets, more favorable investment opportunities in other securities, or other factors relating to the desirability of holding or changing a portfolio investment. Because of the Portfolio's flexibility of investment and emphasis on growth of capital, it may have greater portfolio turnover than that of mutual funds that have primary objectives of income or maintenance of a balanced investment position. The future turnover rate may vary greatly from year to year, but is not expected to exceed 100% under normal market conditions. A high rate of portfolio turnover, if it should occur, would result in increased transaction expenses, which it must bear. High portfolio turnover may also result in the realization of capital gains or losses and, to the extent net short-term capital gains are realized, any distributions resulting from such gains will be considered ordinary income for federal income tax purposes. (See Risks and Investment Considerations and Distributions and Income Taxes in the Prospectus, and Additional Income Tax Considerations in this Statement of Additional Information.) Options on Securities and Indexes The Portfolio may purchase and sell put options and call options on securities, indexes or foreign currencies in standardized contracts traded on recognized securities exchanges, boards of trade, or similar entities, or quoted on Nasdaq. The Portfolio may purchase agreements, sometimes called cash puts, that may accompany the purchase of a new issue of bonds from a dealer. An option on a security (or index) is a contract that gives the purchaser (holder) of the option, in return for a premium, the right to buy from (call) or sell to (put) the seller (writer) of the option the security underlying the option (or the cash value of the index) at a specified exercise price at any time during the term of the option (normally not exceeding nine months). The writer of an option on an individual security or on a foreign currency has the obligation upon exercise of the option to deliver the underlying security or foreign currency upon payment of the exercise price or to pay the exercise price upon delivery of the underlying security or foreign currency. Upon exercise, the writer of an option on an index is obligated to pay the difference between the cash value of the index and the exercise price multiplied by the specified multiplier for the index option. (An index is designed to reflect specified facets of a particular financial or securities market, a specific group of financial instruments or securities, or certain economic indicators.) The Portfolio will write call options and put options only if they are "covered." For example, in the case of a call option on a security, the option is "covered" if the Portfolio owns the security underlying the call or has an absolute and immediate right to acquire that security without additional cash consideration (or, if additional cash consideration is required, cash or cash equivalents in such amount are held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. If an option written by the Portfolio expires, it realizes a capital gain equal to the premium received at the time the option was written. If an option purchased by the Portfolio expires, it realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, an option may be closed out by an offsetting purchase or sale of an option of the same series (type, exchange, underlying security or index, exercise price, and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when the Portfolio desires. The Portfolio will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if it is more, the Portfolio will realize a capital loss. If the premium received from a closing sale transaction is more than the premium paid to purchase the option, the Portfolio will realize a capital gain or, if it is less, it will realize a capital loss. The principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price of the underlying security or index in relation to the exercise price of the option, the volatility of the underlying security or index, and the time remaining until the expiration date. A put or call option purchased by the Portfolio is an asset of the Portfolio, valued initially at the premium paid for the option. The premium received for an option written by the Portfolio is recorded as a deferred credit. The value of an option purchased or written is marked-to-market daily and is valued at the closing price on the exchange on which it is traded or, if not traded on an exchange or no closing price is available, at the mean between the last bid and asked prices. Risks Associated with Options on Securities and Indexes. There are several risks associated with transactions in options. For example, there are significant differences between the securities markets, the currency markets, and the options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well- conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. There can be no assurance that a liquid market will exist when the Portfolio seeks to close out an option position. If the Portfolio were unable to close out an option that it had purchased on a security, it would have to exercise the option in order to realize any profit or the option would expire and become worthless. If the Portfolio were unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security until the option expired. As the writer of a covered call option on a security, the Portfolio foregoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the exercise price of the call. If trading were suspended in an option purchased or written by the Portfolio, it would not be able to close out the option. If restrictions on exercise were imposed, the Portfolio might be unable to exercise an option it has purchased. Futures Contracts and Options on Futures Contracts The Portfolio may use interest rate futures contracts, index futures contracts, and foreign currency futures contracts. An interest rate, index or foreign currency futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a financial instrument or the cash value of an index /2/ at a specified price and time. A public market exists in futures contracts covering a number of indexes (including, but not limited to: the Standard & Poor's 500 Index, the Value Line Composite Index, and the New York Stock Exchange Composite Index) as well as financial instruments (including, but not limited to: U.S. Treasury bonds, U.S. Treasury notes, Eurodollar certificates of deposit, and foreign currencies). Other index and financial instrument futures contracts are available and it is expected that additional futures contracts will be developed and traded. - ----------- /2/ A futures contract on an index is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. Although the value of a securities index is a function of the value of certain specified securities, no physical delivery of those securities is made. - ----------- The Portfolio may purchase and write call and put futures options. Futures options possess many of the same characteristics as options on securities, indexes and foreign currencies (discussed above). A futures option gives the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. The Portfolio might, for example, use futures contracts to hedge against or gain exposure to fluctuations in the general level of stock prices, anticipated changes in interest rates or currency fluctuations that might adversely affect either the value of its securities or the price of the securities that the Portfolio intends to purchase. Although other techniques could be used to reduce or increase exposure to stock price, interest rate and currency fluctuations, the Portfolio may be able to achieve its exposure more effectively and perhaps at a lower cost by using futures contracts and futures options. The Portfolio will only enter into futures contracts and futures options that are standardized and traded on an exchange, board of trade, or similar entity, or quoted on an automated quotation system. The success of any futures transaction depends on accurate predictions of changes in the level and direction of stock prices, interest rates, currency exchange rates and other factors. Should those predictions be incorrect, the return might have been better had the transaction not been attempted; however, in the absence of the ability to use futures contracts, Newport might have taken portfolio actions in anticipation of the same market movements with similar investment results but, presumably, at greater transaction costs. When a purchase or sale of a futures contract is made by the Portfolio, it is required to deposit with its custodian (or broker, if legally permitted) a specified amount of cash or U.S. Government securities or other securities acceptable to the broker ("initial margin"). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract, which is returned to the Portfolio upon termination of the contract, assuming all contractual obligations have been satisfied. The Portfolio expects to earn interest income on its initial margin deposits. A futures contract held by the Portfolio is valued daily at the official settlement price of the exchange on which it is traded. Each day the Portfolio pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking-to-market." Variation margin paid or received by the Portfolio does not represent a borrowing or loan by the Portfolio but is instead settlement between the Portfolio and the broker of the amount one would owe the other if the futures contract had expired at the close of the previous day. In computing daily net asset value, the Portfolio will mark-to-market its open futures positions. The Portfolio is also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the Portfolio. Although some futures contracts call for making or taking delivery of the underlying securities, usually these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, the Portfolio realizes a capital gain, or if it is more, it realizes a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the Portfolio realizes a capital gain, or if it is less, it realizes a capital loss. The transaction costs must also be included in these calculations. Risks Associated with Futures There are several risks associated with the use of futures contracts and futures options. A purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract. In trying to increase or reduce market exposure, there can be no guarantee that there will be a correlation between price movements in the futures contract and in the portfolio exposure sought. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given transaction not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as: variations in speculative market demand for futures, futures options and the related securities, including technical influences in futures and futures options trading and differences between the securities market and the securities underlying the standard contracts available for trading. For example, in the case of index futures contracts, the composition of the index, including the issuers and the weighting of each issue, may differ from the composition of the portfolio, and, in the case of interest rate futures contracts, the interest rate levels, maturities, and creditworthiness of the issues underlying the futures contract may differ from the financial instruments held in the portfolio. A decision as to whether, when and how to use futures contracts involves the exercise of skill and judgment, and even a well- conceived transaction may be unsuccessful to some degree because of market behavior or unexpected stock price or interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Stock index futures contracts are not normally subject to such daily price change limitations. There can be no assurance that a liquid market will exist at a time when the Portfolio seeks to close out a futures or futures option position. The Portfolio would be exposed to possible loss on the position during the interval of inability to close, and would continue to be required to meet margin requirements until the position is closed. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist. Limitations on Options and Futures If other options, futures contracts, or futures options of types other than those described herein are traded in the future, the Portfolio may also use those investment vehicles, provided the Board of Trustees determines that their use is consistent with the investment objective. The Portfolio will not enter into a futures contract or purchase an option thereon if, immediately thereafter, the initial margin deposits for futures contracts held plus premiums paid by it for open futures option positions, less the amount by which any such positions are "in-the-money," /3/ would exceed 5% of total assets. - ------------- /3/ A call option is "in-the-money" if the value of the futures contract that is the subject of the option exceeds the exercise price. A put option is "in-the-money" if the exercise price exceeds the value of the futures contract that is the subject of the option. - ------------- When purchasing a futures contract or writing a put option on a futures contract, the Portfolio must maintain with its custodian (or broker, if legally permitted) cash or cash equivalents (including any margin) equal to the market value of such contract. When writing a call option on a futures contract, the Portfolio similarly will maintain with its custodian cash or cash equivalents (including any margin) equal to the amount by which such option is in-the-money until the option expires or is closed out by the Portfolio. The Portfolio may not maintain open short positions in futures contracts, call options written on futures contracts or call options written on indexes if, in the aggregate, the market value of all such open positions exceeds the current value of the securities in its portfolio, plus or minus unrealized gains and losses on the open positions, adjusted for the historical relative volatility of the relationship between the portfolio and the positions. For this purpose, to the extent the Portfolio has written call options on specific securities in its portfolio, the value of those securities will be deducted from the current market value of the securities portfolio. In order to comply with Commodity Futures Trading Commission Regulation 4.5 and thereby avoid being deemed a "commodity pool operator," the Portfolio will use commodity futures or commodity options contracts solely for bona fide hedging purposes within the meaning and intent of Regulation 1.3(z), or, with respect to positions in commodity futures and commodity options contracts that do not come within the meaning and intent of 1.3(z), the aggregate initial margin and premiums required to establish such positions will not exceed 5% of the fair market value of the assets, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into [in the case of an option that is in-the-money at the time of purchase, the in-the-money amount (as defined in Section 190.01(x) of the Commission Regulations) may be excluded in computing such 5%]. Taxation of Options and Futures If the Portfolio exercises a call or put option that it holds, the premium paid for the option is added to the cost basis of the security purchased (call) or deducted from the proceeds of the security sold (put). For cash settlement options and futures options exercised by the Portfolio, the difference between the cash received at exercise and the premium paid is a capital gain or loss. If a call or put option written by the Portfolio is exercised, the premium is included in the proceeds of the sale of the underlying security (call) or reduces the cost basis of the security purchased (put). For cash settlement options and futures options written by the Portfolio, the difference between the cash paid at exercise and the premium received is a capital gain or loss. Entry into a closing purchase transaction will result in capital gain or loss. If an option written by the Portfolio was in-the-money at the time it was written and the security covering the option was held for more than the long-term holding period prior to the writing of the option, any loss realized as a result of a closing purchase transaction will be long-term. The holding period of the securities covering an in-the-money option will not include the period of time the option is outstanding. If the Portfolio writes an equity call option /4/ other than a "qualified covered call option," as defined in the Internal Revenue Code, any loss on such option transaction, to the extent it does not exceed the unrealized gains on the securities covering the option, may be subject to deferral until the securities covering the option have been sold. - ----------- /4/ An equity option is defined to mean any option to buy or sell stock, and any other option the value of which is determined by reference to an index of stocks of the type that is ineligible to be traded on a commodity futures exchange (e.g., an option contract on a sub-index based on the price of nine hotel-casino stocks). The definition of equity option excludes options on broad-based stock indexes (such as the Standard & Poor's 500 index). - ----------- A futures contract held until delivery results in capital gain or loss equal to the difference between the price at which the futures contract was entered into and the settlement price on the earlier of delivery notice date or expiration date. If the Portfolio delivers securities under a futures contract, the Portfolio also realizes a capital gain or loss on those securities. For federal income tax purposes, the Portfolio generally is required to recognize as income for each taxable year its net unrealized gains and losses as of the end of the year on futures, futures options and non-equity options positions ("year-end mark- to-market"). Generally, any gain or loss recognized with respect to such positions (either by year-end mark-to-market or by actual closing of the positions) is considered to be 60% long-term and 40% short-term, without regard to the holding periods of the contracts. However, in the case of positions classified as part of a "mixed straddle," the recognition of losses on certain positions (including options, futures and futures options positions, the related securities and certain successor positions thereto) may be deferred to a later taxable year. Sale of futures contracts or writing of call options (or futures call options) or buying put options (or futures put options) that are intended to hedge against a change in the value of securities held: (1) will affect the holding period of the hedged securities; and (2) may cause unrealized gain or loss on such securities to be recognized upon entry into the hedge. If the Portfolio were to enter into a short index future, short index futures option or short index option position and the portfolio were deemed to "mimic" the performance of the index underlying such contract, the option or futures contract position and the Portfolio's stock positions would be deemed to be positions in a mixed straddle, subject to the above-mentioned loss deferral rules. In order for the Portfolio to continue to qualify for federal income tax treatment as a regulated investment company, at least 90% of its gross income for a taxable year must be derived from qualifying income; i.e., dividends, interest, income derived from loans of securities, and gains from the sale of securities or foreign currencies, or other income (including but not limited to gains from options, futures, or forward contracts). Any net gain realized from futures (or futures options) contracts will be considered gain from the sale of securities and therefore be qualifying income for purposes of the 90% requirement. The Fund distributes to shareholders annually any net capital gains that have been recognized for federal income tax purposes (including year-end mark-to-market gains) on options and futures transactions. Such distributions are combined with distributions of capital gains realized on the other investments, and shareholders are advised of the nature of the payments. The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale treatment for federal income tax purposes on certain hedging strategies with respect to appreciated securities. Under these rules, taxpayers will recognize gain, but not loss, with respect to securities if they enter into short sales of "offsetting notional principal contracts" (as defined by the Act) or futures or "forward contracts" (as defined by the Act) with respect to the same or substantially identical property, or if they enter into such transactions and then acquire the same or substantially identical property. These changes generally apply to constructive sales after June 8, 1997. Furthermore, the Secretary of the Treasury is authorized to promulgate regulations that will treat as constructive sales certain transactions that have substantially the same effect as short sales, offsetting notional principal contracts, and futures or forward contracts to deliver the same or substantially similar property. INVESTMENT RESTRICTIONS The Fund and the Portfolio operate under the following investment restrictions. The Fund and the Portfolio may not: (1) with respect to 75% of its total assets, invest more than 5% of its total assets, taken at market value at the time of a particular purchase, in the securities of a single issuer, except for securities issued or guaranteed by the U. S. Government or any of its agencies or instrumentalities or repurchase agreements for such securities, and [Fund only] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; (2) acquire more than 10%, taken at the time of a particular purchase, of the outstanding voting securities of any one issuer, [Fund only] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; (3) act as an underwriter of securities, except insofar as it may be deemed an underwriter for purposes of the Securities Act of 1933 on disposition of securities acquired subject to legal or contractual restrictions on resale, [Fund only] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; (4) purchase or sell real estate (although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate or interests therein), commodities, or commodity contracts, except that it may enter into (a) futures and options on futures and (b) forward contracts; (5) make loans, although it may (a) lend portfolio securities and participate in an interfund lending program with other Stein Roe Funds