COLONIAL TAX-EXEMPT MONEY MARKET FUND
Dear Fellow Shareholder:
I am writing to let you know that a Special
Meeting of Shareholders of Colonial Tax-Exempt
Money Market Fund will be held on September 15,
1995, to vote on the conversion of the Fund to
the master fund/feeder fund structure. As
proposed, your Fund (Feeder Fund) would pursue
its objective by investing exclusively in the
SR&F Municipal Money Market Portfolio
(Portfolio), a mutual fund advised by Stein Roe
& Farnham Incorporated which is described in
more detail under Proposal I. Of course, you
will incur no charges, fees or federal tax
liability as a result of this conversion.
This proposal has been carefully reviewed and
approved by your Fund's Trustees. Under this
new structure, we believe that the Fund may
benefit from greater economies of scale as a
result of its participation in a much larger
pool of assets. The Fund's attractive services
and privileges will remain the same.
As a shareholder in Colonial Tax-Exempt Money
Market Fund, you have the opportunity to voice
your opinion on this proposal. Everything you
need to vote is enclosed. Simply complete your
proxy card and return it to us no later than
September 15, 1995, in the enclosed postage-paid
envelope. Your vote is very important -- no
matter how many shares you own.
Please take a few moments to review the details
of the proposal and return your proxy at your
earliest convenience. If you have any questions
regarding the proxy, please feel free to call
Colonial Investors Service Center, Inc. at 1-800-
345-6611. Our hearing impaired shareholders may
call 1-800-528-6979 if you have special TTD
equipment.
We have engaged the services of a proxy
solicitation firm, Shareholder Communications
Corporation. If we do not receive your proxy,
you may receive a telephone call from this firm
requesting you to vote. We appreciate your
vote.
Sincerely,
John A. McNeice, Jr.
President
July 31, 1995
TM-036B-06950
COLONIAL TAX-EXEMPT MONEY MARKET FUND
One Financial Center
Boston, MA 02111
617-426-3750
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Dear Shareholder:
A Special Meeting (Meeting) of Shareholders of
Colonial Tax-Exempt Money Market Fund (Fund)
will be held at the Fund's office, One Financial
Center, Boston, MA, 02111, on September 15,
1995, at 10:00 a.m. Eastern time to:
I. Approve or disapprove the conversion of the
Fund to the master fund/feeder fund
structure with new fundamental investment
policies; and
II. Transact such other business as may properly
come before the Meeting or any adjournment
thereof.
Holders of record of shares of the Fund at the
close of business on June 30, 1995, are entitled
to vote at the Meeting or at any adjournment
thereof.
By order of the Trustees,
Arthur O. Stern, Secretary
July 31, 1995
YOUR VOTE IS IMPORTANT, REGARDLESS OF YOUR
NUMBER OF SHARES. PLEASE VOTE, SIGN AND RETURN
YOUR PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
IMMEDIATELY.
SPECIAL MEETING OF SHAREHOLDERS
COLONIAL TAX-EXEMPT MONEY MARKET FUND
PROXY STATEMENT
July 31, 1995
General Information
The enclosed proxy, which was first mailed on or
about July 31, 1995, is solicited by the
Trustees of the Fund in connection with the
Meeting of the Fund's shareholders to consider
the proposed conversion of the Fund to the
master fund/feeder fund structure (Conversion)
which is described in more detail under Proposal
I. The proxy may be revoked by voting in person
at the Meeting or by sending a later dated proxy
card or a written revocation to the Secretary
which must be received prior to the Meeting.
Solicitation may be made by mail, telephone,
telegraph, telecopy and personal interviews.
Authorization to execute proxies may be obtained
by telephonically or electronically transmitted
instructions. Shareholder Communications
Corporation has been engaged to assist in the
solicitation of proxies. The cost of this
assistance is not expected to exceed $2,500.
The cost of solicitation will be paid by
Colonial Management Associates, Inc., the Fund's
investment manager (Colonial).
June 30, 1995, was the record date for
determining the number of shares and
shareholders entitled to receive notice of and
vote at the Meeting (one vote for one share).
The following information about the Fund is as
of the record date:
Shares outstanding: 27,787,595.072
Shares beneficially owned by
the Fund's Trustees and
officers:* 2,307,256.270
Shareholders of record of
more than 5% of outstanding
shares:
Class B Julianne F. Cole 6.29%
P. O. Box 160
Arcadia, LA 71001
Henry G. Taliasferro 6.94%
1015 Trenton
West Monroe, LA 71291
L.A. Henicek 7.96%
P. O. Box 606
Bayard, NE 69334-0606
______
* At June 30, 1995, the officers and Trustees of
the Fund as a group benefically owned
2,307,256 shares of the Fund representing
8.30% of the then outstanding shares. The
largest single holding was 2,305,496 (8.20% of
the outstanding shares) by Mr. McNeice, a
Trustee and the President of the Fund.
Class B (cont.)
Sekura Limited 7.61%
Partnership
c/o Michael A. Kane
1887 Newton Street N.W.
Washington, DC 20010
Votes cast by proxy or in person will be counted
by persons appointed by the Fund to act as
election tellers for the Meeting. The tellers
will count the total number of votes cast "for"
approval of the proposals for purposes of
determining whether sufficient affirmative votes
have been cast. Where a shareholder withholds
authority or abstains, or the proxy reflects a
"broker non-vote" (i.e., shares held by brokers
or nominees as to which (i) instructions have
not been received from the beneficial owners or
persons entitled to vote, and (ii) the broker or
nominee does not have discretionary voting power
on a particular matter), the shares will be
counted as present and entitled to vote on the
matter for purposes of determining the presence
of a quorum, but will have the effect of a
negative vote.
