1933 Act Registration No. 2-99356
1940 Act File No. 811-4367
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post Effective Amendment No. 23 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 24 [X]
STEIN ROE MUNICIPAL 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
Jilaine Hummel Bauer Cameron S. Avery
Executive Vice-President Bell, Boyd & Lloyd
& Secretary Three First National Plaza
Stein Roe Municipal Trust Suite 3300
One South Wacker Drive 70 W. Madison Street
Chicago, Illinois 60606 Chicago, Illinois 60602
(Name and Address of Agents for Service)
It is proposed that this filing will become effective (check
appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on November 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
Registrant has elected to register pursuant to Rule 24f-2 an
indefinite number of shares of beneficial interest of the following
series: Stein Roe Intermediate Municipals Fund, Stein Roe
Municipal Money Market Fund, Stein Roe Managed Municipals Fund, and
Stein Roe High-Yield Municipals Fund. The Rule 24f-2 Notice for the
fiscal year ended June 30, 1997 was filed on August 27, 1997.
This amendment to the Registration Statement has also been
signed by SR&F Base Trust as it relates to Stein Roe Municipal
Money Market Fund.
<PAGE>
STEIN ROE MUNICIPAL TRUST
CROSS REFERENCE SHEET
ITEM
NO. CAPTION
- ---- -------
PART A
1 Front cover
2 Fee Table; Summary
3 (a) Financial Highlights
(b) Inapplicable
(c) Investment Return
(d) Financial Highlights
4 Organization and Description of Shares; The Funds;
Investment Policies; Portfolio Investments and Strategies;
Investment Restrictions; Investment Considerations and
Risks; Summary--Investment Risks
5 (a) Management--Trustees and Investment Adviser
(b) Management--Trustees and Investment Adviser,
Fees and Expenses
(c) Management--Portfolio Managers
(d) Inapplicable
(e) Management--Transfer Agent
(f) Management--Fees and Expenses; Financial Highlights
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see statement of
additional information: General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) Summary
(f) Shareholder Services; 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 of the Funds--Distributor
(b) How to Purchase Shares--Purchase Price and Effective Date;
Net Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inapplicable
(g) Inapplicable
8 (a) How to Redeem Shares; Shareholder Services
(b) How to Purchase Shares--Purchases Through Third Parties
(c) How to Redeem Shares--General Redemption Policies
(d) How to Redeem Shares--General Redemption Policies
9 Inapplicable
PART B
10 Cover page
11 Table of Contents
12 General Information and History
13 Investment Policies; Portfolio Investments and Strategies;
Investment Restrictions
14 Management
15(a) Inapplicable
(b) Principal Shareholders
(c) Principal Shareholders
16(a) Investment Advisory Services; Management; see prospectus:
Management, Fee Table
(b) Investment Advisory Services
(c) Inapplicable
(d) Investment Advisory Services
(e) Inapplicable
(f) Inapplicable
(g) Inapplicable
(h) Custodian; Independent Auditors
(i) Transfer Agent
17(a) Portfolio Transactions
(b) Inapplicable
(c) Portfolio Transactions
(d) Portfolio Transactions
(e) Inapplicable
18 General Information and History
19(a) Purchases and Redemptions; see prospectus: How to Purchase
Shares, How to Redeem Shares, Shareholder Services
(b) Purchases and Redemptions; Additional Information on Net
Asset Value--Municipal Money Fund and Municipal Money
Portfolio; 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 Investment Performance
23 Financial Statements
PART C
24 Financial Statements and Exhibits
25 Persons Controlled By or Under Common Control with
Registrant
26 Number of Holders of Securities
27 Indemnification
28 Business and Other Connections of Investment Adviser
29 Principal Underwriters
30 Location of Accounts and Records
31 Management Services
32 Undertakings
<PAGE>
Stein Roe Mutual Funds
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Prospectus
Nov. 1, 1997
Municipal Money Fund seeks maximum current income exempt
from federal income tax. The Fund seeks to achieve its objective
by investing all of its net investable assets in SR&F Municipal
Money Market Portfolio, which has the same investment objective
and substantially the same investment policies as the Fund.