and Portfolios provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans); (b) purchase money market instruments and enter into repurchase agreements; and (c) acquire publicly distributed or privately placed debt securities; (6) borrow except that it may (a) borrow for nonleveraging, temporary or emergency purposes, (b) engage in reverse repurchase agreements and make other borrowings, provided that the combination of (a) and (b) shall not exceed 33 1/3% of the value of its total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law, and (c) enter into futures and options transactions; it may borrow from banks, other Stein Roe Funds and Portfolios, and other persons to the extent permitted by applicable law; (7) invest in a security if more than 25% of its total assets (taken at market value at the time of a particular purchase) would be invested in the securities of issuers in any particular industry, /5/ except that this restriction does not apply to securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, and [Fund only] except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; or - ----------- /5/ For purposes of this investment restriction, the Portfolio uses industry classifications contained in Morgan Stanley Capital International Perspective, which is published by Morgan Stanley, an international investment banking and brokerage firm. - ----------- (8) issue any senior security except to the extent permitted under the Investment Company Act of 1940. The above restrictions are fundamental policies and may not be changed without the approval of a "majority of the outstanding voting securities" as defined above. The Fund and the Portfolio are also subject to the following nonfundamental restrictions and policies, which may be changed by the Board of Trustees. None of the following restrictions shall prevent the Fund from investing all or substantially all of its assets in another investment company having the same investment objective and substantially the same investment policies as the Fund. The Fund and the Portfolio may not: (a) invest in any of the following: (i) interests in oil, gas, or other mineral leases or exploration or development programs (except readily marketable securities, including but not limited to master limited partnership interests, that may represent indirect interests in oil, gas, or other mineral exploration or development programs); (ii) puts, calls, straddles, spreads, or any combination thereof (except that it may enter into transactions in options, futures, and options on futures); (iii) shares of other open-end investment companies, except in connection with a merger, consolidation, acquisition, or reorganization; and (iv) limited partnerships in real estate unless they are readily marketable; (b) invest in companies for the purpose of exercising control or management; (c) purchase more than 3% of the stock of another investment company or purchase stock of other investment companies equal to more than 5% of its total assets (valued at time of purchase) in the case of any one other investment company and 10% of such assets (valued at time of purchase) in the case of all other investment companies in the aggregate; any such purchases are to be made in the open market where no profit to a sponsor or dealer results from the purchase, other than the customary broker's commission, except for securities acquired as part of a merger, consolidation or acquisition of assets; (d) invest more than 5% of its net assets (valued at time of purchase) in warrants, nor more than 2% of its net assets in warrants that are not listed on the New York or American Stock Exchange a recognized foreign exchange; (e) write an option on a security unless the option is issued by the Options Clearing Corporation, an exchange, or similar entity; (f) purchase a put or call option if the aggregate premiums paid for all put and call options exceed 20% of its net assets (less the amount by which any such positions are in-the-money), excluding put and call options purchased as closing transactions; (g) purchase securities on margin (except for use of short- term credits as are necessary for the clearance of transactions), or sell securities short unless (i) it owns or has the right to obtain securities equivalent in kind and amount to those sold short at no added cost or (ii) the securities sold are "when issued" or "when distributed" securities which it expects to receive in a recapitalization, reorganization, or other exchange for securities it contemporaneously owns or has the right to obtain and provided that transactions in options, futures, and options on futures are not treated as short sales; (h) invest more than 5% of its total assets (taken at market value at the time of a particular investment) in restricted securities, other than securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933; (i) invest more than 15% of its net assets (taken at market value at the time of a particular investment) in illiquid securities, including repurchase agreements maturing in more than seven days. Notwithstanding the foregoing investment restrictions, the Portfolio may purchase securities pursuant to the exercise of subscription rights, subject to the condition that such purchase will not result in its ceasing to be a diversified investment company. Far Eastern and European corporations frequently issue additional capital stock by means of subscription rights offerings to existing shareholders at a price substantially below the market price of the shares. The failure to exercise such rights would result in the interest of the Portfolio in the issuing company being diluted. The market for such rights is not well developed in all cases and, accordingly, the Portfolio may not always realize full value on the sale of rights. The exception applies in cases where the limits set forth in the investment restrictions would otherwise be exceeded by exercising rights or would have already been exceeded as a result of fluctuations in the market value of the portfolio securities with the result that it would be forced either to sell securities at a time when it might not otherwise have done so, to forego exercising the rights. ADDITIONAL INVESTMENT CONSIDERATIONS The Adviser seeks to provide superior long-term investment results through a disciplined, research-intensive approach to investment selection and prudent risk management. In working to build wealth for generations it has been guided by three primary objectives which it believes are the foundation of a successful investment program. These objectives are preservation of capital, limited volatility through managed risk, and consistent above- average returns as appropriate for the particular client or managed account. Because every investor's needs are different, Stein Roe mutual funds are designed to accommodate different investment objectives, risk tolerance levels, and time horizons. In selecting a mutual fund, investors should ask the following questions: What are my investment goals? It is important to a choose a fund that has investment objectives compatible with your investment goals. What is my investment time frame? If you have a short investment time frame (e.g., less than three years), a mutual fund that seeks to provide a stable share price, such as a money market fund, or one that seeks capital preservation as one of its objectives may be appropriate. If you have a longer investment time frame, you may seek to maximize your investment returns by investing in a mutual fund that offers greater yield or appreciation potential in exchange for greater investment risk. What is my tolerance for risk? All investments, including those in mutual funds, have risks which will vary depending on investment objective and security type. However, mutual funds seek to reduce risk through professional investment management and portfolio diversification. In general, equity mutual funds emphasize long-term capital appreciation and tend to have more volatile net asset values than bond or money market mutual funds. Although there is no guarantee that they will be able to maintain a stable net asset value of $1.00 per share, money market funds emphasize safety of principal and liquidity, but tend to offer lower income potential than bond funds. Bond funds tend to offer higher income potential than money market funds but tend to have greater risk of principal and yield volatility. In addition, the Adviser believes that investment in a high yield fund provides an opportunity to diversify an investment portfolio because the economic factors that affect the performance of high-yield, high-risk debt securities differ from those that affect the performance of high quality debt securities or equity securities. PURCHASES AND REDEMPTIONS Purchases and redemptions are discussed in the Prospectus under the headings How to Purchase Shares, How to Redeem Shares, and Net Asset Value, and that information is incorporated herein by reference. The Prospectus discloses that shares may be purchased (or redeemed) through investment dealers, banks, or other intermediaries. It is the responsibility of any such intermediary to establish procedures insuring the prompt transmission to the Trust of any such purchase order. The state of Texas has asked that mutual funds disclose in their statements of additional information, as a reminder to any such intermediary, that it must be registered as a dealer in Texas. Through an account with an Intermediary, a shareholder may be able to exchange shares of the Fund for shares of another Stein Roe Fund. Each Intermediary will establish its own exchange policy and procedures for its accounts. Shares are exchanged at the next price calculated on a day the NYSE is open, after an exchange order is received and accepted by an Intermediary. - - Shares can be exchanged only between accounts registered in the same name, address, and taxpayer ID number of the Intermediary. - - An exchange can be made only into a Stein Roe Fund whose shares are eligible for sale in the state where the Intermediary is located. - - An exchange may have tax consequences. - - The Fund may refuse any exchange orders from any Intermediary if for any reason they are not deemed to be in the best interests of the Fund and its shareholders. - - The Fund may impose other restrictions on the exchange privilege, or modify or terminate the privilege, but will try to give each Intermediary advance notice whenever it can reasonably do so. The Fund's net asset value is determined on days on which the New York Stock Exchange (the "NYSE") is open for trading. The NYSE is regularly closed on Saturdays and Sundays and on New Year's Day, the third Monday in January, the third Monday in February, Good Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving, and Christmas. If one of these holidays falls on a Saturday or Sunday, the NYSE will be closed on the preceding Friday or the following Monday, respectively. Net asset value will not be determined on days when the NYSE is closed unless, in the judgment of the Board of Trustees, net asset value should be determined on any such day, in which case the determination will be made at 3:00 p.m., central time. The Trust reserves the right to suspend or postpone redemptions of shares of its series during any period when: (a) trading on the NYSE is restricted, as determined by the Securities and Exchange Commission, or the NYSE is closed for other than customary weekend and holiday closings; (b) the Securities and Exchange Commission has by order permitted such suspension; or (c) an emergency, as determined by the Securities and Exchange Commission, exists, making disposal of portfolio securities or valuation of net assets of a series not reasonably practicable. The Trust intends to pay all redemptions in cash and is obligated to redeem shares of its series solely in cash up to the lesser of $250,000 or one percent of the net assets of the Fund during any 90-day period for any one shareholder. However, redemptions in excess of such limit may be paid wholly or partly by a distribution in kind of securities. If redemptions were made in kind, the redeeming shareholders might incur transaction costs in selling the securities received in the redemptions. Due to the relatively high cost of maintaining smaller accounts, the Trust reserves the right to redeem shares in any account for their then-current value (which will be promptly paid to the investor) if at any time the shares in the account do not have a value of at least $100,000. An investor will be notified that the value of his account is less than the minimum and allowed at least 30 days to bring the value of the account up to at least $100,000 before the redemption is processed. The Agreement and Declaration of Trust also authorizes Institutional Trust to redeem shares under certain other circumstances as may be specified by the Board of Trustees. MANAGEMENT The following table sets forth certain information with respect to the trustees and officers of the Trust:
Position(s) held Principal occupation(s) Name, Age with the Trust During past five years - ------------------------- ----------------------- --------------------------------------------- William D. Andrews, 50(4) Executive Vice-President Executive vice president of Stein Roe & Farnham Incorporated (the "Adviser") Gary A. Anetsberger, 42(4) Senior Vice-President Chief financial officer and chief administrative officer of the Mutual Funds division of the Adviser; senior vice president of the Adviser since April 1996; vice president of the Adviser prior thereto William W. Boyd, 71 Trustee Chairman and director of Sterling Plumbing Group, (2)(3)(4) Inc. (manufacturer of plumbing products) Thomas W. Butch, 41 Trustee; President President of the Mutual Funds division of the Adviser (1)(2)(4) since March 1998; senior vice president of the Adviser from Sept. 1994 to March 1998; first vice president, corporate communications, of Mellon Bank Corporation prior thereto Kevin M. Carome, 42 (4) Vice-President; Assistant Associate general counsel and (since Feb. 1995) vice Secretary president, Liberty Financial Companies, Inc.; general counsel and secretary of the Adviser since Jan. 1998 Lindsay Cook, 46 (1)(4) Trustee Executive vice president of Liberty Financial Companies, Inc. (the indirect parent of the Adviser) since March 1997; senior vice president prior thereto Douglas A. Hacker,42(3)(4) Trustee Senior vice president and chief financial officer of United Airlines since July 1994; senior vice president, finance, United Airlines prior thereto Loren A. Hansen, 50 (4) Executive Vice-President Chief investment officer of Colonial Management Associates, Inc. since 1997; executive vice president of the Adviser since Dec. 1995; vice president of The Northern Trust (bank) prior thereto Janet Langford Kelly, 40 Trustee Senior vice president, secretary and general counsel (3)(4) of Sara Lee Corporation (branded, packaged, consumer- products manufacturer), since 1995; partner of Sidley & Austin (law firm) prior thereto Michael T. Kennedy, 36 Vice-President Senior vice president of the Adviser since Oct., 1994; vice president of the Adviser prior thereto Stephen F. Lockman, 36 Vice-President Senior vice president, portfolio manager, and credit analyst of the Adviser; portfolio manager for Illinois State Board of Investment prior thereto Lynn C. Maddox, 57 Vice-President Senior vice president of the Adviser Jane M. Naeseth, 48 Vice-President Senior vice president of the Adviser Charles R. Nelson, 55 Trustee Van Voorhis Professor of Political Economy, Department (3)(4) of Economics of the University of Washington Nicolette D. Parrish, 48 Vice-President; Senior legal assistant and assistant secretary of the (4) Assistant Secretary Adviser Sharon R. Robertson, 36(4) Controller Accounting manager for the Adviser's Mutual Funds division Janet B. Rysz, 42 (4) Assistant Secretary Senior legal assistant and assistant secretary of the Adviser Thomas C. Theobald, 61 Trustee Managing director, William Blair Capital Partners (3)(4) (private equity fund) since 1994; chief executive officer and chairman of the Board of Directors of Continental Bank Corporation, 1987-1994 Scott E. Volk, 27 (4) Treasurer Financial reporting manager for the Adviser's Mutual Funds division since Oct. 1997; senior auditor with Ernst & Young LLP from Sept. 1993 to April 1996 and from Oct. 1996 to Sept. 1997; financial analyst with John Nuveen & Company Inc. from May 1996 to Sept. 1996; full-time student prior to Sept. 1993 Heidi J. Walter, 30 (4) Vice-President; Secretary Vice president of the Adviser since March 1998; legal counsel for the Adviser since March 1995; associate with Beeler Schad & Diamond, PC (law firm) prior thereto Hans P. Ziegler, 57 (4) Executive Vice-President Chief executive officer of the Adviser since May 1994; president of the Investment Counsel division of the Adviser prior thereto Margaret O. Zwick, 31 (4) Assistant Treasurer Project manager for the Adviser's Mutual Funds division since April 1997; compliance manager from Aug. 1995 to April 1997; compliance accountant, Jan. 1995 to July 1995; section manager, Jan. 1994 to Jan. 1995; supervisor prior thereto _________________________ (1) Trustee who is an "interested person" of the Trust and of the Adviser, as defined in the Investment Company Act of 1940. (2) Member of the Executive Committee of the Board of Trustees, which is authorized to exercise all powers of the Board with certain statutory exceptions. (3) Member of the Audit Committee of the Board, which makes recommendations to the Board regarding the selection of auditors and confers with the auditors regarding the scope and results of the audit. (4) This person holds the corresponding officer or trustee position with SR&F Base Trust.
Certain of the trustees and officers of the Trust and Base Trust are trustees or officers of other investment companies managed by the Adviser. Ms. Walter and Mr. Butch are also vice presidents of Liberty Funds Distributor, Inc., the Fund's distributor. The address of Mr. Boyd is 2900 Golf Road, Rolling Meadows, Illinois 60008; that of Mr. Cook is 600 Atlantic Avenue, Boston, Massachusetts 02210; that of Mr. Hacker is P.O. Box 66100, Chicago, IL 60666; that of Ms. Kelly is Three First National Plaza, Chicago, Illinois 60602; that of Mr. Nelson is Department of Economics, University of Washington, Seattle, Washington 98195; that of Mr. Theobald is Suite 3300, 222 West Adams Street, Chicago, IL 60606; and that of the other officers is One South Wacker Drive, Chicago, Illinois 60606. Officers and trustees affiliated with the Adviser serve without any compensation from the Trust. In compensation for their services to the Trust, trustees who are not "interested persons" of the Trust or the Adviser are paid an annual retainer plus an attendance fee for each meeting of the Board or standing committee thereof attended. The Trust has no retirement or pension plan. The following table sets forth compensation paid by the Trust during the fiscal year ended June 30, 1997 to each of the trustees: Total Compensation Aggregate Compensation from the Stein Name of Trustee from the Trust Roe Fund Complex* - -------------------- ----------------------- ------------------ Timothy K. Armour** -0- -0- Thomas W. Butch** -0- -0- Lindsay Cook -0- -0- Kenneth L. Block** $6,000 $70,693 William W. Boyd 6,000 80,593 Douglas A. Hacker 6,000 76,593 Janet Langford Kelly 6,000 51,600 Francis W. Morley** 6,000 76,943 Charles R. Nelson 6,000 80,593 Thomas C. Theobald 6,000 76,593 Gordon R. Worley** -0- 25,393 _______________ * At June 30, 1997, the Stein Roe Fund Complex consisted of one series of the Trust, six series of Stein Roe Income Trust, four series of Stein Roe Municipal Trust, ten series of Stein Roe Investment Trust, seven series of Stein Roe Advisor Trust, one series of Stein Roe Trust, and nine series of Base Trust. ** Mr. Worley retired as a trustee on Dec. 31, 1996, and Messrs. Block and Morley on Dec. 31, 1997. Mr. Armour resigned as a trustee and Mr. Butch was elected a trustee on April 14, 1998. PRINCIPAL SHAREHOLDERS As of the date of this Statement of Additional Information, the Fund had no shareholders. INVESTMENT ADVISORY SERVICES Stein Roe & Farnham Incorporated provides investment management services to the Portfolio and administrative services to the Fund. The Adviser is a wholly owned subsidiary of SteinRoe Services Inc. ("SSI"), the Fund's transfer agent, which is a wholly owned subsidiary of Liberty Financial Companies, Inc. ("Liberty Financial"), which is a majority owned subsidiary of LFC Holdings, Inc., which is a wholly owned subsidiary of Liberty Mutual Equity Corporation, which is a wholly owned subsidiary of Liberty Mutual Insurance Company. Liberty Mutual Insurance Company is a mutual insurance company, principally in the property/casualty insurance field, organized under the laws of Massachusetts in 1912. The directors of the Adviser are Kenneth R. Leibler, Harold W. Cogger, C. Allen Merritt, Jr., Thomas W. Butch, and Hans P. Ziegler. Mr. Leibler is President and Chief Executive Officer of Liberty Financial; Mr. Cogger is Executive Vice President of Liberty Financial; Mr. Merritt is Chief Operating Officer of Liberty Financial; Mr. Butch is President of the Adviser's Mutual Funds division; and Mr. Ziegler is Chief Executive Officer of the Adviser. The business address of Messrs. Leibler, Cogger, and Merritt is Federal Reserve Plaza, Boston, Massachusetts 02210; and that of Messrs. Butch and Ziegler is One South Wacker Drive, Chicago, Illinois 60606. The Adviser and its predecessor have been providing investment advisory services since 1932. The Adviser acts as investment adviser to wealthy individuals, trustees, pension and profit sharing plans, charitable organizations, and other institutional investors. As of Dec. 31, 1997, the Adviser managed over $27.5 billion in assets: over $9.8 billion in equities and over $17.7 billion in fixed income securities (including $1.7 billion in municipal securities). The $27.5 billion in managed assets included over $7.1 billion held by open-end mutual funds managed by the Adviser (approximately 15% of the mutual fund assets were held by clients of the Adviser). These mutual funds were owned by over 268,000 shareholders. The $7.1 billion in mutual fund assets included over $714 million in over 41,000 IRA accounts. In managing those assets, the Adviser utilizes a proprietary computer-based information system that maintains and regularly updates information for approximately 