Further information concerning the Fund is
contained in its Annual Report to shareholders
dated June 30, 1995, which is obtainable free of
charge by writing Colonial at One Financial
Center, Boston, Massachusetts 02111 or by
calling 1-800-248-2828.
I. Approve or Disapprove the Conversion of the
Fund to the Master Fund/Feeder Fund
Structure with New Fundamental Investment
Policies
A. Introduction
On February 17, 1995, the Fund's Trustees
unanimously approved and voted to recommend the
Conversion to shareholders. "Master fund/feeder
fund" refers to a structure in which a fund (a
feeder fund) seeks to achieve its investment
objective by investing exclusively in shares of,
or interests in, another fund (the master fund)
having substantially the same investment
objective and policies as the feeder fund. The
master fund, in turn, invests in a portfolio of
securities. Typically, a master fund will have
more than one feeder fund, with each feeder fund
marketed to a particular class or classes of
investors or through a different distribution
channel. For example, shares of one feeder fund
might be offered to individual investors, shares
of another feeder fund to institutions, and
shares of a third to retirement plans or their
participants. The primary reason to use the
master fund/feeder fund structure is to provide
a mechanism to pool, in a single master fund,
investments of different investor classes,
resulting in a larger portfolio, investment and
administrative efficiencies and economies of
scale. The diagram below compares the Fund's
current structure to the proposed master
fund/feeder fund structure.
[Diagram of current fund structure and proposed
master fund/feeder fund structure]
If approved by Fund shareholders, the Conversion
would be accomplished by transferring
substantially all of the Fund's assets to the
SR&F Municipal Money Market Portfolio
(Portfolio), a municipal money market master
fund managed by Stein Roe & Farnham Incorporated
(Stein Roe), in exchange for an interest in the
Portfolio equal in value to the assets
transferred. The Conversion itself will not
affect the net asset value of your shares.
Unless canceled or delayed, such transfer would
be effective on or about September 27, 1995,
(Effective Time). It currently is anticipated
that the Fund's security holdings will be
transferred in kind to the Portfolio, valued in
the manner described under "How the Fund Values
its Shares" on page 6 of the Fund's Prospectus
which has been delivered previously to each
shareholder. In the alternative, Colonial may
determine to liquidate all or a portion of the
Fund's securities shortly before the Effective
Time, in which case assets transferred to the
Portfolio may include cash. In either event, no
material taxable gain or loss is expected to be
realized by the Fund or its shareholders (as
described in Section I.G. below). After the
Conversion, the Fund will pursue its objective
by investing exclusively in the Portfolio. All
costs of the Conversion will be borne by
Colonial.
On April 19, 1995, the Trustees of the SteinRoe
Municipal Money Market Fund voted unanimously to
approve conversion of the SteinRoe Municipal
Money Market Fund into a separate feeder of the
Portfolio (SRF Feeder). On June 27, 1995, the
shareholders of the Stein Roe Municipal Money
Market Fund also approved conversion of the SRF
Feeder into a feeder fund of the Portfolio,
which is scheduled to be effective at about the
same time as the Effective Time of the
Conversion of the Fund or as soon as practicable
thereafter.
At the time the Fund's Trustees approved the
Conversion, they also approved and voted to
recommend to shareholders the adoption by the
Fund of the Portfolio's fundamental investment
policies, with such exceptions needed to allow
the Fund to invest 100% of its assets in the
Portfolio. The Fund's and the Portfolio's
current fundamental policies are set forth in
Exhibit A and are discussed in Section I.C.
below.
Finally, in connection with the Conversion, the
Trustees have made certain changes to the Fund's
name, investment objective, non-fundamental
investment policies and service arrangements to
be effective subject to your approval of the
Conversion. These changes, along with
additional information concerning the Portfolio,
Stein Roe and the Conversion, are described
below in Section I.D.
Dissenting shareholders have no appraisal
rights, but may redeem their shares for cash at
net asset value, subject to any applicable
contingent deferred sales charge. The
Conversion may be canceled or delayed under
certain circumstances. The Conversion is
conditional on receipt of an opinion of counsel
as to certain tax matters (as described in
Section I.G. below) and shareholder approval.
B. Certain Information Concerning the Portfolio
The Portfolio is a series of the SR&F Base
Trust, which is a no-load, diversified open-end
management investment company organized as a
trust under the laws of the Commonwealth of
Massachusetts on August 23, 1993. The Portfolio
intends to commence operations on or about the
Effective Time. Investments in the Portfolio
may only be made by investment companies (such
as the Fund), common or commingled trust funds
or similar organizations or entities acceptable
to the Portfolio's trustees. The Portfolio will
have two feeder funds effective with its
commencement of operations: the SRF Feeder and
the Fund.
1. Adviser and Administrator.
Stein Roe serves as investment adviser to the
Portfolio and, in such capacity, makes day-to-
day investment decisions, arranges for the
execution of portfolio transactions and
generally manages the Portfolio's investments.
Jill K. Netzel has managed the SRF Feeder since
August 1994 and will manage the Portfolio upon
commencement of investment operations. She has
been associated with Stein Roe since 1989 and
was previously employed by Continental Bank,
Smith Barney Harris Upham, and Shearson.
Stein Roe's offices are located at One South
Wacker Drive, Chicago, IL 60606. Except to the
extent assumed by Stein Roe, the Portfolio pays
all costs and expenses incidental to its
organization, operations and business. Such
expenses include, for example, legal and
accounting costs, insurance premiums, trustees'
compensation (other than those affilated with
Stein Roe), expenses of printing and mailing
reports, notices and other materials and
registration fees.