9,000 companies. The Adviser also monitors over 1,400 issues via a proprietary credit analysis system. At Dec. 31, 1997, the Adviser employed 18 research analysts and 55 account managers. The average investment-related experience of these individuals was 24 years. The sub-adviser, Newport Fund Management, Inc., 580 California Street, Suite 1960, San Francisco, CA 94104, is subject to the overall supervision of the Adviser and provides the Portfolio with investment advisory services, including portfolio management. Newport is registered as an investment adviser under the Investment Advisers Act of 1940 and specializes in investing in the Pacific region. Newport, an affiliate of the Adviser, is a wholly owned subsidiary of Newport Pacific Management, Inc., which is a wholly owned subsidiary of Liberty Financial. As of March 31, 1998, Newport managed approximately $1.5 billion in assets, all of which were invested in foreign securities. The directors of Newport are Sabino Marinella, John M. Mussey, Kenneth R. Leibler, Lindsay Cook, Thomas R. Tuttle, Pamela Frantz and Linda Couch. Please refer to the descriptions of the Adviser and Newport, management agreement, administrative agreement, fees, expense limitations, and transfer agency services under Fee Table and Management in the Prospectus, which is incorporated herein by reference. The Adviser provides office space and executive and other personnel to the Fund, and bears any sales or promotional expenses. Newport pays the cost of maintaining the staff and personnel necessary for it to perform its services to the Portfolio, including the expenses of office rent, telephone and other facilities necessary to enable it to perform its investment management services. The Fund pays all expenses other than those paid by the Adviser, including but not limited to printing and postage charges and securities registration and custodian fees and expenses incidental to its organization. The administrative agreement provides that the Adviser shall reimburse the Fund to the extent that its total annual expenses (including fees paid to the Adviser, but excluding taxes, interest, commissions and other normal charges incident to the purchase and sale of portfolio securities, and expenses of litigation to the extent permitted under applicable state law) exceed the applicable limits prescribed by any state in which its shares are being offered for sale to the public; provided, however, the Adviser is not required to reimburse the Fund an amount in excess of fees paid by the Fund under that agreement for such year. In addition, in the interest of further limiting expenses of the Fund, the Adviser may voluntarily waive its management fee and/or absorb certain expenses, as described under Fee Table in the Prospectus. Any such reimbursement will enhance the yield of the Fund. The management agreement provides that neither the Adviser, nor any of its directors, officers, stockholders (or partners of stockholders), agents, or employees shall have any liability to the Trust or any shareholder of the Trust for any error of judgment, mistake of law or any loss arising out of any investment, or for any other act or omission in the performance by the Adviser of its duties under the agreement, except for liability resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under the agreement. Any expenses that are attributable solely to the organization, operation, or business of the Fund shall be paid solely out of its assets. Any expenses incurred by the Trust that are not solely attributable to a particular series are apportioned in such manner as the Adviser determines is fair and appropriate, unless otherwise specified by the Board of Trustees. Bookkeeping and Accounting Agreement Pursuant to separate agreements with the Trust and SR&F Base Trust, the Adviser receives a fee for performing certain bookkeeping and accounting services for the Fund and the Portfolio. For services provided to the Trust, the Adviser receives an annual fee of $25,000 per series plus .0025 of 1% of average net assets over $50 million. During the fiscal years ended Sept. 30, 1995, 1996 and 1997, the Adviser received aggregate fees of $192,479, $265,246 and $315,067, respectively, from the Trust for services performed under this Agreement. DISTRIBUTOR Shares of the Fund are distributed by Liberty Funds Distributor, Inc. ("Distributor") under a Distribution Agreement as described under Management in the Prospectus, which is incorporated herein by reference. The Distributor is a subsidiary of Colonial Management Associates, Inc., which is an indirect subsidiary of Liberty Financial. The Distribution Agreement continues in effect from year to year, provided such continuance is approved annually (i) by a majority of the trustees or by a majority of the outstanding voting securities of the Trust, and (ii) by a majority of the trustees who are not parties to the Agreement or interested persons of any such party. The Trust has agreed to pay all expenses in connection with registration of its shares with the Securities and Exchange Commission and auditing and filing fees in connection with registration of its shares under the various state blue sky laws and assumes the cost of preparation of prospectuses and other expenses. As agent, the Distributor offers shares to investors in states where the shares are qualified for sale, at net asset value, without sales commissions or other sales load to the investor. In addition, no sales commission or "12b-1" payment is paid by the Fund. The Distributor offers Fund shares only on a best-efforts basis. TRANSFER AGENT SSI performs certain transfer agency services for Institutional Trust, as described under Management in the Prospectus. For performing these services, SSI receives from the Fund a fee based on an annual rate of .05 of 1% of its average daily net assets. The Board of Trustees believes the charges by SSI are comparable to those of other companies performing similar services. (See Investment Advisory Services.) Under a separate agreement, SSI provides certain investor accounting services to the Portfolio. CUSTODIAN State Street Bank and Trust Company (the "Bank"), 225 Franklin Street, Boston, Massachusetts 02101, is the custodian for the Trust and SR&F Base Trust. It is responsible for holding all securities and cash, receiving and paying for securities purchased, delivering against payment securities sold, receiving and collecting income from investments, making all payments covering expenses, and performing other administrative duties, all as directed by authorized persons. The Bank does not exercise any supervisory function in such matters as purchase and sale of portfolio securities, payment of dividends, or payment of expenses. Portfolio securities purchased in the U.S. are maintained in the custody of the Bank or of other domestic banks or depositories. Portfolio securities purchased outside of the U.S. are maintained in the custody of foreign banks and trust companies that are members of the Bank's Global Custody Network and foreign depositories ("foreign sub-custodians"). Each of the domestic and foreign custodial institutions holding portfolio securities has been approved by the Board of Trustees in accordance with regulations under the Investment Company Act of 1940. Each Board of Trustees reviews, at least annually, whether it is in the best interests of the Portfolio and the Fund and its shareholders to maintain assets in each of the countries in which the Portfolio invests with particular foreign sub-custodians in such countries, pursuant to contracts between such respective foreign sub-custodians and the Bank. The review includes an assessment of the risks of holding assets in any such country (including risks of expropriation or imposition of exchange controls), the operational capability and reliability of each such foreign sub-custodian, and the impact of local laws on each such custody arrangement. Each Board of Trustees is aided in its review by the Bank, which has assembled the network of foreign sub-custodians utilized by the Portfolio, as well as by the Adviser and counsel. However, with respect to foreign sub- custodians, there can be no assurance that the Portfolio, and the value of its shares, will not be adversely affected by acts of foreign governments, financial or operational difficulties of the foreign sub-custodians, difficulties and costs of obtaining jurisdiction over, or enforcing judgments against, the foreign sub-custodians, or application of foreign law to the foreign sub- custodial arrangements. Accordingly, an investor should recognize that the non-investment risks involved in holding assets abroad are greater than those associated with investing in the United States. The Portfolio may invest in obligations of the Bank and may purchase or sell securities from or to the Bank. INDEPENDENT PUBLIC ACCOUNTANTS The independent public accountants for the Fund and the Portfolio are Arthur Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603. The accountants audit and report on the annual financial statements, review certain regulatory reports and the federal income tax returns, and perform other professional accounting, auditing, tax and advisory services when engaged to do so by the Trust on behalf of the Fund. PORTFOLIO TRANSACTIONS Newport places the orders for the purchase and sale of portfolio securities and options and futures contracts. The overriding objective in selecting brokers and dealers to effect portfolio transactions is to seek the best combination of net price and execution. The best net price, giving effect to brokerage commission, if any, is an important factor in this decision; however, a number of other judgmental factors may also enter into the decision. These factors include Newport's knowledge of negotiated commission rates currently available and other current transaction costs; the nature of the security being purchased or sold; the size of the transaction; the desired timing of the transaction; the activity existing and expected in the market for the particular security; confidentiality; the execution, clearance and settlement capabilities of the broker or dealer selected and others considered; Newport's knowledge of the financial condition of the broker or dealer selected and such other brokers and dealers; and its knowledge of actual or apparent operation problems of any broker or dealer. Recognizing the value of these factors, Newport may cause a client to pay a brokerage commission in excess of that which another broker may have charged for effecting the same transaction. Newport has established internal policies for the guidance of its trading personnel, specifying minimum and maximum commissions to be paid for various types and sizes of transactions and effected for clients in those cases where Newport has discretion to select the broker or dealer by which the transaction is to be executed. Transactions which vary from the guidelines are subject to periodic supervisory review. These guidelines are reviewed and periodically adjusted, and the general level of brokerage commissions paid is periodically reviewed by Newport. Evaluations of the reasonableness of brokerage commissions, based on the factors described in the preceding paragraph, are made by Newport's trading personnel while effecting portfolio transactions. The general level of brokerage commissions paid is reviewed by the Adviser and Newport, and reports are made annually to the Board of Trustees. Where more than one broker or dealer is believed to be capable of providing a combination of best net price and execution with respect to a particular portfolio transaction, Newport often selects a broker or dealer that has furnished it with investment research products or services such as: economic, industry or company research reports or investment recommendations; subscriptions to financial publications or research data compilations; compilations of securities prices, earnings, dividends, and similar data; computerized data bases; quotation equipment and services; research or analytical computer software and services; or services of economic and other consultants. Such selections are not made pursuant to any agreement or understanding with any of the brokers or dealers. However, Newport does in some instances request a broker to provide a specific research or brokerage product or service which may be proprietary to the broker or produced by a third party and made available by the broker and, in such instances, the broker in agreeing to provide the research or brokerage product or service frequently will indicate to Newport a specific or minimum amount of commissions which it expects to receive by reason of its provision of the product or service. Newport does not agree with any broker to direct such specific or minimum amounts of commissions; however, Newport does maintain an internal procedure to identify those brokers who provide it with research products or services and the value of such products or services, and endeavors to direct sufficient commissions on client transactions (including commissions on transactions in fixed income securities effected on an agency basis and, in the case of transactions for certain types of clients, dealer selling concessions on new issues of securities) to ensure the continued receipt of research products or services it feels are useful. In a few instances, Newport receives from brokers products or services which are used both for investment research and for administrative, marketing, or other non-research or brokerage purposes. In such instances, Newport makes a good faith effort to determine the relative proportion of its use of such product or service which is for investment research or brokerage, and that portion of the cost of obtaining such product or service may be defrayed through brokerage commissions generated by client transactions, while the remaining portion of the costs of obtaining the product or service is paid by Newport in cash. Newport may also receive research in connection with selling concessions and designations in fixed income offerings. The Fund does not believe it pays brokerage commissions higher than those obtainable from other brokers in return for research or brokerage products or services provided by brokers. Research or brokerage products or services provided by brokers may be used in servicing any or all of its clients and such research products or services may not necessarily be in connection with client accounts which paid commissions to the brokers providing such products or services. Each Trust has arranged for its custodian to act as a soliciting dealer to accept any fees available to the custodian as a soliciting dealer in connection with any tender offer for portfolio securities. The custodian will credit any such fees received against its custodial fees. In addition, the Board of Trustees has reviewed the legal developments pertaining to and the practicability of attempting to recapture underwriting discounts or selling concessions when portfolio securities are purchased in underwritten offerings. However, the Board has been advised by counsel that recapture by a mutual fund currently is not permitted under the Rules of the Association of the National Association of Securities Dealers. ADDITIONAL INCOME TAX CONSIDERATIONS The Fund and the Portfolio intend to comply with the special provisions of the Internal Revenue Code that relieve it of federal income tax to the extent of its net investment income and capital gains currently distributed to shareholders. Because dividend and capital gain distributions reduce net asset value, a shareholder who purchases shares shortly before a record date will, in effect, receive a return of a portion of his investment in such distribution. The distribution would nonetheless be taxable to him, even if the net asset value of shares were reduced below his cost. However, for federal income tax purposes the shareholder's original cost would continue as his tax basis. The Fund expects that less than 100% of its dividends will qualify for the deduction for dividends received by corporate shareholders. To the extent the Portfolio invests in foreign securities, it may be subject to withholding and other taxes imposed by foreign countries. Tax treaties between certain countries and the United States may reduce or eliminate such taxes. Investors may be entitled to claim U.S. foreign tax credits with respect to such taxes, subject to certain provisions and limitations contained in the Code. Specifically, if more than 50% of total assets at the close of any fiscal year consist of stock or securities of foreign corporations, the Fund may file an election with the Internal Revenue Service pursuant to which its shareholders will be required to (i) include in ordinary gross income (in addition to taxable dividends actually received) their pro rata shares of foreign income taxes paid by the Fund even though not actually received, (ii) treat such respective pro rata shares as foreign income taxes paid by them, and (iii) deduct such pro rata shares in computing their taxable incomes, or, alternatively, use them as foreign tax credits, subject to applicable limitations, against their United States income taxes. Shareholders who do not itemize deductions for federal income tax purposes will not, however, be able to deduct their pro rata portion of foreign taxes paid by the Fund, although such shareholders will be required to include their share of such taxes in gross income. Shareholders who claim a foreign tax credit may be required to treat a portion of dividends received from the Fund as separate category income for purposes of computing the limitations on the foreign tax credit available to such shareholders. Tax-exempt shareholders will not ordinarily benefit from this election relating to foreign taxes. Each year, the Fund will notify shareholders of the amount of (i) each shareholder's pro rata share of foreign income taxes paid by the Fund and (ii) the portion of Fund dividends which represents income from each foreign country, if the Fund qualifies to pass along such credit. INVESTMENT PERFORMANCE The Fund may quote certain total return figures from time to time. A "Total Return" on a per share basis is the amount of dividends distributed per share plus or minus the change in the net asset value per share for a period. A "Total Return Percentage" may be calculated by dividing the value of a share at the end of a period by the value of the share at the beginning of the period and subtracting one. For a given period, an "Average Annual Total Return" may be computed by finding the average annual compounded rate that would equate a hypothetical initial amount invested of $1,000 to the ending redeemable value. n Average Annual Total Return is computed as follows: ERV = P(1+T) Where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the period at the end of the period (or fractional portion thereof). Investment performance figures assume reinvestment of all dividends and distributions and do not take into account any federal, state, or local income taxes which shareholders must pay on a current basis. They are not necessarily indicative of future results. The performance of the Fund is a result of conditions in the securities markets, portfolio management, and operating expenses. Although investment performance information is useful in reviewing performance and in providing some basis for comparison with other investment alternatives, it should not be used for comparison with other investments using different reinvestment assumptions or time periods. In advertising and sales literature, the Fund may compare its performance with that of other mutual funds, indexes or averages of other mutual funds, indexes of related financial assets or data, and other competing investment and deposit products available from or through other financial institutions. The composition of these indexes or averages differs from that of the Fund. Comparison of the Fund to an alternative investment should be made with consideration of differences in features and expected performance. All of the indexes and averages noted below will be obtained from the indicated sources or reporting services, which the Fund believes to be generally accurate. The Fund may also note its mention or recognition in newspapers, magazines, or other media from time to time. However, the Fund assumes no responsibility for the accuracy of such data. Newspapers and magazines which might mention the Fund include, but are not limited to, the following: Architectural Digest Arizona Republic Atlanta Constitution Atlantic Monthly Associated Press Barron's Bloomberg Boston Globe Boston Herald Business Week Chicago Tribune Chicago Sun-Times Cleveland Plain Dealer CNBC CNN Crain's Chicago Business Consumer Reports Consumer Digest Dow Jones Investment Advisor Dow Jones Newswire Fee Advisor Financial Planning Financial World Forbes Fortune Fund Action Fund Marketing Alert Gourmet Individual Investor Investment Dealers' Digest Investment News Investor's Business Daily Kiplinger's Personal Finance Magazine Knight-Ridder Lipper Analytical Services Los Angeles Times Louis Rukeyser's Wall Street Money Money on Line Morningstar Mutual Fund Market News Mutual Fund News Service Mutual Funds Magazine Newsday Newsweek New York Daily News The New York Times No-Load Fund Investor Pension World Pensions and Investment Personal Investor Physicians Financial News Jane Bryant Quinn (syndicated column) Reuters The San Francisco Chronicle Securities Industry Daily Smart Money Smithsonian Strategic Insight Street.com Time Travel & Leisure USA Today U.S. News & World Report Value Line The Wall Street Journal The Washington Post Working Women Worth Your Money The Fund may compare its performance to the Consumer Price Index (All Urban), a widely recognized measure of inflation. Its performance also may be compared to the following indexes or averages: Dow-Jones Industrial Average New York Stock Exchange Composite Index Standard & Poor's 500 Stock Index American Stock Exchange Composite Index Standard & Poor's 400 Industrials Nasdaq Composite Wilshire 5000 Nasdaq Industrials (These indexes are widely recognized indicators of general U.S. stock market results.)(These indexes generally reflect the performance of stocks traded in the indicated markets.) In addition, the Fund may compare its performance to the following benchmarks: Lipper Equity Fund Average Lipper General Equity Fund Average Lipper International & Global Funds Average Lipper International Fund Index Lipper Pacific Region Index Morningstar All Equity Funds Average Morningstar Equity Fund Average Morningstar General Equity Average Morningstar Hybrid Fund Average Morningstar International Stock Average Morningstar Total Fund Average Morningstar U.S. Diversified Average MSCI AC Far East Index The Lipper and Morningstar averages are unweighted averages of total return performance of mutual funds as classified, calculated, and published by these independent services that monitor the performance of mutual funds. The Fund may also use comparative performance as computed in a ranking by Lipper or category averages and rankings provided by another independent service. Should Lipper or another service reclassify the Fund to a different category or develop (and place it into) a new category, the Fund may compare its performance or ranking with those of other funds in the newly assigned category, as published by the service. The Fund may also cite its rating, recognition, or other mention by Morningstar or any other entity. Morningstar's rating system is based on risk-adjusted total return performance and is expressed in a star-rating format. The risk-adjusted number is computed by subtracting a fund's risk score (which is a function of the fund's monthly returns less the 3-month T-bill return) from its load-adjusted total return score. This numerical score is then translated into rating categories, with the top 10% labeled five star, the next 22.5% labeled four star, the next 35% labeled three star, the next 22.5% labeled two star, and the bottom 10% one star. A high rating reflects either above-average returns or below-average risk, or both. Of course, past performance is not indicative of future results. To illustrate the historical returns on various types of financial assets, the Fund may use historical data provided by Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains) very long-term (since 1926) total return data (including, for example, total return indexes, total return percentages, average annual total returns and standard deviations of such returns) for the following asset types: Common stocks Small company stocks Long-term corporate bonds Long-term government bonds Intermediate-term government bonds U.S. Treasury bills Consumer Price Index _____________________ The Fund may also use hypothetical returns to be used as an example in a mix of asset allocation strategies. One such example is reflected in the chart below, which shows the effect of tax deferral on a hypothetical investment. This chart assumes that an investor invested $2,000 a year on Jan. 1, for any specified period, in both a Tax-Deferred Investment and a Taxable Investment, that both investments earn either 6%, 8% or 10% compounded annually, and that the investor withdrew the entire amount at the end of the period. (A tax rate of 39.6% is applied annually to the Taxable Investment and on the withdrawal of earnings on the Tax-Deferred Investment.)
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT Interest Rate 3% 5% 7% 9% 3% 5% 7% 9% - -------------------------------------------------------------------------------- Com- pound- ing Years Tax-Deferred Investment Taxable Investment - ---- ------------------------------------ ------------------------------------ 30 $82,955 $108,031 $145,856 $203,239 $80,217 $98,343 $121,466 $151,057 25 65,164 80,337 101,553 131,327 63,678 75,318 89,528 106,909 20 49,273 57,781 68,829 83,204 48,560 55,476 63,563 73,028 15 35,022 39,250 44,361 50,540 34,739 38,377 42,455 47,025 10 22,184 23,874 25,779 27,925 22,106 23,642 25,294 27,069 5 10,565 10,969 11,393 11,840 10,557 10,943 11,342 11,754 1 2,036 2,060 2,085 2,109 2,036 2,060 2,085 2,109
Dollar Cost Averaging. Dollar cost averaging is an investment strategy that requires investing a fixed amount of money in Fund shares at set intervals. This allows you to purchase more shares when prices are low and fewer shares when prices are high. Over time, this tends to lower your average cost per share. Like any investment strategy, dollar cost averaging can't guarantee a profit or protect against losses in a steadily declining market. Dollar cost averaging involves uninterrupted investing regardless of share price and therefore may not be appropriate for every investor. APPENDIX-RATINGS RATINGS IN GENERAL A rating of a rating service represents the service's opinion as to the credit quality of the security being rated. However, the ratings are general and are not absolute standards of quality or guarantees as to the creditworthiness of an issuer. Consequently, Newport believes that the quality of debt securities in which a fund invests should be continuously reviewed and that individual analysts give different weightings to the various factors involved in credit analysis. A rating is not a recommendation to purchase, sell or hold a security because it does not take into account market value or suitability for a particular investor. When a security has received a rating from more than one service, each rating should be evaluated independently. Ratings are based on current information furnished by the issuer or obtained by the rating services from other sources which they consider reliable. Ratings may be changed, suspended or withdrawn as a result of changes in or unavailability of such information, or for other reasons. The following is a description of the characteristics of ratings of corporate debt securities used by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P"). RATINGS BY MOODY'S Aaa. Bonds rated Aaa are judged to be the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or an exceptionally stable margin and principal is secure. Although the various protective elements are likely to change, such changes as can be visualized are more unlikely to impair the fundamentally strong position of such bonds. Aa. Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa bonds or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa bonds. A. Bonds rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa. Bonds rated Baa are considered as medium grade obligations; i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa. Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca. Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. RATINGS BY S&P AAA. Debt rated AAA has the highest rating. Capacity to pay interest and repay principal is extremely strong. AA. Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree. A. Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for debt in higher rated categories. BB, B, CCC, CC, and C. Debt rated BB, B, CCC, CC, or C is regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. C1. This rating is reserved for income bonds on which no interest is being paid. D. Debt rated D is in default, and payment of interest and/or repayment of principal is in arrears. The D rating is also used upon the filing of a bankruptcy petition if debt service payments are jeopardized. NOTES: The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. Foreign debt is rated on the same basis as domestic debt measuring the creditworthiness of the issuer; ratings of foreign debt do not take into account currency exchange and related uncertainties. The "r" is attached to highlight derivative, hybrid, and certain other obligations that S&P believes may experience high volatility or high variability in expected returns due to non-credit risks. Examples of such obligations are: securities whose principal or interest return is indexed to equities, commodities, or currencies; certain swaps and options; and interest only and principal only mortgage securities. The absence of an "r" symbol should not be taken as an indication that an obligation will exhibit no volatility or variability in total return. _____________ PART C. OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS. (a) 1. Financial statements included in Part A of this Registration Statement: None. 2. Financial statements included in Part B of this Registration Statement: The following financial statements are incorporated by reference to Registrant's June 30, 1997 annual report: Schedule of investments as of June 30, 1997 of SR&F High Yield Portfolio; and balance sheet as of June 30, 1997, statement of operations for the period ended June 30, 1997, statement of changes in net assets for the period ended June 30, 1997, notes thereto and report of independent auditors of Stein Roe Institutional High Yield Fund and SR&F High Yield Portfolio. (b) Exhibits: [Note: As used herein, the term "Registration Statement" refers to the Registration Statement of the Registrant on Form N-1A under the Securities Act of 1933, No. 333-13331. The terms "Pre-Effective Amendment" and "PEA" refer, respectively, to a pre-effective amendment and a post- effective amendment to the Registration Statement.] 1. Agreement and Declaration of Trust as amended through December 13, 1996. (Exhibit 1 to PEA #2.)* 2. (a) By-Laws of Registrant as amended on October 30, 1996. (Exhibit 2 to Pre-Effective Amendment.)* (b) Amendment to By-Laws dated February 4, 1998. 3. None. 4. None. 5. None. 6. Underwriting agreement between Registrant and Liberty Financial Investments Inc. dated January 1, 1998. 7. None. 8. Custodian contract between Registrant and State Street Bank and Trust Company dated January 2, 1997. (Exhibit 8 to PEA #3.)* 9. (a) Transfer agency agreement between Registrant and Stein Roe Services Inc. dated January 2, 1997. (Exhibit 9(b) to PEA #3.)* (b) Administrative agreement between Registrant and Stein Roe & Farnham Incorporated dated December 12, 1996. (Exhibit 9(b) to Pre-Effective Amendment.)* (c) Accounting and bookkeeping agreement between Regis- trant and Stein Roe & Farnham Incorporated dated December 12, 1996. (Exhibit 9(c) to Pre-Effective Amendment.)* (d) Sub-transfer agent agreement with Colonial Investors Service Center as amended through April 30, 1998. 10. (a) Opinion and consent of Bell, Boyd & Lloyd relating to the series designated Stein Roe Institutional High Yield Fund. (Exhibit 10 to Pre-Effective Amendment.)* (b) Opinion and consent of Bell, Boyd & Lloyd relating to the series designated Stein Roe Institutional Asia Pacific Fund. 11. Consent of Ernst & Young LLP. 12. None. 13. Subscription agreement. (Exhibit 13 to Pre-Effective Amendment.)* 14. None. 15. None. 16. Schedule for computation of yield and total return of Stein Roe Institutional High Yield Fund. (Exhibit 16 to PEA #4.)* 17. Financial data schedule--Stein Roe Institutional High Yield Fund. 18. Inapplicable. ----------- *Incorporated by reference. ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. The Registrant does not consider that it is directly or indirectly controlling, controlled by, or under common control with other persons within the meaning of this Item. See "Investment Advisory Services," "Management," and "Transfer Agent" in the Statement of Additional Information, each of which is incorporated herein by reference. ITEM 26. NUMBER OF HOLDERS OF SECURITIES. Number of Record Holders Title of Series as of April 30, 1998 --------------- ----------------------- Stein Roe Institutional High Yield Fund 2 Stein Roe Institutional Asia Pacific Fund 0 ITEM 27. INDEMNIFICATION. Article VIII of the Agreement and Declaration of Trust of Registrant (Exhibit 1), which Article is incorporated herein by reference, provides that Registrant shall provide indemnification of its trustees and officers (including persons who serve or have served at Registrant's request as directors, officers, or trustees of another organization in which Registrant has any interest as a shareholder, creditor or otherwise) ("Covered Persons") under specified circumstances. Section 17(h) of the Investment Company Act of 1940 ("1940 Act") provides that neither the Agreement and Declaration of Trust nor the By-Laws of Registrant, nor any other instrument pursuant to which Registrant is organized or administered, shall contain any provision which protects or purports to protect any trustee or officer of Registrant against any liability to Registrant or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. In accordance with Section 17(h) of the 1940 Act, Article VIII shall not protect any person against any liability to Registrant or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. Unless otherwise permitted under the 1940 Act, (i) Article VIII does not protect any person against any liability to Registrant or to its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office; (ii) in the absence of a final decision on the merits by a court or other body before whom a proceeding was brought that a Covered Person was not liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office, indemnification is permitted under Article VIII if (a) approved as in the best interest of the Registrant, after notice that it involves such indemnification, by at least a majority of the Trustees who are disinterested persons are not "interested persons" as defined in Section 2(a)(19) of the 1940 Act ("disinterested trustees"), upon determination, based upon a review of readily available facts (but not a full trial-type inquiry) that such Covered Person is not liable to the Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of such Covered Person's office or (b) there has been obtained a opinion in writing of independent legal counsel, based upon a review of readily available facts (but not a full trial-type inquiry) to the effect that such indemnification would not protect such Covered Person against any liability to the Trust to which such Covered Person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office; and (iii) Registrant will not advance expenses, including counsel fees(but excluding amounts paid in satisfaction of judgments, in compromise or as fines or penalties), incurred by a Covered Person unless Registrant receives an undertaking by or on behalf of the Covered Person to repay the advance if it is ultimately determined that indemnification of such expenses is not authorized by Article VII and (a) the Covered Person provides security for his undertaking, or (b) Registrant is insured against losses arising by reason of such Covered Person's failure to fulfill his undertaking, or (c) a majority of the disinterested trustees of Registrant or an independent legal counsel as expressed in a written opinion, determine, based on a review of readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the Covered Person ultimately will be found entitled to indemnification. Any approval of indemnification pursuant to Article VIII does not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with Article VIII as indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction to have been liable to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of such Covered Person's office. Article VIII also provides that its indemnification provisions are not exclusive. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a trustee, officer, or controlling person of Registrant in the successful defense of any action, suit, or proceeding) is asserted by such trustee, officer, or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Registrant, its trustees and officers, its investment adviser, the other investment companies advised by the adviser, and persons affiliated with them are insured against certain expenses in connection with the defense of actions, suits, or proceedings, and certain liabilities that might be imposed as a result of such actions, suits, or proceedings. Registrant will not pay any portion of the premiums for coverage under such insurance that would (1) protect any trustee or officer against any liability to Registrant or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office or (2) protect its investment adviser or principal underwriter, if any, against any liability to Registrant or its shareholders to which such person would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence, in the performance of its duties, or by reason of its reckless disregard of its duties and obligations under its contract or agreement with the Registrant; for this purpose the Registrant will rely on an allocation of premiums determined by the insurance company. Registrant expects to enter into an indemnification agreement among Registrant, its transfer agent and its investment adviser pursuant to which Registrant, its trustees, officers and employees, its transfer agent and the transfer agent's directors, officers and employees are indemnified by Registrant's investment adviser against any and all losses, liabilities, damages, claims and expenses arising out of any act or omission of Registrant or its transfer agent performed in conformity with a request of the investment adviser that the transfer agent and Registrant deviate from their normal procedures in connection with the issue, redemption or transfer of shares for a client of the investment adviser. Registrant, its trustees, officers, employees and representatives and each person, if any, who controls the Registrant within the meaning of Section 15 of the Securities Act of 1933 are indemnified by the distributor of Registrant's shares (the "distributor"), pursuant to the terms of the distribution agreement, which governs the distribution of Registrant's shares, against any and all losses, liabilities, damages, claims and expenses arising out of the acquisition of any shares of the Registrant by any person which (i) may be based upon any wrongful act by the distributor or any of the distributor's directors, officers, employees or representatives or (ii) may be based upon any untrue or alleged untrue statement of a material fact contained in a registration statement, prospectus, statement of additional information, shareholder report or other information covering shares of the Registrant filed or made public by the Registrant or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading if such statement or omission was made in reliance upon information furnished to the Registrant by the distributor in writing. In no case does the distributor's indemnity indemnify an indemnified party against any liability to which such indemnified party would otherwise be subject by reason of willful misfeasance, bad faith, or negligence in the performance of its or his duties or by reason of its or his reckless disregard of its or his obligations and duties under the distribution agreement. ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER. The Adviser is a wholly-owned subsidiary of SteinRoe Services Inc. ("SSI"), which in turn is a wholly-owned subsidiary of Liberty Financial Companies, Inc., which is a majority owned subsidiary of LFC Holdings, Inc., which in turn is a subsidiary of Liberty Mutual Equity Corporation, which in turn is a subsidiary of Liberty Mutual Insurance Company. The Adviser acts as investment adviser to individuals, trustees, pension and profit-sharing plans, charitable organizations, and other investors. In addition to Registrant, it also acts as investment adviser to other investment companies having different investment policies. For a two-year business history of officers and directors of the Adviser, please refer to the Form ADV of Stein Roe & Farnham Incorporated and to the section of the statement of additional information (part B) entitled "Investment Advisory Services." Certain directors and officers of the Adviser also serve and have during the past two years served in various capacities as officers, directors, or trustees of SSI and of the Registrant, SR&F Base Trust, and/or other investment companies managed by the Adviser. (The listed entities are located at One South Wacker Drive, Chicago, Illinois 60606, except for SteinRoe Variable Investment Trust and Liberty Variable Investment Trust, which are located at Federal Reserve Plaza, Boston, MA 02210 and LFC Utilities Trust, which is located at One Financial Center, Boston, MA 02111.) A list of such capacities is given below. POSITION FORMERLY HELD WITHIN CURRENT POSITION PAST TWO YEARS ------------------- -------------- STEINROE SERVICES INC. Gary A. Anetsberger Vice President Kenneth J. Kozanda Vice President; Treasurer Kenneth R. Leibler Director C. Allen Merritt, Jr. Director; Vice President Heidi J. Walter Vice President; Secretary Hans P. Ziegler Director, President, Chairman SR&F BASE TRUST William D. Andrews Executive Vice-President Gary A. Anetsberger Senior Vice-President Treasurer Kevin M. Carome Vice-President; Asst. Secy. Thomas W. Butch President Executive V-P Loren A. Hansen Executive Vice-President Heidi J. Walter Vice-President; Secretary Hans P. Ziegler Executive Vice-President STEIN ROE INCOME TRUST; STEIN ROE INSTITUTIONAL TRUST; AND STEIN ROE TRUST William D. Andrews Executive Vice-President Gary A. Anetsberger Senior Vice-President Treasurer Thomas W. Butch President Exec. V-P; V-P Kevin M. Carome Vice-President; Asst. Secy. Loren A. Hansen Executive Vice-President Michael T. Kennedy Vice-President Stephen F. Lockman Vice-President Steven P. Luetger Vice-President Lynn C. Maddox Vice-President Jane M. Naeseth Vice-President Heidi J. Walter Vice-President; Secretary Hans P. Ziegler Executive Vice-President STEIN ROE INVESTMENT TRUST William D. Andrews Executive Vice-President Gary A. Anetsberger Senior Vice-President Treasurer David P. Brady Vice-President Thomas W. Butch President Exec. V-P; V-P Daniel K. Cantor Vice-President Kevin M. Carome Vice-President; Asst. Secy. E. Bruce Dunn Vice-President Erik P. Gustafson Vice-President Loren A. Hansen Executive Vice-President David P. Harris Vice-President Harvey B. Hirschhorn Vice-President Eric S. Maddix Vice-President Lynn C. Maddox Vice-President Arthur J. McQueen Vice-President John McLandsborough Vice-President Richard B. Peterson Vice-President M. Gerard Sandel Vice-President Gloria J. Santella Vice-President Heidi J. Walter Vice-President; Secretary Hans P. Ziegler Executive Vice-President STEIN ROE ADVISOR TRUST William D. Andrews Executive Vice-President Gary A. Anetsberger Senior Vice-President Treasurer David P. Brady Vice-President Thomas W. Butch President Exec. V-P; V-P Daniel K. Cantor Vice-President Kevin M. Carome Vice-President; Asst. Secy. E. Bruce Dunn Vice-President Erik P. Gustafson Vice-President Loren A. Hansen Executive Vice-President David P. Harris Vice-President Harvey B. Hirschhorn Vice-President Michael T. Kennedy Vice-President Stephen F. Lockman Vice-President Eric S. Maddix Vice-President Lynn C. Maddox Vice-President M. Jane McCart Vice-President John McLandsborough Vice-President Arthur