Under the Management Agremeent, Stein Roe also
performs administrative services to the
Portfolio. In such capacity, Stein Roe
supervises the business and affairs of the
Portfolio and provides such services and
facilities as may be required for effective
administration of the Portfolio including,
without limitation, all executive and other
personnel, office space and other facilities
required to render investment management and
administrative services.
Under the Management Agreement, the Portfolio
pays Stein Roe a monthly fee at an annual rate
of 0.25% of average daily net assets. Stein Roe
is a wholly-owned subsidiary of SteinRoe
Services Inc. (SSI), the Portfolio's transfer
agent, which in turn is a wholly-owned direct
subsidiary of Liberty Financial Companies, Inc.
(Liberty Financial). Liberty Financial is an
indirect, majority-owned subsidiary of Liberty
Mutual Insurance Company (Liberty Mutual),
through an intervening wholly-owned subsidiary,
Liberty Mutual Equity Corporation.
Stein Roe is the successor to an investment
advisory business that was founded in 1932.
Stein Roe acts as investment adviser to wealthy
individuals, trustees, pension and profit
sharing plans, charitable organizations and
other institutional investors. As of March 31,
1995, Stein Roe managed over $22 billion in
assets: over $5.2 billion in equities and over
$16.8 billion in fixed-income securities
(including $2.3 billion in municipal
securities). The $22 billion in managed assets
included over $5.5 billion held by open-end
mutual funds managed by Stein Roe (approximately
23% of the mutual fund assets were held by
clients of Stein Roe). The $5.5 billion mutual
fund assets included over $532 million in over
33,000 IRA accounts. In managing those assets,
Stein Roe utilizes a proprietary computer-based
information system that maintains and regularly
updates information for approximately 6,500
companies. Stein Roe also monitors over 1,400
issues via a proprietary credit analysis system.
At March 31, 1995, Stein Roe employed
approximately 17 research analysts and 34
account managers. The average investment-
related experience of these individuals is 19
years.
Liberty Financial is a diversified and
integrated asset management organization which
provides insurance and investment products to
individuals and institutions. Its principal
executive offices are located at 600 Atlantic
Avenue, 24th Floor, Boston, Massachusetts 02210.
Liberty Mutual is a Massachusetts-chartered
mutual property and casualty insurance company
with over $17.1 billion in assets and $3.1
billion in surplus at March 31, 1995. The
principal business activities of Liberty
Mutual's subsidiaries other than Liberty
Financial are property-casualty insurance,
insurance services and life insurance (including
group life and health insurance products)
marketed through its own sales force. Its
principal executive offices are located at 175
Berkeley Street, Boston, Massachusetts 02117.
Colonial, the current investment adviser to the
Fund, is also a wholly-owned indirect subsidiary
of Liberty Mutual through Colonial's parent, The
Colonial Group, Inc. (TCG), a wholly-owned
subsidiary of Liberty Financial.
On March 24, 1995, TCG completed a merger
(Merger) with a subsidiary of Liberty Financial
in which TCG was the surviving company and in
which TCG stockholders became stockholders of
Liberty Financial.
John A. McNeice, Jr., who is President and a
Trustee of the Colonial Funds, prior to the
Merger held 1,464,000 shares of TCG Class A
Common Stock, representing approximately 20% of
the Class A Common Stock of TCG, and 98,437
shares of TCG Class B Common Stock, representing
approximately 51% of its outstanding Class B
Stock, and was considered to be a controlling
person of TCG and of Colonial. In connection
with the Merger, Mr. McNeice received $22.3
million in cash and approximately 1,005,300
shares of Liberty Financial common stock for his
shares of TCG. The closing price of Liberty
Financial common stock on March 27, 1995, was
$28 per share. Since the Merger, Mr. McNeice is
no longer a controlling person of the Adviser.
Liberty Mutual is now considered to be the
controlling entity of TCG.
2. Transfer Agent.
Under an investor service agreement with Stein
Roe Services, Inc. (SSI), SSI has responsibility
for the establishment and maintenance of
accounts of beneficial interest Portfolio for a
monthly fee of $500.
3. Accounting and Bookkeeping Agent.
Stein Roe serves as the Portfolio's accounting
and bookkeeping agent pursuant to an Accounting
and Bookkeeping Agreement (Agreement). Pursuant
to the Agreement, Stein Roe is responsible for
certain accounting and bookkeeping services
provided to the Portfolio, including the
Portfolio's net asset value and calculation of
its net income, yields and capital gains and
losses on disposition of Portfolio assets. The
Portfolio pays Stein Roe a fee of $25,000 plus
0.0025% per annum of the average daily net
assets of the Portfolio in excess of $50
million, under the Agreement.
4. Miscellaneous.
State Street Bank and Trust Company serves as
custodian of the Portfolio and Ernst & Young LLP
serves as auditors of the Portfolio.
C. Changes In Fundamental Investment Policies.
Assuming shareholder approval of the Conversion
is obtained, the Trustees will cause the Fund to
adopt the Portfolio's fundamental investment
policies. Fundamental investment policies are
those which can be changed only if the changes
are approved by shareholders. The Fund's
current fundamental policies, along with those
of the Portfolio which the Fund will adopt
simultaneously with consummation of the
Conversion, are shown in Exhibit A.
Adoption of the Portfolio's fundamental policies
does not present any significant additional
risks to Fund shareholders. Except with respect
to policies governing borrowing, federal
alternative minimum tax and investments in
repurchase agreements, the Portfolio's
fundamental policies are generally as
restrictive as or more restrictive than those of
the Fund.
The Portfolio's policy regarding borrowing
permits up to 33 1/3% of total assets to be
borrowed as a temporary measure for
extraordinary or emergency purposes but not to
increase portfolio income. The Portfolio will
not purchase additional securities when
borrowings less proceeds receivable from
securities sales exceed 5% of total assets.