J. McQueen Vice-President Richard B. Peterson Vice-President M. Gerard Sandel Vice-President Gloria J. Santella Vice-President Heidi J. Walter Vice-President; Secretary Hans P. Ziegler Executive Vice-President STEIN ROE MUNICIPAL TRUST William D. Andrews Executive Vice-President Gary A. Anetsberger Senior Vice-President Treasurer Thomas W. Butch President Exec. V-P; V-P Kevin M. Carome Vice-President; Asst. Secy. Joanne T. Costopoulos Vice-President Loren A. Hansen Executive Vice-President Lynn C. Maddox Vice-President M. Jane McCart Vice-President Veronica M. Wallace Vice-President Heidi J. Walter Vice-President; Secretary Hans P. Ziegler Executive Vice-President STEINROE VARIABLE INVESTMENT TRUST Gary A. Anetsberger Treasurer E. Bruce Dunn Vice President Erik P. Gustafson Vice President Harvey B. Hirschhorn Vice President Michael T. Kennedy Vice President John McLandsborough Vice President Jane M. Naeseth Vice President Richard B. Peterson Vice President William M. Wadden IV Vice President LFC UTILITIES TRUST Gary A. Anetsberger Vice President Ophelia L. Barsketis Vice President Deborah A. Jansen Vice President ITEM 29. PRINCIPAL UNDERWRITERS. Registrant's principal underwriter, Liberty Financial Investments, Inc. (to be renamed Liberty Funds Distributor, Inc. on July 20, 1998), a subsidiary of Colonial Management Associates, Inc., also acts in the same capacity to Colonial Trust I, Colonial Trust II, Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial Trust VI, Colonial Trust VII, Stein Roe Advisor Trust, Stein Roe Income Trust, Stein Roe Municipal Trust, Stein Roe Investment Trust and Stein Roe Trust; and sponsor for Colony Growth Plans (public offering of which was discontinued on June 14, 197l). The table below lists each director or officer of Liberty Financial Investments, Inc. Position and Offices Positions and Name and Principal with Principal Offices with Business Address* Underwriter Registrant - ------------------- --------------------- -------------- Anderson, Judith Vice President None Babbitt, Debra VP & Compliance Officer None Ballou, Rich Vice President None Balzano, Christine R. Vice President None Bartlett, John Managing Director None Blumenfeld, Alex Vice President None Brown, Beth Vice President None Burtman, Tracy Vice President None Butch, Thomas W. Senior Vice President Pres., Trustee Campbell, Patrick Vice President None Chrzanowski, Daniel Vice President None Claiborne, Douglas Vice President None Clapp, Elizabeth A. Senior Vice President None Conlin, Nancy L. Director, Clerk None Davey, Cynthia Senior Vice President None Desilets, Marian Vice President None Devaney, James Vice President None DiMaio, Steve Vice President None Downey, Christopher Vice President None Emerson, Kim P. Vice President None Erickson, Cynthia G. Senior Vice President None Evans, C. Frazier Managing Director None Feldman, David Senior Vice President None Fifield, Robert Vice President None Gauger, Richard Vice President None Gerokoulis, Stephen A. Senior Vice President None Gibson, Stephen E. Director, Chairman of Board None Goldberg, Matthew Vice President None Geunard, Brian Vice President None Harrington, Tom Senior Vice President None Hodgkins, Joseph Senior Vice President None Hussey, Robert Senior Vice President None Iudice, Jr., Philip Treasurer and CFO None Jones, Cynthia Vice President None Jones, Jonathan Vice President None Karagiannis, Marilyn Managing Director None Kelley, Terry M. Vice President None Kelson, David W. Senior Vice President None Libutti, Chris Vice President None McCombe, Gregory Senior Vice President None McKenzie, Mary Vice President None Menchin, Catherine Vice President None Miller, Anthony Vice President None Moberly, Ann R. Senior Vice President None Morner, Patrick Vice President None Morse, Jonathan Vice President None O'Shea, Kevin Managing Director None Piken, Keith Vice President None Predmore, Tracy Vice President None Quirk, Frank Vice President None Reed, Christopher B. Senior Vice President None Riegel, Joyce B. Vice President None Robb, Douglas Vice President None Sandberg, Travis Vice President None Scarlott, Rebecca Vice President None Schulman, David Vice President None Scoon, Davey Director None Scott, Michael W. Senior Vice President None Sideropoulos, Lou Vice President None Smith, Darren Vice President None Studer, Eric Vice President None Sutton, R. Andrew Vice President None Tambone, James Chief Executive Officer None Tasiopoulos, Lou President None Tuttle, Brian Vice President None Van Etten, Keith Vice President None Villanova, Paul Vice President None Wallace, John Vice President None Walter, Heidi J. Vice President V-P & Secy. Wess, Valerie Vice President None Young, Deborah Vice President None - --------- * The address of Ms. Riegel, Ms. Walter, and Mr. Butch is One South Wacker Drive, Chicago, IL 60606. The address of each other director and officer is One Financial Center, Boston, MA 02111. Item 30. Location of Accounts and Records. Registrant maintains the records required to be maintained by it under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment Company Act of 1940 at its principal executive offices at One South Wacker Drive, Chicago, Illinois 60606. Certain records, including records relating to Registrant's shareholders and the physical possession of its securities, may be maintained pursuant to Rule 31a-3 at the main office of Registrant's transfer agent or custodian. ITEM 31. MANAGEMENT SERVICES. None. ITEM 32. UNDERTAKINGS. Since the information called for by Item 5A is contained in the latest annual reports to shareholders, Registrant undertakes with respect to each series to furnish each person to whom a prospectus is delivered with a copy of the latest annual report to shareholders upon request and without charge. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on the 12th day of June, 1998. STEIN ROE INSTITUTIONAL TRUST By THOMAS W. BUTCH Thomas W. Butch President Pursuant to the requirements of the Securities Act of 1933, this amendment to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated: Signature* Title Date - ------------------------ --------------------- -------------- THOMAS W. BUTCH President and Trustee June 12, 1998 Thomas W. Butch Principal Executive Officer GARY A. ANETSBERGER Senior Vice-President June 12, 1998 Gary A. Anetsberger Principal Financial Officer SHARON R. ROBERTSON Controller June 12, 1998 Sharon R. Robertson Principal Accounting Officer WILLIAM W. BOYD Trustee June 12, 1998 William W. Boyd LINDSAY COOK Trustee June 12, 1998 Lindsay Cook DOUGLAS A. HACKER Trustee June 12, 1998 Douglas A. Hacker JANET LANGFORD KELLY Trustee June 12, 1998 Janet Langford Kelly CHARLES R. NELSON Trustee June 12, 1998 Charles R. Nelson THOMAS C. THEOBALD Trustee June 12, 1998 Thomas C. Theobald *This Registration Statement has also been signed by the above persons in their capacities as trustees and officers of SR&F Base Trust STEIN ROE INSTITUTIONAL TRUST INDEX TO EXHIBITS FILED WITH THIS AMENDMENT Exhibit Number Description - ------- ------------- 2(b) Amendment to by-laws 6 Underwriting agreement 9(d) Sub-transfer agency agreement 10(b) Opinion and consent of Bell, Boyd & Lloyd 11 Consent of Ernst & Young LLP 17 Financial data schedule--Stein Roe Institutional High Yield Fund EX-99 2 EX-99.B2B BYLAWS Exhibit 2(b) CERTIFICATE I, Nicolette D. Parrish, hereby certify that I am the duly elected and acting Assistant Secretary of Stein Roe Institutional Trust (the "Trust") and that the following is a true and correct copy of a certain resolution duly adopted by the Board of Trustees of the Trust at a meeting held in accordance with the By-Laws on February 4, 1998, and that such resolution is still in full force and effect: RESOLVED, that Section 2.01 of the By-Laws is amended and restated as follows: Section 2.01. Number and Term of Office. The Board of Trustees shall initially consist of the initial sole Trustee, which number may be increased or subsequently decreased by a resolution of a majority of the entire Board of Trustees, provided that the number of Trustees shall not be less than one nor more than twenty-one. Each Trustee (whenever selected) shall hold office until the next meeting of shareholders called for the purposes of electing Trustees and until his successor is elected and qualified or until his earlier death, resignation, or removal. Each Trustee shall retire on December 31 of the year during which the Trustee becomes age 74. The initial Trustee shall be the person designated in the Declaration of Trust. IN WITNESS WHEREOF, I have hereunto set my hand and the seals of said Trust this 5th day of February, 1998. NICOLETTE D. PARRISH Assistant Secretary (SEAL) EX-99 3 EX-99.B6 DISTR CONTR UNDERWRITING AGREEMENT BETWEEN STEIN ROE INCOME TRUST STEIN ROE INVESTMENT TRUST STEIN ROE MUNICIPAL TRUST STEIN ROE TRUST STEIN ROE INSTITUTIONAL TRUST AND LIBERTY FINANCIAL INVESTMENTS, INC. THIS UNDERWRITING AGREEMENT ("Agreement"), made as of the 1st day of January 1998 by and between Stein Roe Income Trust, Stein Roe Investment Trust, Stein Roe Municipal Trust, Stein Roe Trust and Stein Roe Institutional Trust, each a business trust organized and existing under the laws of the Commonwealth of Massachusetts (hereinafter collectively referred to as the "Fund"), and Liberty Financial Investments, Inc., a corporation organized and existing under the laws of the State of Delaware (hereinafter call the "Distributor"). WITNESSETH: WHEREAS, the Fund is engaged in business as an open-end management investment company registered under the Investment Company Act of 1940, as amended ("ICA-40"); and WHEREAS, the Distributor is registered as a broker- dealer under the Securities Exchange Act of 1934, as amended ("SEA-34") and, the laws of each state (including the District of Columbia and Puerto Rico) in which it engages in business to the extent such law requires, and is a member of the National Association of Securities Dealers ("NASD") (such registrations and membership are referred to collectively as the "Registrations"); and WHEREAS, the Fund desires the Distributor to act as the distributor in the public offering of its shares of beneficial interest (hereinafter called "Shares"); WHEREAS, the Fund shall pay all charges of its transfer, shareholder recordkeeping, dividend disbursing and redemption agents, if any; all expenses of notices, proxy solicitation material and reports to shareholders; all expenses of preparation and printing of annual or more frequent revisions of the Fund's Prospectus and Statement of Additional Information and of supplying copies thereof to shareholders; all expenses of registering and maintaining the registration of the Fund under ICA-40 and of the Fund's Shares under the Securities Act of 1933, as amended ("SA- 33"); all expenses of qualifying and maintaining qualification of such Fund and of the Fund's Shares for sale under securities laws of various states or other jurisdictions and of registration and qualification of the Fund under all laws applicable to the Fund or its business activities; WHEREAS, Stein Roe & Farnham Incorporated, investment adviser to the Funds, shall pay all expenses incurred in the sale and promotion of the Fund; NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the parties hereto agree as follows: 1. Appointment. The Fund appoints Distributor to act as principal underwriter (as such term is defined in Sections 2(a)(29) of ICA-40) of its Shares. 2. Delivery of Fund Documents. The Fund has furnished Distributor with properly certified or authenticated copies of each of the following in effect on the date hereof and shall furnish Distributor from time to time properly certified or authenticated copies of all amendments or supplements thereto: (a) Agreement and Declaration of Trust; (b) By-Laws; (c) Resolutions of the Board of Trustees of the Fund (hereinafter referred to as the "Board") selecting Distributor as distributor and approving this form of agreement and authorizing its execution. The Fund shall furnish Distributor promptly with copies of any registration statements filed by it with the Securities and Exchange Commission ("SEC") under SA-33 or ICA-40, together with any financial statements and exhibits included therein, and all amendments or supplements thereto hereafter filed. The Fund also shall furnish Distributor such other certificates or documents which Distributor may from time to time, in its discretion, reasonably deem necessary or appropriate in the proper performance of its duties. 3. Solicitation of Orders for Purchase of Shares. (a) Subject to the provisions of Paragraphs 4, 5 and 7 hereof, and to such minimum purchase requirements as may from time to time be indicated in the Fund's Prospectus, Distributor is authorized to solicit, as agent on behalf of the Fund, unconditional orders for purchases of the Fund's Shares authorized for issuance and registered under SA-33, provided that: (1) Distributor shall act solely as a disclosed agent on behalf of and for the account of the Fund; (2) In all cases except for orders transmitted through the FundSERV/NSCC system, the Fund or its transfer agent shall receive directly from investors all payments for the purchase of the Fund's Shares and also shall pay directly to shareholders amounts due to them for the redemption or repurchase of all the Fund's Shares with Distributor having no rights or duties to accept such payment or to effect such redemptions or repurchases; (3) The Distributor shall receive directly from financial intermediaries which trade through the FundSERV/NSCC system all payments for the purchase of the Fund's Shares and shall also cause to be paid directly to such intermediaries amounts due to them for the redemption or repurchase of all the Fund's Shares. The Distributor shall be acting as the Fund's agent in accepting payment for the orders and not be acting in a principal capacity. (4) Distributor shall confirm all orders received for purchase of the Fund's Shares which confirmation shall clearly state (i) that Distributor is acting as agent of the Fund in the transaction (ii) that all certificates for redemption, remittances, and registration instructions should be sent directly to the Fund, and (iii) the Fund's mailing address; (5) Distributor shall have no liability for payment for purchases of the Fund's Shares it sells as agent; and (5) Each order to purchase Shares of the Fund received by Distributor shall be subject to acceptance by an officer of the Fund in Chicago and entry of the order on the Fund's records or shareholder accounts and is not binding until so accepted and entered. The purchase price to the public of the Fund's Shares shall be the public offering price as defined in Paragraph 6 hereof. (b) In consideration of the rights granted to the Distributor under this Agreement, Distributor will use its best efforts (but only in states in which Distributor may lawfully do so) to solicit from investors unconditional orders to purchase Shares of the Fund. The Fund shall make available to the Distributor without cost to the Distributor such number of copies of the Fund's currently effective Prospectus and Statement of Additional Information and copies of all information, financial statements and other papers which the Distributor may reasonably request for use in connection with the distribution of Shares. 3.A. Selling Agreements. Distributor is authorized, as agent on behalf of each Fund, to enter into agreements with other broker-dealers providing for the solicitation of unconditional orders for purchases of Fund's Shares authorized for issuance and registered under SA-33. All such agreements shall be either in the form of agreement attached hereto or in such other form as may be approved by the officers of the Fund ("Selling Agreement"). All solicitations made by other broker-dealers pursuant to a Selling Agreement shall be subject to the same terms of this Agreement which apply to solicitations made by Distributor. 4. Solicitation of Orders to Purchase Shares by Fund. The rights granted to the Distributor shall be non-exclusive in that the Fund reserves the right to solicit purchases from, and sell its Shares to, investors. Further, the Fund reserves the right to issue Shares in connection with the merger or consolidation of any other investment company, trust or personal holding company with the Fund, or the Fund's acquisition, by the purchase or otherwise, of all or substantially all of the assets of an investment company, trust or personal holding company, or substantially all of the outstanding shares or interests of any such entity. Any right granted to Distributor to solicit purchases of Shares will not apply to Shares that may be offered by the Fund to shareholders by virtue of their being shareholders of the Fund. 5. Shares Covered by this Agreement. This Agreement relates to the solicitation of orders to purchase Shares that are duly authorized and registered and available for sale by the Fund, including redeemed or repurchased Shares if and to the extent that they may be legally sold and if, but only if, the Fund authorizes the Distributor to sell them. 6. Public Offering Price. All solicitations by the Distributor pursuant to this Agreement shall be for orders to purchase Shares of the Fund at the public offering price. The public offering price for each accepted subscription for the Fund's Shares will be the net asset value per share next determined by the Fund after it accepts such subscription. The net asset value per share shall be determined in the manner provided in the Fund's Agreement and Declaration of Trust as now in effect or as they may be amended, and as reflected in the Fund's then current Prospectus and Statement of Additional Information. 7. Suspension of Sales. If and whenever the determination of the Fund's net asset value is suspended and until such suspension is terminated, no further orders for Shares shall be accepted by the Fund except such unconditional orders placed with the Fund and accepted by it before the suspension. In addition, the Fund reserves the right to suspend sales of Shares if, in the judgement of the Board of the Fund, it is in the best interest of the Fund to do so, such suspension to continue for such period as may be determined by the Board of the Fund; and in that event, (i) at the direction of the Fund, Distributor shall suspend its solicitation of orders to purchase Shares of the Fund until otherwise instructed by the Fund and (ii) no orders to purchase Shares shall be accepted by the Fund while such suspension remains in effect unless otherwise directed by its Board. 8. Authorized Representations. No Fund is authorized by the Distributor to give on behalf of the Distributor any information or to make any representations other than the information and representations contained in the Fund's registration statement filed with the SEC under SA-33 and/or ICA-40 as it may be amended from time to time. Distributor is not authorized by the Fund to give on behalf of the Fund any information or to make any representations in connection with the sale of Shares other than the information and representations contained in the Fund's registration statement filed with the SEC under SA-33 and/or ICA-40, covering Shares, as such registration statement or the Fund's prospectus may be amended or supplemented from time to time, or contained in shareholder reports or other material that may be prepared by or on behalf of the Fund or approved by the Fund for the Distributor's use. No person other than Distributor is authorized to act as principal underwriter (as such term is defined in ICA-40, as amended) for the Funds. 9. Registration of Additional Shares. The Fund hereby agrees to register either (i) an indefinite number of Shares pursuant to Rule 24f-2 under ICA-40, or (ii) a definite number of Shares as the Fund shall deem advisable pursuant to Rule 24e-2 under ICA-40, as amended. The Fund will, in cooperation with the Distributor, take such action as may be necessary from time to time to qualify the Shares (so registered or otherwise qualified for sale under SA-33), in any state mutually agreeable to the Distributor and the Fund, and to maintain such qualification; provided, however, that nothing herein shall be deemed to prevent the Fund from registering its shares without approval of the Distributor in any state it deems appropriate. 10. Conformity With Law. Distributor agrees that in soliciting orders to purchase Shares it shall duly conform in all respects with applicable federal and state laws and the rules and regulations of the NASD. Distributor will use its best efforts to maintain its Registrations in good standing during the term of this Agreement and will promptly notify the Fund and Stein Roe & Farnham Incorporated in the event of the suspension or termination of any of the Registrations. 11. Independent Contractor. Distributor shall be an independent contractor and neither the Distributor, nor any of its officers, directors, employees, or representatives is or shall be an employee of the Fund in the performance of Distributor's duties hereunder. Distributor shall be responsible for its own conduct and the employment, control, and conduct of its agents and employees and for injury to such agents or employees or to others through its agents and employees and agrees to pay all employee taxes thereunder. 12. Indemnification. Distributor agrees to indemnify and hold harmless the Fund and each of the members of its Board and its officers, employees and representatives and each person, if any, who controls the Fund within the meaning of Section 15 of SA-33 against any and all losses, liabilities, damages, claims and expenses (including the reasonable costs of investigating or defending any alleged loss, liability, damage, claim or expense and reasonable legal counsel fees incurred in connection therewith) to which the Fund or such of the members of its Board and of its officers, employees, representatives, or controlling person or persons may become subject under SA-33, under any other statute, at common law, or otherwise, arising out of the acquisition of any Shares of the Fund by any person which (i) may be based upon any wrongful act by Distributor or any of Distributor's directors, officers, employees or representatives, or (ii) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement, Prospectus, Statement of Additional Information, shareholder report or other information covering Shares of the Fund filed or made public by the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon information furnished to the Fund by Distributor in writing. In no case (i) is Distributor's indemnity in favor of the Fund, or any person indemnified, to be deemed to protect the Fund or such indemnified person against any liability to which the Fund or such person would otherwise be subject by reason of willful misfeasance, bad faith, or negligence in the performance of its or his duties or by reason of its or his reckless disregard of its or his obligations and duties under this Agreement or (ii) is Distributor to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against the Fund or any person indemnified unless the Fund or such person, as the case may be, shall have notified Distributor in writing of the claim within a reasonable time after the summons, or other first written notification, giving information of the nature of the claim served upon the Fund or upon such person (or after the Fund or such person shall have received notice of such service on any designated agent). However, failure to notify Distributor of any such claim shall not relieve Distributor from any liability which Distributor may have to the Fund or any person against whom such action is brought otherwise than on account of Distributor's indemnity agreement contained in this Paragraph. Distributor shall be entitled to participate, at its own expense, in the defense, or, if Distributor so elects, to assume the defense of any suit brought to enforce any such claim but, if Distributor elects to assume the defense, such defense shall be conducted by legal counsel chosen by Distributor and satisfactory to the persons indemnified who are defendants in the suit. In the event that Distributor elects to assume the defense of any such suit and retain such legal counsel, persons indemnified who are defendants in the suit shall bear the fees and expenses of any additional legal counsel retained by them. If Distributor does not elect to assume the defense of any such suit, Distributor will reimburse persons indemnified who are defendants in such suit for the reasonable fees of any legal counsel retained by them in such litigation. The Fund agrees to indemnify and hold harmless Distributor and each of its directors, officers, employees, and representatives and each person, if any, who controls Distributor within the meaning of Section 15 of SA-33 against any and all losses, liabilities, damages, claims or expenses (including the damage, claim or expense and reasonable legal counsel fees incurred in connection therewith) to which Distributor or such of its directors, officers, employees, representatives or controlling person or persons may become subject under SA-33, under any other statute, at common law, or otherwise arising out of the acquisition of any Shares by any person which (i) may be based upon any wrongful act by the Fund or any of the members of the Fund's Board, or the Fund's officers, employees or representatives other than Distributor, or (ii) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement, Prospectus, Statement of Additional Information, shareholder report or other information covering Shares filed or made public by the Fund or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading unless such statement or omission was made in reliance upon information furnished by Distributor to the Fund. In no case (i) is the Fund's indemnity in favor of the Distributor or any person indemnified to be deemed to protect the Distributor or such indemnified person against any liability to which Distributor or such indemnified person would otherwise be subject by reason of willful misfeasance, bad faith, or negligence in the performance of its or his duties or by reason of its or his reckless disregard of its or his obligations and duties under this Agreement, or (ii) is the Fund to be liable under its indemnity agreement contained in this Paragraph with respect to any claim made against Distributor or any person indemnified unless Distributor, or such person, as the case may be, shall have notified the Fund in writing of the claim within a reasonable time after the summons, or other first written notification, giving information of the nature of the claim served upon Distributor or upon such person (or after Distributor or such person shall have received notice of such service on any designated agent). However, failure to notify a Fund of any such claim shall not relieve the Fund from any liability which the Fund may have to Distributor or any person against whom such action is brought otherwise than on account of the Fund's indemnity agreement contained in this Paragraph. The Fund shall be entitled to participate, at its own expense, in the defense or, if the Fund so elects, to assume the defense of any suit brought to enforce such claim but, if the Fund elects to assume the defense, such defense shall be conducted by legal counsel chosen by the Fund and satisfactory to the persons indemnified who are defendants in the suit. In the event that the Fund elects to assume the defense of any such suit and retain such legal counsel, the persons indemnified who are defendants in the suit shall bear the fees and expenses of any additional legal counsel retained by them. If the Fund does not elect to assume the defense of any such suit, the Fund will reimburse the persons indemnified who are defendants in such suit for the reasonable fees and expenses of any legal counsel retained by them in such litigation. 13. Duration and Termination of this Agreement. With respect to the Fund and the Distributor, this Agreement shall become effective upon its execution ("Effective Date") and unless terminated as provided herein, shall remain in effect through June 30, 1998, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually (a) by a vote of majority of the members of the Board of the Fund who are not interested persons of the Distributor or of the Fund, voting in person at a meeting called for the purpose of voting on such approval, and (b) by the vote of either the Board of the Fund or a majority of the outstanding shares of the Fund. This Agreement may be terminated by and between an individual Fund and Distributor at any time, without the payment of any penalty (a) on 60 days' written notice, by the Board of the Fund or by a vote of a majority of the outstanding Shares of the Fund, or by Distributor, or (b) immediately, on written notice by the Board of the Fund, in the event of termination or suspension of any of the Registrations. This Agreement will automatically terminate in the event of its assignment. In interpreting the provisions of this Paragraph 13, the definitions contained in Section 2(a) of ICA-40 (particularly the definitions of "interested person", "assignment", and "majority of the outstanding shares") shall be applied. 14. Amendment of this Agreement. No provision of this Agreement may be changed, waived, discharged, or terminated orally, but only by an instrument in writing signed by each party against which enforcement of the change, waiver, discharge, or termination is sought. If the Fund should at any time deem it necessary or advisable in the best interests of the Fund that any amendment of this Agreement be made in order to comply with the recommendations or requirements of the SEC or any other governmental authority or to obtain any advantage under state or Federal tax laws and notifies Distributor of the form of such amendment, and the reasons therefor, and if Distributor should decline to assent to such amendment, the Fund may terminate this Agreement forthwith. If Distributor should at any time request that a change be made in the Fund's Agreement and Declaration of Trust or By-Laws or in its methods of doing business, in order to comply with any requirements of Federal law or regulations of the SEC, or of a national securities association of which Distributor is or may be a member, relating to the sale of Shares, and the Fund should not make such necessary changes within a reasonable time, Distributor may terminate this Agreement forthwith. 15. Liability. It is understood and expressly stipulated that neither the shareholders of the Fund nor the members of the Board of the Fund shall be personally liable hereunder. The obligations of the Fund are not personally binding upon, nor shall resort to the private property of, any of the members of the Board of the Fund, nor of the shareholders, officers, employees or agents of the Fund, but only the Fund's property shall be bound. A copy of the Declaration of Trust and of each amendment thereto has been filed by the Trust with the Secretary of State of The Commonwealth of Massachusetts and with the Clerk of the City of Boston, as well as any other governmental office where such filing may from time to time be required. 16. Miscellaneous. The captions in this Agreement are included for convenience or reference only, and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. Notice. Any notice required or permitted to be given by a party to this Agreement or to any other party hereunder shall be deemed sufficient if delivered in person or sent by registered or certified mail, postage prepaid, addressed by the party giving notice to each such other party at the address provided below or to the last address furnished by each such other party to the party giving notice. If to the Fund: One South Wacker Drive Chicago, Illinois 60606 Attn: Secretary If to Distributor: One Financial Center Boston, Massachusetts 02111 Attn: Secretary If to Stein Roe & Farnham Incorporated: One South Wacker Drive Chicago, Illinois 60606 Attn: Secretary LIBERTY FINANCIAL INVESTMENTS, INC. By: TIMOTHY K. ARMOUR ATTEST: MARJORIE M. PLUSKOTA Assistant Clerk STEIN ROE INCOME TRUST STEIN ROE INVESTMENT TRUST STEIN ROE MUNICIPAL TRUST STEIN ROE TRUST STEIN ROE INSTITUTIONAL TRUST By: HANS P. ZIEGLER ATTEST: NICOLETTE D. PARRISH Asst. Secretary ACKNOWLEDGED BY: STEIN ROE & FARNHAM INCORPORATED By: HANS P. ZIEGLER Chief Executive Officer ATTEST: NICOLETTE D. PARRISH Asst. Secretary Revised Exhibit A to Underwriting Agreement Between Stein Roe Investment Trust, Stein Roe Income Trust, Stein Roe Municipal Trust, Stein Roe Trust and Stein Roe Institutional Trust and Liberty Financial Investments, Inc. STEIN ROE INCOME TRUST STEIN ROE INVESTMENT TRUST Stein Roe Income Fund Stein Roe Growth & Income Fund Stein Roe High Yield Fund Stein Roe International Fund Stein Roe Intermediate Bond Stein Roe Young Investor Fund Fund Stein Roe Special Venture Fund Stein Roe Cash Reserves Fund Stein Roe Balanced Fund Stein Roe Growth Stock Fund Stein Roe Capital Opportunities Fund STEIN ROE MUNICIPAL TRUST Stein Roe Special Fund Stein Roe Managed Municipals Stein Roe Emerging Markets Fund Fund Stein Roe Municipal Money Stein Roe Growth Market Fund Opportunities Fund Stein Roe High Yield Municipals Fund Stein Roe Intermediate Municipals Fund STEIN ROE INSTITUTIONAL TRUST Stein Roe Institutional High Yield Fund STEIN ROE TRUST Stein Roe Institutional Client High Yield Fund Date _____________ LIBERTY FINANCIAL INVESTMENTS, INC. STEIN ROE ____ FUND SELLING AGREEMENT Dear Sirs: As the principal underwriter of Stein Roe ____ Fund (the "Fund"), a series of Stein Roe _____ Trust (the "Trust"), a Massachusetts business trust registered under the Investment Company Act of 1940 as an open-end investment company, we invite you as agent for your customer to participate in the distribution of shares of beneficial interest in the Fund ("Shares"), subject to the following terms and conditions: 1. We hereby grant to you the right to make Shares available to, and to solicit orders to purchase Shares by, the public, subject to applicable federal and state law, the Agreement and Declaration of Trust and By-laws of the Trust, and the current Prospectus and Statement of Additional Information relating to the Fund attached hereto (the "Prospectus"). You will forward to us or to the Trust's transfer agent, as we may direct from time to time, all orders for the purchase of Shares obtained by you, subject to such terms and conditions as to the form of payment, minimum initial and subsequent purchase and otherwise, and in accordance with such procedures and directions, as we may specify from time to time. All orders are subject to acceptance by an authorized officer of the Trust in Chicago and the Trust reserves the right in its sole discretion to reject any order. Share purchases are not binding on the Trust until accepted and entered on the books of the Fund. No Share purchase shall be effective until payment is received by the Trust in the form of Federal funds. If a Share purchase by check is cancelled because the check does not clear, you will be responsible for any loss to the Fund or to us resulting therefrom. 2. The public offering price of the Shares shall be the net asset value per share of the outstanding Shares determined in accordance with the then current Prospectus. No sales charge shall apply. 3. As used in this Agreement, the term "Registration Statement" with regard to the Fund shall mean the Registration Statement most recently filed by the Trust with the Securities and Exchange Commission and effective under the Securities Act of 1933, as such Registration Statement is amended by any amendments thereto at the time in effect, and the terms "prospectus" and "statement of additional information" with regard to the Fund shall mean the form of prospectus and statement of additional information relating to the Fund as attached hereto filed by the Trust as part of the Registration Statement, as such form of prospectus and statement of additional information may be amended or supplemented from time to time. 4. You hereby represent that you are and will remain during the term of this Agreement duly registered as a broker-dealer under the Securities Exchange Act of 1934 and under the securities laws of each state where your activities require such registration, and that you are and will remain during the term of this Agreement a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"). In the conduct of your activities hereunder, you will abide by all applicable rules and regulations of the NASD, including, without limitation, Rule 26 of the Rules of Fair Practice of the NASD as in effect form time to time, and all applicable federal and state securities laws, including without limitation, the prospectus delivery requirements of the Securities Act of 1933. 5. This Agreement is subject to the right of the Trust at any time to withdraw all offerings of the Shares by written notice to us at our principal office. You acknowledge that the Trust will not issue certificates representing Shares. 6. Your obligations under this Agreement are not to be deemed exclusive, and you shall be free to render similar services to others so long as your services hereunder are not impaired thereby. 7. You will sell Shares only to residents of states or other jurisdictions where we have notified you that the Shares have been registered or qualified for sale to the public or are exempt from such qualification or registration. Neither we nor the Trust will have any obligation to register or qualify the Shares in any particular jurisdiction. We shall not be liable or responsible for the issue, form validity, enforceability or value of the Shares or for any matter in connection therewith, except lack of good faith on our part, and no obligation not expressly assumed by us in this Agreement shall be implied therefrom. Nothing herein contained, however, shall be deemed to be a condition, stipulation or provision binding any person acquiring any Shares to waive compliance with any provision of the Securities Act of 1933, or to relieve the parties hereto from any liability arising thereunder. 8. You are not authorized to make any representations concerning the Fund, the Trust or the Shares except those contained in the then current prospectus and statement of additional information relating to the Fund, or printed information issued by the Trust or by us as information supplemental to such prospectus and statement of additional information. We will supply you with a reasonable number of copies of the then current prospectus and statement of additional information of the Fund, and reasonable quantities of any supplemental sales literature, sales bulletins, and additional information as may be issued by us or the Trust. You will not use any advertising or sales material relating to the Fund other than materials supplied by the Trust or us, unless such other material is approved in writing by us in advance of such use. 9. You will not have any authority to act as agent for the Trust, for us or for any other dealer. All transactions between you and us contemplated by this Agreement shall be as agents. 10. Either party to this Agreement may terminate this Agreement by giving written notice to the other. Such notice shall be deemed to have been given on the date on which it is either delivered personally to the other party, is mailed postpaid or delivered by telecopier to the other party at its address listed below. This Agreement may be amended by us at any time, and your placing of an order after the effective date of any such amendment shall constitute your acceptance thereof. Liberty Financial Investments, Inc. Dealer One Financial Center ________________ Boston, Massachusetts 02211 ________________ Attention: ________________ ________________ Telecopier: _______________ with copy to: Stein Roe _____ Trust One South Wacker Drive Chicago, Illinois 60606 Attention: Secretary Telecopier: ________ 11. This Agreement constitutes the entire agreement between you and us relating to the subject matter hereof and supersedes all prior or written agreements between us. This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts and shall be binding upon both parties hereto when signed by us and accepted by you in the space provided below. Very truly yours, LIBERTY FINANCIAL INVESTMENTS, INC. BY: ____________________ The undersigned hereby accepts your invitation to participate in the distribution of Shares and agrees to each of the terms and conditions set forth in this letter. ___________________________ Dealer Date: ____________________ By: _______________________ (Signature of Officer) Pay Office of Dealer: __________________________ ___________________________ Street Address (Print Name of Officer) __________________________ City/State/Zip __________________________ Telephone Number EX-99 4 EX-99.B9D OTH CONTRCT 1 EXHIBIT 9(d) SUB-TRANSFER AGENT AGREEMENT Agreement dated as of July 3, 1996, between SteinRoe Services Inc. ("SSI"), a Massachusetts corporation, for itself and on behalf SteinRoe Municipal Trust, SteinRoe Income Trust and SteinRoe Investment Trust, each a Massachusetts business trust (all referred to herein as the "Trust") comprised of the series of portfolios listed in Schedule A (as the same may from time to time be amended to add or to delete one or more series, all referred to herein as the "Fund"), and Colonial Investors Service Center, Inc. ("CISC"), a Massachusetts corporation. WHEREAS, the Trust has appointed SSI as Transfer Agent, Registrar and Dividend Disbursing Agent for the Fund, a registered investment company, pursuant to Restated Agency Agreement dated August 1, 1995 ("Transfer Agent Agreement"); WHEREAS, SSI is a registered transfer agent duly authorized to appoint CISC as its agent for purposes of performing certain transfer agency, registration and dividend disbursement services in respect of the Trust; WHEREAS, CISC desires to accept such appointment and to perform such services upon the terms and subject to the conditions set forth herein; and WHEREAS, Stein Roe & Farnham, Inc. ("SRF") is the investment adviser to the Fund and Liberty Securities Corporation is the principal underwriter of its shares. NOW THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows: 1. Appointment. SSI hereby appoints CISC to act as its agent in respect of the purchase, redemption and transfer of Fund shares and dividend disbursing services in connection with such shares other than with respect to Fund shares (a) held under Stein Roe Counselor [service mark] for which SSI shall perform such services and (b) held in omnibus accounts with respect to which such services are performed by third party financial institutions as described in the Fund's Prospectus from time to time. CISC accepts such appointments and will perform the duties and functions described herein in the manner hereinafter set forth. In respect of its duties and obligations pursuant to this Agreement, CISC will act as agent of SSI and not as agent of the Trust nor the Fund. CISC agrees to provide the necessary facilities, equipment and personnel to perform its duties and obligations hereunder in accordance with the practice of transfer agents of investment companies registered with the Securities and Exchange Commission and in compliance with all laws applicable to mutual fund transfer agents and the Fund. 2 CISC agrees that it shall perform usual and ordinary services as transfer agent, registrar and dividend disbursing agent, which are necessary and appropriate for investment companies registered with the Securities and Exchange Commission, except as otherwise specifically excluded herein, including but not limited to: receiving and processing payments for purchases of Fund shares, opening shareholder accounts, receiving and processing requests for liquidation of Fund shares , transferring and canceling stock certificates, maintaining all shareholder accounts, preparing annual shareholder meetings lists, corresponding with shareholders regarding transaction rejections, providing order room services to brokers, withholding taxes on accounts, disbursing income dividends and capital gains distributions, preparing and filing U.S. Treasury Department Form 1099 for shareholders, preparing and mailing confirmation forms to shareholders for all purchases and liquidations of Fund shares and other confirmable transactions in shareholder accounts, recording reinvestment of dividends and distributions in Fund shares, and causing liquidation of shares and disbursements to be made to withdrawal plan holders. The services to be performed by CISC under this Agreement may be set forth in a procedures manual and other documents as mutually agreed to by CISC and SSI. Specifically excluded from the services to be provided by CISC are the following: mailing proxy materials, receiving and tabulating proxies, mailing shareholder reports and prospectuses, account research, shareholder correspondence and telephone services regarding general inquiries, information requests and all other matters except transaction rejections, all of which SRS agrees to continue to perform directly on behalf of the Trust and the Fund. 2. Fees and Charges. SSI will pay CISC for the services provided hereunder in accordance with and in the manner set forth in Schedule B to this Agreement. 