The Fund currently limits its investment in
securities subject to the federal alternative
minimum tax to 20% of total assets. Although
the SRF Feeder has never done so, the Portfolio
may invest 100% of its total assets in municipal
securities the interest on which is subject to
the federal alternative minimum tax. Also, the
Portfolio permits no more than 10% of assets to
be invested in repurchase agreements with
maturities of seven days or more. The Fund is
authorized to enter into repurchase agreements
without restriction, although it generally
enters into such agreements only with commercial
banks and registered broker-dealers with respect
to U.S. government obligations.
The Fund currently limits its investments in
illiquid assets to 10% of net assets pursuant to
a fundamental policy. The Portfolio has no
fundamental policy against investment in
illiquid assets, but pursuant to a non-
fundamental investment policy, limits investment
in illiquid securities (including repurchase
agreements maturing in more than seven days) to
15% of net assets. It is anticipated that the
Portfolio will reduce its investment limit in
illiquid securities to 10% of net assets in
order to be in compliance with the SEC's
position for money market funds.
D. Changes to the Fund's Name, Investment
Objective, Non-Fundamental Investment
Policies, Service Arrangements and Expense
Ratio in Connection with or Resulting from
the Conversion to Master Fund/Feeder Fund
Structure
If the Conversion with adoption by the Fund of
the Portfolio's fundamental investment policies
are approved by the Fund's shareholders, then,
as of the Effective Time, the Trustees will
change the Fund's name, investment objective and
investment policies to conform to those of the
Portfolio, and certain changes to the Fund's
service arrangements will be made. The
Portfolio's fundamental policies that would be
adopted by the Fund are set forth in Exhibit A
and are discussed in Section I.C. above. In
addition, the following changes will be made:
1. Change in Name
If Proposal I is approved, the name of the Fund
will change from "Colonial Tax-Exempt Money
Market Fund" to "Colonial Municipal Money Market
Fund". The name change reflects the fact that,
unlike the Fund, the Portfolio may invest up to
100% of its assets in securities subject to the
federal alternative minimum tax. See Section
I.C. above.
2. Change in Objective
The Fund's current investment objective is to
seek current income exempt from federal income
tax, preservation of capital and liquidity. The
Portfolio's investment objective is to seek
maximum current income exempt from federal
income tax by investing principally in a
diversified portfolio of "short term" (defined
by the Portfolio as those instruments with a
remaining maturity of no more than thirteen
months) Municipal Securities. As of the
Effective Time, the Fund will adopt the
Portfolio's objective.
3. Changes in Non-fundamental Investment
Policies
Although the Portfolio's non-fundamental
investment policies are substantially similar to
the Fund's current policies, several changes to
such policies will be made as of the Effective
Time to conform the Fund's policies to those of
the Portfolio. The differences between the
Fund's current non-fundamental policies and
those of the Portfolio are described below.
Diversification. The Portfolio is a diversified
fund. This means generally that, with respect
to 75% of the Portfolio's assets, (i) no more
than 5% of such assets may be invested in the
securities of a single issuer (other than U.S.
Government guaranteed and issued obligations)
and (ii) the Portfolio may not own more than 10%
of the outstanding voting securities of an
issuer. As a non-diversified fund, these
restrictions do not currently apply to the Fund.
Nevertheless, certain Internal Revenue Service
regulations impose, as of the end of each fiscal
quarter of the Fund, restrictions similar to the
5% limitation described in clause (i) above on
the Fund with respect to 50% (rather than 75%)
of the Fund's assets. Because it would invest
in individual securities indirectly through its
investment in the Portfolio, upon consummation
of the Conversion, the Fund would effectively
become a diversified fund.
Reverse Repurchase Agreements. Unlike the Fund,
the Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase
agreement, the Portfolio sells a security and
agrees to repurchase it at a specified date and
price, reflecting the interest rate effective
for the term of the agreement. It may also be
viewed as the borrowing of money by the
Portfolio and, therefore, is a form of leverage.
Leverage may cause gains or losses of the
Portfolio to be magnified.
Exercise Control or Management. Neither the
Portfolio nor the Fund may invest in companies
for the purpose of exercising control or
management. The Portfolio may not purchase
shares of another open-end investment company
except in connection with a merger,
consolidation, acquisition or reorganization.
After the Effective Time, 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.
Short Sales. The Fund may not currently have a
short securities position, unless it owns or
owns rights (exercisable without payment to
acquire, in equal amount of such securities.
After the Conversion, the Fund will adopt the
Portfolio's non-fundamental policy that the
Portfolio may not sell securities short unless
(1) the Portfolio owns or has the right to
obtain securities equivalent in kind and amount
to those sold short at no added cost or (2) the
securities sold are "when issued" or "when
distributed" securities which the Portfolio
expects to receive in a recapitalization,
reorganization, or other exchange for securities
the Portfolio contemporaneously owns or has the
right to obtain and provided that the Portfolio
may purchase stand by commitments and securities
subject to a demand feature entitling the
Portfolio to require sellers of securities to
the Portfolio to repurchase them upon demand by
the Portfolio.
Options. The Fund currently purchases and sells
futures contracts and related options so long as
the total initial margin and premiums on the
contracts do not exceed 5% of its total assets.
After the Conversion, the Fund will adopt the
Portfolio's non-fundamental policy that the
Portfolio may not (i) write an option on a
security unless issued by the Options Clearing
Corporation, exchange or similar entity; (ii)
buy or sell options, futures or options on
futures unless offered through a national
securities association or listed on a national
exchange or similar entity; or (iii) purchase a
put or call option if the aggregate premiums
paid for all put and call options exceed 20% of
net assets (less certain adjustments).