3. Representations and Warranties of CISC. CISC represents and warrants to SSI that: (a) It is a corporation duly organized and existing in good standing under the laws of the Commonwealth of Massachusetts; (b) It is duly qualified to carry on its business in the Commonwealth of Massachusetts; (c) It is empowered under applicable state and federal laws and by its Articles of Organization and By-Laws to enter into and perform the services contemplated by this Agreement and it is in compliance and shall continue during the term of this Agreement to be in compliance with all such applicable laws; (d) All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement; (e) It has and shall continue to have and maintain the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement; and 3 (f) It has filed a Registration Statement on SEC Form TA- 1 and will file timely an amendment to same respecting this Sub-Transfer Agent Agreement with the Securities and Exchange Commission, it is duly registered as a transfer agent as provided in Section 17Ac of the Securities and Exchange Act of 1934, and it will remain so registered and will comply with all state and federal laws and regulations relating to transfer agents throughout the term of this Agreement. 4. Representations and Warranties of SSI. SSI represents and warrants to CISC that: (a) It is a corporation duly organized and existing in good standing under the laws of the Commonwealth of Massachusetts; (b) It is duly qualified to carry on its business in the State of Illinois; (c) It is empowered under applicable state and federal laws and by its Articles of Organization and By-Laws to enter into and perform the services contemplated in this Agreement and in the Transfer Agent Agreement and it is in compliance and shall continue during the term of this Agreement to be in compliance with the Transfer Agent Agreement and all such applicable laws; (d) All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement; (e) It has and shall continue to have and maintain the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement and the Transfer Agent Agreement; and (f) It has filed a Registration Statement on SEC Form TA- 1 and will file timely an amendment to same respecting this Sub-Transfer Agent Agreement with the Securities and Exchange Commission; it is duly registered as a Transfer Agent as provided in Section 17Ac of the Securities Exchange Act of 1934; and it will remain so registered and comply with all state and federal laws and regulations relating to transfer agents throughout the term of this Agreement. 5. Representations and Warranties of the Trust. The Trust represents and warrants to CISC that: (a) It is a business trust duly organized and existing and in good standing under the laws of the State of Massachusetts; (b) The Fund is an open-end diversified management investment company registered under the Investment Company Act of 1940; 4 (c) Registration statements under the Securities Act of 1933 and applicable state laws are currently effective and will remain effective at all times with respect to all shares of the Fund being offered for sale; (d) The Trust is empowered under applicable laws and regulations and by its Agreement and Declaration of Trust and By-Laws to enter into and perform this Agreement; and (e) All requisite proceedings and actions have been taken to authorize it to enter into and perform this Agreement. 6. Copies of Documents. SSI promptly from time to time will furnish CISC with copies of the following Trust and Fund documents and all amendments or supplements thereto: the Agreement and Declaration of Trust ; the By-Laws; and the Registration Statement under Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, together with any other information reasonably requested by CISC. The Prospectus and Statement of Additional Information contained in such Registration Statement, as from time to time amended and supplemented, are herein collectively referred to as the "Fund's Prospectus." On or before the date of effectiveness of this Agreement, or as soon thereafter as is reasonably practicable, and from time-to-time thereafter, SSI will furnish CISC with certified copies of the resolutions of the Trustees of the Trust authorizing this Agreement and designating authorized persons to give instructions to CISC; if applicable, a specimen of the certificate for shares of the Fund in the form approved by the Trustees of the Trust, with a certificate of the Secretary of the Trust as to such approval; and certificates as to any change in any officer, director, or authorized person of the SSI and the Trust. 7. Share Certificates. The Fund has resolved that all of the Fund's shares shall hereafter be issued in uncertificated form. Thus, CISC shall not be responsible for the issuance of certificates representing shares in the Fund. However, CISC shall maintain a record of each certificate previously issued and outstanding, the number of shares represented thereby, and the holder of record of such shares. 8. Lost or Destroyed Certificates. In case of the alleged loss or destruction of any share certificate, no new certificate shall be issued in lieu thereof, unless there shall first be furnished to CISC an affidavit of loss or non- receipt by the holder of shares with respect to which a certificate has been lost or destroyed, supported by an appropriate bond paid for by the shareholder which is satisfactory to CISC and issued by a surety company satisfactory to CISC. CISC shall place and maintain stop transfer instructions on all lost certificates as to which it receives notice. 9. Receipt of Funds for Investment. CISC will maintain one or more accounts with The First National Bank of Boston ("Bank"),in the name of SSI into which 5 it will deposit funds payable to CISC or SSI as agent for, or otherwise identified as being for the account of, the Trust or the Fund. 10. Shareholder Accounts. Upon receipt of any funds referred to in paragraph 9, CISC will compute the number of shares purchased by the shareholder according to the net asset value of Fund shares determined in accordance with applicable federal laws and regulations and as described in the Prospectus of the Fund and: (a) In the case of a new shareholder, open and maintain an open account for such shareholder in the name or names set forth in the subscription application form; (b) Send to the shareholder a confirmation indicating the amount of full and fractional shares purchased (in the case of fractional shares, rounded to three decimal places) and the price per share; (c) In the case of a request to establish a plan or program being offered by the Fund's Prospectus, open and maintain such plan or program for the shareholder in accordance with the terms thereof; and (d) Perform such other services and initiate and maintain such other books and records as are customarily undertaken by transfer agents in maintaining shareholder accounts for registered investment company investors; all subject to requirements set forth in the Fund's Prospectus with respect to rejection of orders. For closed accounts, CISC will maintain account records through June of the calendar year following the year in which the account is closed, or such other period of time as CISC and SSI shall mutually agree in writing from time to time. 11. Unpaid Checks; Accounts Assigned for Collection. If any check or other order for payment of money on the account of any shareholder or new investor is returned unpaid for any reason, CISC will: (a) Give prompt notification to SRS of such non-payment by facsimile sent prior to 9 a.m. E.S.T.; and (b) Upon SSI's written instruction, received by facsimile delivery not later than 11 a.m. E.S.T., authorize payment of such order notwithstanding insufficient shareholder account funds, on the condition that SSI shall indemnify CISC and payor bank in respect of such payment. 12. Dividends and Distributions. SSI will promptly notify CISC of the declaration of any dividend or distribution with respect to Fund shares, the amount of 6 such dividend or distribution, the date each such dividend or distribution shall be paid, and the record date for determination of shareholders entitled to receive such dividend or distribution. As dividend disbursing agent, CISC will, on or before the payment date of any such dividend or distribution, notify the Trust's custodian of the estimated amount of cash required to pay such dividend or distribution, and the Trust agrees that on or before the mailing date of such dividend or distribution it will instruct its custodian to make available to CISC sufficient funds in the dividend and distribution account maintained by CISC with the Bank. As dividend disbursing agent, CISC will prepare and distribute to shareholders any funds to which they are entitled by reason of any dividend or distribution and, in the case of shareholders entitled to receive additional shares by reason of any such dividend or distribution, CISC will make appropriate credits to their accounts and cause to be prepared and mailed to shareholders confirmation statements and, of such additional shares. CISC will maintain all records necessary to reflect the crediting of dividends and distributions which are reinvested in shares of the Fund. 13. Redemptions. CISC will receive and process for redemption in accordance with the Fund's Prospectus, share certificates and requests for redemption of shares as follows: (a) If such certificate or request complies with standards for redemption, CISC will, in accordance with the Fund's current Prospectus, pay to the shareholder from funds deposited by the Fund from time to time in the redemption account maintained by CISC with the Bank, the appropriate redemption price as set forth in the Fund's Prospectus; and (b) If such certificate or request does not comply with the standards for redemption, CISC will promptly notify the shareholder and shall effect the redemption at the price in effect at the time of receipt of documents complying with the standard. 14. Transfer and Exchanges. CISC will review and process transfers of shares of the Fund and to the extent, if any, permitted in the Prospectus of the Fund, exchanges between series of the Trust received by CISC. If shares to be transferred are represented by outstanding certificates, CISC will, upon surrender to it of the certificates in proper form for transfer, credit the same to the transferee on its books. If shares are to be exchanged for shares of another Fund, CISC will process such exchange in the same manner as a redemption and sale of shares, in accordance with the Fund's Prospectus may in its. 15. Plans. CISC will process such plans or programs for investing in shares, and such systematic withdrawal plans, as are provided for in the Fund's Prospectus. 16. Tax Returns and Reports. CISC will prepare and file tax returns and reports with the Internal Revenue Service and any other federal, state or local governmental agency which may require such filings, including state abandoned 7 property laws, and conduct appropriate communications relating thereto, and, if required, mail to shareholders such forms for reporting dividends and distributions paid by the Fund as are required by applicable laws, rules and regulations, and CISC will withhold such sums as are required to be withheld under applicable Federal and state income tax laws, rules and regulations. CISC will periodically provide SSI with reports showing dividends and distributions paid and any amounts withheld. CISC will also make reasonable attempt to obtain such tax withholding information from shareholders as is required to be obtained on behalf of the Trust under applicable federal or state laws. 17. Record Keeping. CISC will maintain records, which at all times will be the property of the Trust and available for inspection by SSI, showing for each shareholder's account the following information and such other information as CISC and SSI shall mutually agree in writing from time to time: (a) Name, address, and United States taxpayer identification or Social Security number, if provided (or amounts withheld with respect to dividends and distributions on shares if a taxpayer identification or Social Security number is not provided); (b) Number of shares held for which certificates have not been issued and for which certificates have been issued; (c) Historical information regarding the account of each shareholder, including dividends and distributions paid, if any, gross proceeds of sales transactions, and the date and price for transactions on a shareholder's account; (d) Any stop or restraining order placed against a shareholder's account of which SSI has notified CISI; (e) Information with respect to withholdings of taxes as required under applicable Federal and state laws and regulations; (f) Any capital gain or dividend reinvestment order and plan application relating to the current maintenance of a shareholder's account; and (g) Any instructions as to record addresses and any correspondence or instructions relating to the current maintenance of a shareholder's account. SSI hereby agrees that CISC shall have no liability or obligation with respect to the accuracy or completeness of shareholder account information received by CISC on or about the Operational Date. 8 By mutual agreement of CISC and SSI, CISC shall administer a program whereby reasonable attempt is made to identify current address information from shareholders whose mail from the Trust is returned. CISC shall maintain at its expense those records necessary to carry out its duties under this Agreement. In addition, CISC shall maintain at its expense for periods prescribed by law all records which the Fund or CISC is required to keep and maintain pursuant to any applicable statute, rule or regulation, including without limitation Rule 31(a)-1 under the Investment Company Act of 1940, relating to the maintenance of records in connection with the services to be provided hereunder. Upon mutual agreement of CISC and SSI, CISC shall also maintain other records requested from time to time by SSI, at SSI's expense. At the end of the period in which records must be retained by law, such records and documents will either be provided to the Trust or destroyed in accordance with prior written authorization from the Trust. 18. Retirement Plan Services. CISC shall provide sub- accounting services for retirement plan shareholders representing group relationships with special recordkeeping needs. 19. Other Information Furnished. CISC will furnish to SSI such other information, including shareholder lists and statistical information as may be agreed upon from time to time between CISC and SSI. CISC shall notify SSI and the Trust of any request or demand to inspect the share records of the Fund, and will not permit or refuse such inspection until receipt of written instructions from the Trust as to such permission or refusal unless required by law. CISC shall provide to the Trust any results of studies and evaluations of systems of internal accounting controls performed for the purpose of meeting the requirements of Regulation 240.17Ad-13(a) of the Securities Exchange Act of 1934. 20. Shareholder Inquiries. CISC will not respond to written correspondence from fund shareholders or others relating to the Fund other than those regarding transaction rejections and clarification of transaction instructions, but shall forward all such correspondence to SSI. 21. Communications to Shareholders and Meetings. CISC will determine all shareholders entitled to receive, and will cause to be addressed and mailed, all communications by the Fund to its shareholders, including quarterly and annual reports, proxy material for meetings, and periodic communications. CISC will cause to be received, examined and tabulated return proxy cards for meetings of shareholders and certify the vote to the Trust Fund. 22. Other Services by CISC. CISC shall provide SSI, with the following additional services: 9 (a) All CTRAN, CIMAGE, Price Waterhouse Blue Sky 2, and Pegashares functionality and enhancements (on a remote basis) as they now exist and as they are developed and made available to CISC clients; (b) Initial programs and report enhancements to the CTRAN System which are necessary to accommodate the Fund as a no-load fund group; (c) Development, systems training, technical support, implementation, and maintenance of special programs and systems to enhance overall shareholder servicing capability; (d) Product and system training for personnel of institutional servicing agents. 23. Insurance. CISC will not reduce or allow to lapse any of its insurance coverages from time to time in effect, including but not limited to errors and omissions, fidelity bond and electronic data processing coverage, without the prior written consent of SSI. Attached as Schedule D to this Agreement is a list of the insurance coverage which CISC has in effect as of the date of execution of this Agreement and, if different, will have in effect on the Operational Date. 24. Duty of Care and Indemnification. CISC will at all times use reasonable care, due diligence and act in good faith in performing its duties hereunder. CISC will not be liable or responsible for delays or errors by reason of circumstances beyond its control, including without limitation acts of civil or military authority, national or state emergencies, labor difficulties, fire, mechanical breakdown, flood or catastrophe, acts of God, insurrection, war, riots or failure of transportation, communication or power supply. CISC may rely on certifications of those individuals designated as authorized persons to give instructions to CISC as to proceedings or facts in connection with any action taken by the shareholders of the Fund or Trustees of the Trust, and upon instructions not inconsistent with this Agreement from individuals who have been so authorized. Upon receiving authorization from an individual designated as an authorized person to give instructions to CISC, CISC may apply to counsel for the Trust, or counsel for SSI or the Fund's investment adviser, at the Fund's expense, for advice. With respect to any action reasonably taken on the basis of such certifications or instructions or in accordance with the advice of counsel of the Trust, or counsel for SSI or the Fund's investment adviser, the Fund will indemnify and hold harmless CSC from any and all losses, claims, damages, liabilities and expenses (including reasonable counsel fees and expenses). SSI will indemnify CISC against and hold CISC harmless from any and all losses, claims, damages, liabilities and expenses (including reasonable counsel fees and expenses) in respect of any claim, demand, action or suit not resulting from CISC's bad faith, negligence, lack of due diligence or willful misconduct and arising out of, or in connection with its duties under this Agreement. 10 CISC shall indemnify SSI against and hold SSI harmless from any and all losses, claims, damages, liabilities and expenses (including reasonable counsel fees and expenses) in respect to any claim, demand, action or suit resulting from CISC's bad faith, negligence, lack of due diligence or willful misconduct, and arising out of, or in connection with, its duties under this Agreement. For purposes of this Sub-Transfer Agent Agreement, "lack of due diligence" shall mean the processing by CISC of a Fund share transaction in accordance with a practice that is not substantially in compliance with (1) a transaction processing practice of SSI approved by Fund Trustees, (2) insurance coverages, or (3) generally accepted industry practices of mutual fund agents. CISC shall also be indemnified and held harmless by SSI against any loss, claim, damage, liability and expenses (including reasonable counsel fees and expenses) by reason of any act done by it in good faith with due diligence and in reasonable reliance upon any instrument or certificate for shares reasonably believed by it (a) to be genuine and (b) to be signed, countersigned or executed by any person or persons authorized to sign, countersign, or execute such instrument or certificate. In addition, SSI will indemnify and hold CISC harmless against any loss, claim, damage, liability and expense (including reasonable counsel fees and expenses) in respect of any claim, demand, action or suit as a result of the negligence of the Fund, Trust SRF or SSI, or as a result of CISC's acting upon any instructions reasonably believed by CISC to have been executed or orally communicated by a duly authorized officer or employee of the Fund, Trust SRF or SSI, or as a result of acting in reliance upon written or oral advice reasonably believed by CISC to have been given by counsel for the Fund, Trust SRF or SSI. In any case in which a party to this Agreement may be asked to indemnify or hold harmless the other party hereto, the party seeking indemnification shall advise the other party of all pertinent facts concerning the situation giving rise to the claim or potential claim for indemnification, and each party shall use reasonable care to identify and notify the other promptly concerning any situation which presents or appears likely to present a claim for indemnification. Prior to admitting to or agreeing to settle any claim subject to this Section, each party shall give the other reasonable opportunity to defend against said claim in either party's name. 25. Employees. CISC and SSI are separately responsible for the employment, control and conduct of their respective agents and employees and for injury to such agents or employees or to others caused by such agents or employees. CISC and SSI severally assume full responsibility for their respective agents and employees under applicable statues and agree to pay all employer taxes thereunder. The conduct of their respective agents and employees shall be included in any reference to the conduct of CISC or SSI for all purposes hereunder. 26. Termination and Amendment. This Agreement shall continue in effect for eighteen (18) months from the Operational Date, and will automatically be 11 renewed for successive one year terms thereafter. After eighteen (18) months from the Operational Date the Agreement may be terminated at any time by not less than one hundred eighty (180) days written notice. Upon termination hereof, SSI shall pay CISC such compensation as may be due to CISC as of the date of such termination for services rendered and expenses incurred, as described in Schedule B. This Agreement may be modified or amended from time to time by mutual agreement between SSI and CISC. 27. Successors. In the event that in connection with termination of this Agreement a successor to any of CISC's duties or responsibilities hereunder is designated by SSI by written notice to CISC, CISC shall promptly at the expense of SSI, transfer to such successor, or if no successor is designated, transfer to the Trust, a certificate list of the shareholders of the Fund (with name, address and taxpayer identification or Social Security number), a historical record of the account of each shareholder and the status thereof, all other relevant books, records, correspondence and other data established or maintained by CISC under this Agreement in machine readable form and will cooperate in the transfer of such duties and responsibilities, and in the establishment of books, records and other data by such successor. CISC shall be entitled to reimbursement of its reasonable out-of-pocket expenses in respect of assistance provided in accordance with the preceding sentence. 28. Miscellaneous. This Agreement shall be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts. The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions of this Agreement or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. CISC shall keep confidential all records and information provided to CISC by the Trust, SSI, SRF, and prior, present or prospective shareholders of the Fund, except, after notice to SSI , to the extent disclosures are required by this Agreement, by the Fund's registration statement, or by a reasonable request or a valid subpoena or warrant issued by a court, state or federal agency or other governmental authority. Neither CISC nor SSI may use each other's name in any written material without written consent of such other party, provided , however, that such consent shall not unreasonably withheld. CISC and SSI hereby consent to all uses of their respective names which refer in accurate terms to appointment and duties under this Agreement or which are required by any governmental or regulatory authority including required filings. SSI, SRF, the Trust and the Fund consent to use of their respective names and logos by CISC for shareholder correspondence and statements This Agreement shall be binding upon and shall inure to the benefit of SSI and CISC and their respective successors and assigns. Neither SSI nor CISC shall assign this 12 Agreement nor its rights and obligations under this Agreement without the express written consent of the other party. This Agreement may be amended only in writing by mutual agreement of the parties. Any notice and other instrument in writing authorized or required by this Agreement t be given to SSI or CISC shall sufficiently be given if addressed to that party and mailed or delivered to it as its office set for the below or at such other place as it may from time to time designate in writing. SSI, the Trust and the Fund: SteinRoe Services Inc. One South Wacker Drive Suite 3300 Chicago, Illinois 60606 Attn: Jilaine Hummel Bauer, Esq. CISC: Colonial Investors Service Center, Inc. One Financial Center Boston, Massachusetts 02111 Attn: Mary McKenzie; with a separate copy to Attn: Nancy L. Conlin, Esq., Legal Department 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and sealed as of the date first above written. STEINROE SERVICES INC. By: TIMOTHY K. ARMOUR Name: Title: Vice President COLONIAL INVESTORS SERVICE CENTER, INC. By: D.S. SCOON Name: Davey S. Scoon Title: President Assented to on behalf of Trust and Stein Roe Mutual Funds: STEIN ROE INCOME TRUST STEIN ROE INVESTMENT TRUST STEIN ROE MUNICIPAL TRUST By: TIMOTHY K. ARMOUR Name: Timothy K. Armour Title: President SCHEDULE A Stein Roe Mutual Funds (the "Fund"), consists of the following series of portfolios: Stein Roe Investment Trust - -------------------------- Stein Roe Growth & Income Fund Stein Roe International Fund Stein Roe Young Investor Fund Stein Roe Balanced Fund Stein Roe Growth Stock Fund Stein Roe Capital Opportunities Fund Stein Roe Special Fund Stein Roe Special Venture Fund Stein Roe Income Trust - ---------------------- Stein Roe Income Fund Stein Roe Government Income Fund Stein Roe Intermediate Bond Fund Stein Roe Cash Reserves Fund Stein Roe Government Reserves Fund Stein Roe Limited Maturity Income Fund Stein Roe Municipal Trust - ------------------------- Stein Roe Intermediate Municipals Fund Stein Roe High-Yield Municipals Fund Stein Roe Municipal Money Market Fund Stein Roe Managed Municipals Fund SCHEDULE B This Schedule B is attached to and is part of a certain Sub-Transfer Agent Agreement ("Agreement") dated July 3, 1996 between SteinRoe Services Inc. ("SSI") and Colonial Investors Center, Inc. ("CISC"). A. SSI will pay CISC for services rendered under the Agreement and in accordance with a negotiated allocation of revenues and reimbursement of costs as follows: 1. As of the Operational Date, CISC and SSI shall agree upon a fixed monthly per account fee to be paid under the Agreement, which shall be in an amount equal to 1/12 (a) the estimated total, determined on an annualized basis, of (1) all incremental costs incurred by CISC in connection with the sub-transfer agency relationship, plus (2) 1/2 the net economic benefit derived by Liberty Financial Companies, the parent company of both CISC and SSI, as a result of the sub- transfer agency relationship, (b) divided by the number of shareholder accounts to be serviced by CISC pursuant to the Agreement as of the Operational Date. 2. For the first eighteen (18) months of the Agreement, SSI shall pay CISC, monthly in arrears, commencing with the first day of August, 1996, and on the first day of each month thereafter, the greater of (a) the product of the fixed per account fee determined as provided in paragraph 1. above multiplied by the number of shareholder accounts serviced by CISC pursuant to the Agreement as of the end of the preceding month, and (b) 1/12 the annualized estimated total costs and benefit determined pursuant to (a) of paragraph 1. above. All estimates under this paragraph shall be determined no later than September 30, 1996. The annual fee for the first eighteen months shall not be less than $1.4 million. 3. Commencing January 1, 1998, and during each calendar year thereafter, SSI shall pay CISC a fee equal to CISC's budgeted annual per account expense of providing services pursuant to the Agreement. Said fee shall be paid monthly in arrears, on the first day of each month, in an amount equal to the product of 1/12 the budgeted annual per account fee multiplied by the number of shareholder accounts serviced by CISC pursuant to the Agreement as of the end of the preceding month. All budgeted numbers under this paragraph shall be determined no later than November 30 each year. B. The Fund shall be credited each month with balance credits earned on all Fund cash balances. Upon thirty (30) days' notice to SSI, CISC may increase the fees it charges to the extent the cost to CISC of providing services increases (i) because of changes in the Fund's Prospectus, or (ii) on account of any change after the date hereof in law or regulations governing performance of obligations hereunder. Fees for any additional services not provided herein, ad hoc reports or special programming requirements to be provided by CISC shall be agreed upon by SSI and CISC at such time as CISC agrees to provide any such services. In addition to paying CISC fees as described herein, SSI agrees to reimburse CISC for any and all out-of-pocket expenses and charges in performing services under the Agreement (other than charges for normal data processing services and related software, equipment and facilities) including, but not limited to, mailing service, postage, printing of shareholder statements, the cost of any and all forms of the Trust and other materials used in communicating with shareholders of the Trust, the cost of any equipment or service used for communicating with the Trust's custodian bank or other agent of the Trust, and all costs of telephone communication with or on behalf of shareholders allocated in a manner mutually acceptable to CISC and SSI. SCHEDULE C SRS and CSC hereby agree that the date on which the complete services began ("Operational Date") under the Sub- Transfer Agent Agreement between them dated July 3, 1996, is: July , 1996 STEINROE SERVICES INC. By:________________________________________ Name: Title: Vice President COLONIAL INVESTORS SERVICE CENTER, INC. By:________________________________________ Name: Title: AMENDMENT TO SUB-TRANSFER AGENT AGREEMENT This Amendment dated as of January 1, 1997, and effective that date unless otherwise indicated below, amends the agreement dated as of July 3, 1996 (the "Agreement"), between SteinRoe Services Inc.("SSI"), Stein Roe Municipal Trust, Stein Roe Income Trust and Stein Roe Investment Trust (collectively the "Trust") and Colonial Investors Service Center, Inc. ("CISC") to add Stein Roe Advisor Trust (effective February 14, 1997), Stein Roe Institutional Trust (effective January 2, 1997) and Stein Roe Trust (effective February 14, 1997), comprised of the Series listed on Schedule A, as amended, and assenting parties to the contract and to add new series of the existing Trusts. The amended Schedule A is as follows: STEIN ROE INCOME TRUST Stein Roe Income Fund Stein Roe Government Income Fund Stein Roe Intermediate Bond Fund Stein Roe High Yield Fund STEIN ROE MUNICIPAL TRUST Stein Roe Intermediate Municipals Fund Stein Roe High-Yield Municipals Fund Stein Roe Managed Municipals Fund STEIN ROE INVESTMENT TRUST Stein Roe International Fund Stein Roe Growth & Income Fund Stein Roe Balanced Fund Stein Roe Young Investor Fund Stein Roe Growth Stock Fund Stein Roe Special Fund Stein Roe Special Venture Fund Stein Roe Emerging Markets Fund STEIN ROE ADVISOR TRUST Stein Roe Advisor Balanced Fund Stein Roe Advisor Growth & Income Fund Stein Roe Advisor Growth Stock Fund Stein Roe Advisor International Fund Stein Roe Advisor Special Fund Stein Roe Advisor Special Venture Fund Stein Roe Advisor Young Investor Fund STEIN ROE INSTITUTIONAL TRUST Stein Roe Institutional High Yield Fund STEIN ROE TRUST Stein Roe Institutional Client High Yield Fund IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and sealed as of the date first above written. SteinRoe Services Inc. By: HEIDI J. WALTER Name: Heidi J. Walter Title: Vice President Colonial Investors Service Center, Inc. By: MARY DILLON MCKENZIE Name: Mary Dillon McKenzie Title: Senior Vice President Assented to on behalf of Trust and Stein Roe Mutual Funds: Stein Roe Income Trust Stein Roe Investment Trust Stein Roe Municipal Trust Stein Roe Advisor Trust Stein Roe Institutional Trust Stein Roe Trust By: JILAINE HUMMEL BAUER Name: Jilaine Hummel Bauer Title: Executive Vice President and Secretary AMENDMENT TO SUB-TRANSFER AGENT AGREEMENT This Amendment dated as of June 30, 1997, amends the agreement dated as of July 3, 1996 (the "Agreement"), between SteinRoe Services Inc.("SSI"), Stein Roe Municipal Trust, Stein Roe Income Trust, Stein Roe Investment Trust, Stein Roe Advisor Trust, Stein Roe Trust and Stein Roe Institutional Trust (collectively the "Trust") and Colonial Investors Service Center, Inc. ("CISC") to add additional series of the existing Trusts. The amended Schedule A is as follows: STEIN ROE INCOME TRUST Stein Roe Income Fund Stein Roe Government Income Fund Stein Roe Intermediate Bond Fund Stein Roe High Yield Fund Stein Roe Cash Reserves Fund Stein Roe Government Reserves Fund STEIN ROE MUNICIPAL TRUST Stein Roe Intermediate Municipals Fund Stein Roe High-Yield Municipals Fund Stein Roe Managed Municipals Fund Stein Roe Municipal Money Market Fund STEIN ROE INVESTMENT TRUST Stein Roe International Fund Stein Roe Growth & Income Fund Stein Roe Balanced Fund Stein Roe Young Investor Fund Stein Roe Growth Stock Fund Stein Roe Special Fund Stein Roe Special Venture Fund Stein Roe Emerging Markets Fund Stein Roe Capital Opportunities Fund Stein Roe Growth Opportunities Fund STEIN ROE ADVISOR TRUST Stein Roe Advisor Balanced Fund Stein Roe Advisor Growth & Income Fund Stein Roe Advisor Growth Stock Fund Stein Roe Advisor International Fund Stein Roe Advisor Special Fund Stein Roe Advisor Special Venture Fund Stein Roe Advisor Young Investor Fund STEIN ROE INSTITUTIONAL TRUST Stein Roe Institutional High Yield Fund STEIN ROE TRUST Stein Roe Institutional Client High Yield Fund IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and sealed as of the date first above written. SteinRoe Services Inc. By: HEIDI J. WALTER Name: Heidi J. Walter Title: Vice President Colonial Investors Service Center, Inc. By: JOHN W. BYRNE Name: John W. Byrne Title: Vice President Assented to on behalf of Trust and Stein Roe Mutual Funds: Stein Roe Income Trust Stein Roe Investment Trust Stein Roe Municipal Trust Stein Roe Advisor Trust Stein Roe Institutional Trust Stein Roe Trust By: HEIDI J. WALTER Name: Heidi J. Walter Title: Vice President AMENDMENT TO SUB-TRANSFER AGENT AGREEMENT This Amendment dated as of October 15, 1997, amends the agreement dated as of July 3, 1996 (the "Agreement"), between SteinRoe Services Inc.("SSI"), Stein Roe Municipal Trust, Stein Roe Income Trust, Stein Roe Investment Trust, Stein Roe Advisor Trust, Stein Roe Trust and Stein Roe Institutional Trust (collectively the "Trust") and Colonial Investors Service Center, Inc. ("CISC") to remove Stein Roe Advisor Trust as a party to this agreement. The amended Schedule A is as follows: STEIN ROE INCOME TRUST Stein Roe Income Fund Stein Roe Government Income Fund Stein Roe Intermediate Bond Fund Stein Roe High Yield Fund Stein Roe Cash Reserves Fund Stein Roe Government Reserves Fund STEIN ROE MUNICIPAL TRUST Stein Roe Intermediate Municipals Fund Stein Roe High-Yield Municipals Fund Stein Roe Managed Municipals Fund Stein Roe Municipal Money Market Fund STEIN ROE INVESTMENT TRUST Stein Roe International Fund Stein Roe Growth & Income Fund Stein Roe Balanced Fund Stein Roe Young Investor Fund Stein Roe Growth Stock Fund Stein Roe Special Fund Stein Roe Special Venture Fund Stein Roe Emerging Markets Fund Stein Roe Capital Opportunities Fund Stein Roe Growth Opportunities Fund STEIN ROE INSTITUTIONAL TRUST Stein Roe Institutional High Yield Fund STEIN ROE TRUST Stein Roe Institutional Client High Yield Fund IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and sealed as of the date first above written. SteinRoe Services Inc. By: HANS P. ZIEGLER Name: Title: Colonial Investors Service Center, Inc. By: MARY D. MCKENZIE Name: Mary D. McKenzie Title: President Assented to on behalf of Trust and Stein Roe Mutual Funds: Stein Roe Income Trust Stein Roe Investment Trust Stein Roe Municipal Trust Stein Roe Advisor Trust Stein Roe Institutional Trust Stein Roe Trust By: HANS P. ZIEGLER Name: Title: AMENDMENT TO SUB-TRANSFER AGENT AGREEMENT This Amendment dated as of October 17, 1997, amends the agreement dated as of July 3, 1996 (the "Agreement"), between SteinRoe Services Inc.("SSI"), Stein Roe Municipal Trust, Stein Roe Income Trust, Stein Roe Investment Trust, Stein Roe Trust and Stein Roe Institutional Trust (collectively the "Trust") and Colonial Investors Service Center, Inc. ("CISC") to remove two series of Income Trust from Schedule A. The amended Schedule A is as follows: STEIN ROE INCOME TRUST Stein Roe Income Fund Stein Roe Intermediate Bond Fund Stein Roe High Yield Fund Stein Roe Cash Reserves Fund STEIN ROE MUNICIPAL TRUST Stein Roe Intermediate Municipals Fund Stein Roe High-Yield Municipals Fund Stein Roe Managed Municipals Fund Stein Roe Municipal Money Market Fund STEIN ROE INVESTMENT TRUST Stein Roe International Fund Stein Roe Growth & Income Fund Stein Roe Balanced Fund Stein Roe Young Investor Fund Stein Roe Growth Stock Fund Stein Roe Special Fund Stein Roe Special Venture Fund Stein Roe Emerging Markets Fund Stein Roe Capital Opportunities Fund Stein Roe Growth Opportunities Fund STEIN ROE INSTITUTIONAL TRUST Stein Roe Institutional High Yield Fund STEIN ROE TRUST Stein Roe Institutional Client High Yield Fund IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and sealed as of the date first above written. SteinRoe Services Inc. By: ANNE E. MARCEL Name: Anne E. Marcel Title: Vice President Colonial Investors Service Center, Inc. By: MARY D. MCKENZIE Name: Mary D. McKenzie Title: President Assented to on behalf of Trust and Stein Roe Mutual Funds: Stein Roe Income Trust Stein Roe Investment Trust Stein Roe Municipal Trust Stein Roe Advisor Trust Stein Roe Institutional Trust Stein Roe Trust By: THOMAS W. BUTCH Name: Thomas W. Butch Title: Vice President AMENDMENT TO SUB-TRANSFER AGENT AGREEMENT This Amendment dated as of April 30, 1998, amends the agreement dated as of July 3, 1996 (the "Agreement"), between SteinRoe Services Inc.("SSI"), Stein Roe Municipal Trust, Stein Roe Income Trust, Stein Roe Investment Trust, Stein Roe Trust and Stein Roe Institutional Trust (collectively the "Trust") and Colonial Investors Service Center, Inc. ("CISC") to add one series of Investment Trust to Schedule A. The amended Schedule A is as follows: STEIN ROE INCOME TRUST Stein Roe Income Fund Stein Roe Intermediate Bond Fund Stein Roe High Yield Fund Stein Roe Cash Reserves Fund STEIN ROE MUNICIPAL TRUST Stein Roe Intermediate Municipals Fund Stein Roe High-Yield Municipals Fund Stein Roe Managed Municipals Fund Stein Roe Municipal Money Market Fund STEIN ROE INVESTMENT TRUST Stein Roe International Fund Stein Roe Growth & Income Fund Stein Roe Balanced Fund Stein Roe Young Investor Fund Stein Roe Growth Stock Fund Stein Roe Special Fund Stein Roe Special Venture Fund Stein Roe Emerging Markets Fund Stein Roe Capital Opportunities Fund Stein Roe Growth Opportunities Fund Stein Roe Large Company Focus Fund STEIN ROE INSTITUTIONAL TRUST Stein Roe Institutional High Yield Fund STEIN ROE TRUST Stein Roe Institutional Client High Yield Fund IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and sealed as of the date first above written. SteinRoe Services Inc. By: HANS P. ZIEGLER Name: Title: Colonial Investors Service Center, Inc. By: MARY D. MCKENZIE Name: Mary D. McKenzie Title: President Assented to on behalf of Trust and Stein Roe Mutual Funds: Stein Roe Income Trust Stein Roe Investment Trust Stein Roe Municipal Trust Stein Roe Advisor Trust Stein Roe Institutional Trust Stein Roe Trust By: HANS P. ZIEGLER Name: Title: EX-99 5 EX-99.B10B OPIN COUNS EXHIBIT 10(b) 1 BELL, BOYD & LLOYD THREE FIRST NATIONAL PLAZA 70 WEST MADISON STREET, SUITE 3300 CHICAGO, ILLINOIS 60602-4207 312 372-1121 FAX 312 372-2098 June 11, 1998 Stein Roe Institutional Trust One South Wacker Drive, #3300 Chicago, Illinois 60606-4685 Ladies and Gentlemen: Stein Roe Institutional Trust We have acted as counsel for Stein Roe Institutional Trust (the "Trust") in connection with the registration under the Securities Act of 1933 (the "Act") of an indefinite number of shares of beneficial interest (the "Shares") of the series of the Trust designated Stein Roe Institutional Asia Pacific Fund (the "Fund") in registration statement no. 333-13331 on form N-1A as amended by post-effective amendment no. 6 thereto (the "Registration Statement"). In this connection we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate and other records, certificates and other papers as we deemed it necessary to examine for the purpose of this opinion, including the agreement and declaration of trust (the "Trust Agreement") and by-laws (the "By-laws") of the Trust, actions of the board of trustees of the Trust authorizing the issuance of shares of the Fund and the Registration Statement. We assume that, upon sale of the Shares, the Trust will receive the authorized consideration therefor, which will at least equal the net asset value of the Shares. Based upon the foregoing, we are of the opinion that the Trust is authorized to issue an unlimited number of Shares, and that, when the Shares are issued and sold after the post-effective amendment to the Registration Statement has been declared effective and the authorized consideration therefor is received by the Trust, they will be validly issued, fully paid and nonassessable by the Trust The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust or any series of the Trust (a "Series"). However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust or any Series and requires that notice of such disclaimer be given in every note, bond, contract, instrument, certificate or other undertaking issued by or on behalf of the Trust. The 2 Stein Roe Investment Trust June 11, 1998 Page two Agreement and Declaration of Trust provides for indemnification out of property of a particular Series for all loss and expense of any shareholder of that Series held personally liable for obligations of that Series. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the relevant Series would be unable to meet its obligations. In rendering the foregoing opinion, we have relied upon the opinion of Ropes & Gray expressed in their letter to us dated June 10, 1998. We consent to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not admit that we are in the category of persons whose consent is required under section 7 of the Act. Very truly yours, BELL, BOYD & LLOYD EX-99 6 EX-99.B11 OTH CONSNT EXHIBIT 11 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to the use of our report dated August 11, 1997 with respect to Stein Roe Institutional High Yield Fund and SR&F High Yield Portfolio in the Registration Statement (Form N-1A) of Stein Roe Institutional Trust filed with the Securities and Exchange Commission in this Post- Effective Amendment No. 6 to the Registration Statement under the Securities Act of 1933 (Registration No. 333-13331) and in this Amendment No. 7 to the Registration Statement under the Investment Company Act of 1940 (Registration No. 811-07823). ERNST & YOUNG LLP Ernst & Young LLP Chicago, Illinois June 2, 1998 EX-27 7
6 1 STEIN ROE INSTITUTIONAL HIGH YIELD FUND YEAR JUN-30-1997 JAN-02-1997 JUN-30-1997 104 107 56 20 0 183 0 0 76 76 0 104 10 0 0 0 1 0 2 107 0 5 0 0 5 1 2 7 0 4 0 0 100 0 4 107 0 0 0 0 0 0 86 103 10.00 0.40 0.27 0.40 0 0 10.27 0.67 0 0
-----END PRIVACY-ENHANCED MESSAGE-----