4. Changes in Service Arrangements
In connection with the Conversion, the following
changes to the Fund's service arrangements would
be made as of the Effective Time.
Administrative Services. Currently the Fund's
day-to-day investment operations are managed by
Colonial pursuant to a Management Agreement that
provides for the payment to Colonial of a
monthly fee at the annual rate of 0.50% of the
Fund's average daily net assets. The Management
Agreement also requires Colonial to perform
certain administrative services for the Fund
including (a) the provision of office space,
supplies, facilities and equipment, (b) the
provision of executive and other personnel for
managing the Fund's affairs (including preparing
financial information and reports and tax
returns required to be filed with public
authorities), and (c) compensating the Fund's
Trustees who are directors, officers or
employees of Colonial. In addition, the
Trustees have delegated to Colonial the
responsibility of monitoring the Fund's
compliance with Rule 2a-7 under the Investment
Company Act of 1940 (1940 Act), pursuant to
procedures adopted by the Trustees. Rule 2a-7
permits the Fund to determine the value of its
assets and shares under a special method called
"amortized cost" as described on page 4 of the
Fund's Prospectus, which has been previously
delivered to each Shareholder.
Upon consummation of the Conversion, the
Management Agreement with Colonial will be
terminated. Thereafter, the Fund no longer will
require the services of an investment adviser or
manager, since its investments will consist
solely of interests in the Portfolio. Colonial
will enter into a separate Administration
Agreement with the Fund pursuant to which
Colonial will continue to provide the Fund with
certain administrative services, including (a)
providing office space, equipment and clerical
personnel; (b) arranging, if desired by the
Trustees, for directors, officers and employees
of Colonial to serve as Trustees, officers or
agents of the Fund; (c) preparing and filing all
documents required for compliance by the Fund
with applicable laws and regulations; (d)
preparation of agendas and supporting documents
for and minutes of meetings of Trustees,
committees of Trustees and shareholders; (e)
monitoring compliance by the Fund with Rule 2a-7
under the 1940 Act and reporting to the Trustees
from time to time with respect thereto; (f)
monitoring the investments and operations of the
Portfolio and reporting to the Trustees from
time to time with respect thereto; (g)
coordinating and overseeing the activities of
the Fund's other third-party service providers;
and (h) maintaining certain books and records of
the Fund. The Administration Agreement provides
for a fee to be paid by the Fund to Colonial for
such services at an annual rate of 0.25% of the
Fund's average daily net assets. The Trustees
voted unanimously on February 17, 1995, to
approve the Administration Agreement subject to
your approval of the Conversion.
Pricing and Bookkeeping Services. Under a
separate agreement, Colonial currently provides
the Fund with pricing and bookkeeping services
for a fee of $27,000 plus 0.035% of the amount
by which the Fund's average daily net assets
exceed $50 million, 0.025% of the next $1
billion; 0.015% of the next $1 billion; and
0.001% of the excess over $3 billion. After the
Conversion, this fee will be reduced to $18,000
per annum plus 0.0233% of the amount by which
such assets exceed $50 million.
Transfer Agency Services. Colonial Investors
Service Center, Inc. (CISC), an affiliate of
Colonial, currently provides the Fund with
transfer agency and shareholder services for a
fee at an annual rate of 0.20% of average daily
net assets. CISC will continue to provide such
services to the Fund for the same fee following
the Conversion.
5. Effect of the Conversion on the Fund's
Expense Ratio
The ratio of the Fund's gross expenses to
average net assets for the period ended June 30,
1995, was 1.11% on Class A shares and 2.11% on
Class B shares. During such period, Colonial
agreed to waive its fees and bear certain Fund
expenses, so that the Fund's effective expense
ratio (excluding 12b-1 fees and certain other
items) was 0.75% on Class A and 1.75% on Class
B. If the Conversion had occurred as of the
beginning of such period, the gross expenses
would have been 1.11% on Class A and 2.11% on
Class B. Since September 1, 1994, Colonial has
agreed to waive its fees and bear Fund expenses
so that actual expenses (excluding 12b-1 fees
and certain other items) will not exceed 0.75%
on Class A and 1.75% on Class B. Colonial has
agreed to continue this policy until further
notice. The following table compares the Fund's
current gross fees and expenses with those
anticipated to be in effect following the
Conversion:
Gross Fees and Expenses
After
Current Conversion
Class A Class B Class A Class B
Management fee 0.50% 0.50% 0.25% 0.25%
12b-1 fee 0.00 1.00 0.00 1.00
Administration fee (1) N/A N/A 0.25 0.25
Other expenses 0.61 0.61 0.61 0.61
---- ---- ---- ----
Total expenses 1.11% 2.11% 1.11% 2.11%
---- ---- ---- ----
(1) The Fund currently does not pay a separate
administration fee.
The following table compares the Fund's current
fees and expenses to those anticipated to be in
effect after the Conversion, after taking into
account Colonial's agreement to limit the Fund's
expenses to 0.75%, excluding 12b-1 fees and
certain other items:
Fees and Expenses After Fee Waiver
After
Current Conversion
Class A Class B Class A Class B
Management fee 0.14% 0.14% 0.25% 0.25%
12b-1 fee 0.00 1.00 0.00 1.00
Administration fee N/A N/A 0.00 0.00
Other expenses 0.61 0.61 0.50 0.50
---- ---- ---- ----
Total expenses 0.75% 1.75% 0.75% 1.75%
---- ---- ---- ----
Example
The following Example shows the cumulative
expenses attributable to a hypothetical $1,000
investment in each Class of shares of the Fund
for the periods specified, currently and after
the conversion, assuming a 5% annual return and,
unless otherwise noted, redemption at period
end. The 5% return and expenses used in this
Example should not be considered indicative of
actual or expected Fund performance or expenses,
both of which will vary.
Current After Conversion
Period: Class Class Class Class
A B A B
----- -------------- ----- ---------------
(2) (2)
1 year $ 8 $ 68 $ 18 $ 8 $68 $ 18
3 years 24 86 56 24 86 56
5 years 42 116 96 42 116 96
10 years 93 181(3) 181(3) 93 181(3) 181(3)
Without voluntary fee reduction the amounts
would be:
Current After Conversion
Period: Class Class Class Class
A B A B
----- -------------- ----- ---------------
(2) (2)
1 year $ 11 $ 72 $ 22 $11 $72 $ 22
3 years 35 97 67 35 97 67
5 years 61 134 114 61 134 114
10 years 135 220(3) 220(3) 135 220(3) 220(3)
(2) Assumes no redemption.
(3) Class B shares convert to Class A shares
after approximately 8 years; therefore,
years 9 and 10 reflect Class A expenses.
E. Certain Information About the Master
Fund/Feeder Fund Structure
The Portfolio is expected to have one other
feeder fund, the SRF Feeder, and may sell
interests to other mutual funds or institutional
investors. Such investors will invest in the
Portfolio on substantially the same terms and
conditions as the Fund and will bear a
proportionate share of the Portfolio's expenses.
However, other funds or entities investing in
the Portfolio may offer and sell their own
shares or interests using different pricing
structures than the Fund. Such different
pricing structures may result in differences in
returns experienced by investors in other funds
that invest in the Portfolio. Such differences
in returns are not uncommon and are present in
other mutual fund structures, including the
multi-class structure currently utilized by the
Fund. You may obtain information about other
investors in the Portfolio by calling the
Administrator at 1-800-248-2828.
After the Conversion, the Fund may withdraw its
investment from the Portfolio at any time if the
Fund's Trustees determine that it is in the best
interest of the Fund to do so. Upon any such
withdrawal, the Trustees would consider what
action to take, including the investment of all
the assets of the Fund in another pooled
investment entity having the same investment
objective and policies as the Fund or the
retention of an investment adviser to manage the
Fund's assets.
Certain changes in the Portfolio's investment
objective, policies or restrictions, or a
failure by the Fund's shareholders to approve a
future change in the Portfolio's investment
objective or restrictions, may require
withdrawal of the Fund's interest in the
Portfolio. Any such withdrawal could result in
a distribution to the Fund of portfolio
securities (as opposed to a cash distribution)
which may or may not be readily marketable. The
distribution could result in the Fund having a
less diversified portfolio of investments or
could adversely affect the Fund's liquidity, and
the Fund could incur brokerage, tax or other
charges in converting the securities to cash.
Smaller funds investing in the Portfolio may be
materially affected by the actions of larger
funds investing in the Portfolio. For example,
if a large fund withdraws from the Portfolio,
the remaining fund(s) may subsequently
experience higher pro rata operating expenses,
thereby producing lower returns. Additionally,
because the Portfolio would become smaller, it
may become less diversified, resulting in
potentially increased portfolio risk (however,
these possibilities also exist for traditionally
structured funds which have institutional or
other large investors who may withdraw from a
fund). Also, funds with a greater pro rata
ownership in the Portfolio could have effective
voting control of the operations of the
Portfolio. Based on the current size of its
anticipated investment in the Portfolio, the SRF
Feeder will have effective voting control over
any matter submitted to the Portfolio's
investors. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio
(other than a vote by the Fund to continue the
operation of the Portfolio upon the withdrawal
of other investors in the Portfolio), the Fund
will hold a meeting of shareholders of the Fund
and will cast all of the Fund's votes
proportionately as instructed by the Fund's
shareholders. The Fund will vote the shares
held by Fund shareholders who do not give voting
instructions in the same proportion as the
shares of Fund shareholders who do give voting
instructions. Shareholders of the Fund who do
not vote will have no effect on the outcome of
such matters.
F. Determination and Recommendation of the
Trustees; Required Vote
The Fund's Trustees have unanimously determined
that the Conversion and adoption by the Fund of
the Portfolio's fundamental investment policies
are in the best interest of the Fund and its
shareholders and recommend that the Conversion
and adoption by the Fund of the Portfolio's
fundamental investment policies be approved.
The Trustees' decision was based on the facts
that (i) Colonial has indicated to the Trustees
that, given the Fund's small size, it has become
increasingly difficult to manage the Fund
efficiently and cost effectively, (ii) Colonial
has further advised the Trustees that certain
pending changes to Securities and Exchange
Commission (SEC) rules governing tax-exempt
money market funds make managing such funds even
more burdensome and labor intensive, (iii)
consummation of the Conversion would result in
the Fund's shareholders indirectly investing in
a larger portfolio of securities which may
provide greater diversification, safety and
assurance that a constant net asset value will
be maintained, (iv) the Conversion may result in
improved investment performance; the SRF
Feeder's average gross monthly yield from
January, 1992 through December, 1994 has
exceeded that of the Fund by approximately
0.16%, and (v) the Conversion should result in a
lower aggregate gross expense ratio for the Fund
(although Colonial has agreed, following the
Conversion, to continue until further notice its
current policy of waiving or bearing Fund
expenses so that total expenses, excluding taxes
and extraordinary expenses, do not exceed 0.75%
of average net assets for Class A shares and
1.75% for Class B shares, Colonial could
terminate this policy at any time; any such
termination would result in the Fund bearing
100% of its gross expenses). There can be no
assurance that a constant net asset value will
be maintained, or that improved investment
performance or a lower aggregate expense ratio
will be achieved.
Approval of the Conversion with new fundamental
investment policies requires the affirmative
vote of the holders of the lesser of (i) more
than 50% of the Fund's outstanding shares or
(ii) 67% or more of the shares present at the
Meeting if more than 50% of the outstanding
shares are represented at the Meeting in person
or by proxy.
G. Tax Consequences of the Conversion; Other
Tax Matters
Because of the short-term nature of the Fund's
investments, no material taxable gain or loss is
expected to be realized by the Fund or its
shareholders as a result of the Conversion.
After the Conversion, the Fund intends to
continue to qualify as a regulated investment
company and to distribute to its shareholders
virtually all net income and any net realized
gains at least annually. The Portfolio intends
to qualify as an association treated as a
partnership for federal income tax purposes. As
such, the Portfolio should not be subject to
tax. As a condition of and prior to
implementation of the Conversion, the Fund
and/or the Portfolio will obtain an opinion of
counsel in satisfactory form that (i) no gain or
loss for Federal income tax purposes will be
recognized by the Fund or the Portfolio or for
the shareholders of the Fund in connection with
the transfer of the Fund's assets to the
Portfolio in exchange for shares of beneficial
interest in the Portfolio; and (ii) the Fund's
investment in the Portfolio will meet certain
income, distribution and diversification
requirements in order to qualify as a regulated
investment company. The continued accuracy of
the tax discussion contained herein is dependent
on, among other things, the Portfolio's
continued qualification as a partnership for
federal income tax purposes.
II. Other Matters and Discretion of Attorneys
Named in the Proxy
At this date only the business mentioned in the
Notice is contemplated to be presented. If any
other matters properly come before the Meeting,
the enclosed proxy shall be voted in accordance
with the best judgment of the proxy holder(s).
If a quorum of shareholders (thirty percent of
the shares entitled to vote at the Meeting) is
not represented at the Meeting or at any
adjournment thereof, or, even though a quorum is
so represented, if sufficient votes in favor of
the Conversion and adoption of the Portfolio's
fundamental policies are not received by
September 15, 1995, the persons named as proxies
may propose one or more adjournments of the
Meeting for a period or periods of not more than
ninety days in the aggregate and further
solicitation of proxies may be made. Any such
adjournment may be effected by a majority of the
votes properly cast in person or by proxy on the
question at the session of the Meeting to be
adjourned. The persons named as proxies will
vote in favor of such adjournment those proxies
which they are entitled to vote in favor of
Proposal I. They will vote against such
adjournment those proxies required to be voted
against Proposal I. Should the Conversion and
adoption of the Portfolio's fundamental policies
be rejected by shareholders, the proposed
Conversion will not occur and the Trustees will
consider such other action as may be
appropriate.
The Fund does not hold annual meetings of
shareholders. Shareholder proposals for
inclusion in the Fund's proxy statement for any
subsequent meeting must be received by the Fund
in a reasonable period of time prior to any such
meeting.
Reports, proxy statements and other information
have been filed with the SEC and may be
inspected and copied at the SEC's public
reference room, 450 Fifth St., N.W., Washington,
D.C. 20549. Copies of such material can also be
obtained from the Public Reference Branch,
Office of Consumer Affairs and Information
Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates.
SHAREHOLDERS ARE URGED TO VOTE, SIGN AND MAIL
THEIR PROXIES IMMEDIATELY.
EXHIBIT A
CURRENT FUNDAMENTAL INVESTMENT POLICIES OF
COLONIAL TAX-EXEMPT MONEY MARKET FUND (FUND)
Under its current fundamental investment
policies, the Fund may:
1. Issue senior securities only through
borrowing money from banks for temporary or
emergency purposes up to 10% of its net
assets; however, the Fund will not purchase
additional portfolio securities while
borrowings exceed 5% of net assets;
2. Not invest in real estate;
3. Invest up to 10% of its net assets in
illiquid assets;
4. Purchase and sell futures contracts and
related options so long as the total
initial margin and premiums on the
contracts do not exceed 5% of its total
assets;
5. Underwrite securities issued by others only
when disposing of portfolio securities;
6. Make loans through lending of securities
not exceeding 30% of total assets, through
the purchase of debt instruments or similar
evidences of indebtedness typically sold
privately to financial institutions and
through repurchase agreements;
7. Not concentrate more than 25% of its total
assets in any one industry;
8. And will, under normal circumstances,
invest at least 80% of its total assets in
tax-exempt securities.
FUNDAMENTAL INVESTMENT POLICIES OF
SR&F MUNICIPAL MONEY MARKET PORTFOLIO
(PORTFOLIO)
In connection with the Conversion, the Trustees
are proposing the adoption by the Fund of the
Portfolio's fundamental investment policies,
with such exceptions needed to allow the Fund to
invest 100% of its assets in the Portfolio. As
fundamental policies, the Portfolio may not:
1. Invest more than 25% of its total assets
(taken at market value at the time of each
investment) in securities of non-
governmental issuers whose principal
business activities are in the same
industry;
2. Invest in a security if, with respect to
75% of the Portfolio's assets, as a result
of such investment, more than 5% of its
total assets (taken at market value at the
time of such investment) would be invested
in the securities of any one issuer for
this purpose, the issuer(s) of a security
being deemed to be only the entity or
entities whose assets or revenues are
subject to the principal and interest
obligations of the security), except that
this restriction does not apply to U.S.
Government Securities or repurchase
agreements for such securities, however,
in the case of a guarantor of securities
(including an issuer of a letter of
credit), the value of the guarantee (or
letter of credit) may be excluded from
this computation if the aggregate value of
securities owned by the Portfolio and
guaranteed by such guarantor (plus any
other investments of the Portfolio in
securities issued by the guarantor) does
not exceed 10% of the Portfolio's total
assets;
3. Purchase or sell commodities or
commodities contracts or oil, gas or
mineral programs;
4. Purchase securities on margin, except for
use of short-term credit necessary for
clearance of purchases and sales of
portfolio securities (this restriction
does not apply to securities purchased on
a when-issued or delayed-delivery basis or
to reverse repurchase agreements);
5. Make loans to other persons, except that
the Portfolio may invest up to 100% of its
assets in debt obligations, including
money market instruments;
6. Borrow, except that the Portfolio may
borrow up to 33 1/3% of its total assets,
taken at current market value at the time
of such borrowing, from banks as a
temporary measure for extraordinary or
emergency purposes but not to increase
portfolio income (the total of reverse
repurchase agreements and such borrowings
will not exceed 33 1/3% of its total
assets and it will not purchase additional
securities at a time when its borrowings
less proceeds receivable from sales of
portfolio securities, exceed 5% of its
total assets);
7. Issue any senior security except to the
extent permitted under the Investment
Company Act of 1940;
8. Invest in Municipal Securities that, at
the time of purchase; are: (i) variable
rate demand securities whose demand
feature is rated within the two highest
ratings assigned by Moody's Investors
Service, Inc. (Moody's), VMIG* or VMIG21;
(ii) notes rated within the two highest
short-term municipal ratings assigned by
Moody's, MIG 1 or MIG 2, or within the
highest rating assigned by Standard &
Poor's Corporation (S&P)**, SP-1+; (iii)
municipal commercial paper (short-term
promissory notes) rated Prime-1 by
Moody's, or A-1 by S&P; (iv) municipal
bonds, including industrial development
bonds, rated within the two highest
ratings assigned to municipal bonds by
S&P, AAA or AA, or by Moody's, Aaa or Aa;
(v) securities not rated as described in
(i) through (iv) but determined by the
Board of Trustees to be at least equal in
quality to one or more of the foregoing
ratings, although over types of
obligations of the same issuer might not
be within the foregoing ratings; (vi)
securities backed by the full faith and
credit of the U.S. Government; or (vii)
securities as to which the payment of
principal and interest is collateralized
by securities issued or guaranteed by the
U.S. Government or by its agencies or
instrumentalities (U.S. Government
Securities) deposited in an escrow for the
benefit of holders of the securities,
9. Mortgage, pledge, hypothecate or in any
manner transfer, as security for
indebtedness, any securities owned or held
by it, except as may be necessary in
connection with borrowings permitted in
(6) above;
10. Purchase portfolio securities for the
Portfolio from, or sell portfolio
securities to, any of the officers and
directors or trustees of the SR&F Base
Trust or of its investment adviser.
_______________________________
*The Board of Trustees of the SRF Base Trust
have determined that the demand feature of a
variable rate demand security rated SP-1+, A-1+
or A-1 by S&P or MIG 1, MIG 2 or Prime 1 by
Moody's is at least equal in quality to the
demand feature of a variable rate demand
security rated VMIG 2 by Moody's. As a non-
fundamental policy, the Portfolio will not
invest in a variable rate security whose demand
feature is conditional unless the Board of
Trustees determines that the security economic
equivalent of a variable rate security with an
unconditional demand feature or (a) the demand
feature is rated within the two highest rating
assigned by Moody's or within the equivalent
ratings assigned by S&P and (b) the underlying
security is rated within the two highest ratings
assigned by Moody's or S&P. The Board of
Trustees has determined that a variable rate
security where the demand feature is suspended
only after a default followed by an acceleration
of maturity is the economic equivalent of a
variable rate security with an unconditional
demand feature.
**All references to ratings apply to ratings
adopted in the future by Moody's or S&P that are
determined by the Boards of Trustees to be
equivalent to current ratings.
PLEASE VOTE PROMPTLY
Your vote is important, no matter how many shares you own. Please vote
on the reverse side of this proxy card and sign in the space(s)
provided. Return your completed proxy card in the enclosed envelope
today.
You may receive additional proxies for other accounts. These are not
duplicates; you should sign and return each proxy card in order for your
votes to be counted.
This proxy is solicited on behalf of the Board of Trustees. The signers
of this proxy hereby appoint Nancy L. Conlin, Michael H. Koonce,
John A. McNeice, Jr. and Arthur O. Stern, and each of them, proxies of
the signers, with power of substitution, to vote at the Special Meeting
of Shareholders of Colonial Tax-Exempt Money Market Fund (Fund), to be
held in Boston, Massachusetts, on September 15, 1995, and at any
adjournments,
as specified herein, and in accordance with their best judgment, on any
other business that may properly come before this meeting.
After careful review, the Board of Trustees unanimously has recommended
a vote "FOR" Item 1.
[Colonial Logo] Colonial Mutual Funds
P. O. Box 1722
Boston, Massachusetts 02105-1722
1. PROPOSAL TO APPROVE THE CONVERSION OF THE FUND
TO THE MASTER FEEDER/FUND FEEDER STRUCTURE WITH
NEW FUNDAMENTAL INVESTMENT POLICIES.
(Item 1 of the Notice)
___ FOR ___ AGAINST ___ ABSTAIN
2. IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING.
Please sign exactly as name appears hereon. When signing
as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized
person.
Dated:--------------------, 1995
-----------------------------
Signature
------------------------------
Signature if held jointly
PLEASE READ BOTH SIDES OF THIS CARD.
VOTE TODAY!
COLONIAL INVESTORS SERVICE CENTER,
INC.