Municipal Money Portfolio attempts to maintain relative stability
of principal and liquidity by investing principally in a
diversified portfolio of short-term Municipal Securities. (See
Master Fund/Feeder Fund: Structure and Risk Factors.)
Intermediate Municipals Fund seeks a high current yield
exempt from federal income tax, consistent with the preservation
of capital. It invests primarily in a diversified portfolio of
intermediate-term Municipal Securities.
Managed Municipals Fund seeks a high level of current income
exempt from federal income tax, consistent with the preservation
of capital. It invests primarily in a diversified portfolio of
long-term Municipal Securities.
High-Yield Municipals Fund seeks a high current yield exempt
from federal income tax. It invests principally in a diversified
portfolio of long-term medium- or lower-quality Municipal
Securities, which may involve greater risk. (See Investment
Policies--High-Yield Municipals.)
Each Fund is a "no-load" fund. There are no sales or
redemption charges, and the Funds have no 12b-1 plans. The Funds
are series of Stein Roe Municipal Trust and Municipal Money
Portfolio is a series of SR&F Base Trust. Each trust is an open-
end management investment company. This prospectus contains
information you should know before investing in the Funds.
Please read it carefully and retain it for future reference.
Municipal Money Fund is a money market fund, and attempts to
maintain its net asset value at $1.00 per share. Shares of the
Fund are neither insured nor guaranteed by the U.S. Government,
and there can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
High-Yield Municipals may invest up to 100% of its total net
assets in lower-rated municipal bonds, commonly known as "junk
bonds." These bonds are subject to a greater risk with regard to
payment of interest and return of principal than higher-rated
bonds. Investors should carefully consider the risks associated
with junk bonds before investing. (See Risks and Investment
Considerations.)
A Statement of Additional Information dated Nov. 1, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. This
information is available on the SEC's website at
http://www.sec.gov. This prospectus is also available
electronically by using Stein Roe's Internet address:
http://www.steinroe.com. You can get a free paper copy of the
prospectus, the Statement of Additional Information, and the most
recent financial statements by calling 800-338-2550 or by writing
to Stein Roe Funds, Suite 3200, One South Wacker Drive, Chicago,
Illinois 60606.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
Summary................................3
Fee Table............................. 6
Financial Highlights.................. 7
The Funds............................ 10
Investment Policies...................11
Municipal Money Fund...............11
Intermediate Municipals........... 12
Managed Municipals................ 13
High-Yield Municipals..............13
Portfolio Investments and Strategies..14
Investment Restrictions...............17
Risks and Investment Considerations.. 18
How to Purchase Shares............... 20
By Check.......................... 20
By Wire ...........................20
By Electronic Transfer............ 21
By Exchange....................... 21
Conditions of Purchase............ 21
Purchases Through Third Parties....22
Purchase Price and Effective Date..22
How to Redeem Shares..................22
By Written Request................ 22
By Exchange....................... 23
Special Redemption Privileges..... 23
General Redemption Policies....... 25
Shareholder Services................. 26
Net Asset Value...................... 28
Distributions and Income Taxes........29
Investment Return.................... 30
Management............................31
Organization and Description of
Shares.............................33
Master Fund/Feeder Fund: Structure
and Risk Factors...................34
Appendix--Ratings.....................36
Certificate of Authorization......... 43
SUMMARY
Stein Roe Municipal Money Market Fund ("Municipal Money Fund"),
Stein Roe Intermediate Municipals Fund ("Intermediate
Municipals"), Stein Roe Managed Municipals Fund ("Managed
Municipals"), and Stein Roe High-Yield Municipals Fund ("High-
Yield Municipals") are series of Stein Roe Municipal Trust, an
open-end management investment company organized as a
Massachusetts business trust. Each Fund is a "no-load" fund.
There are no sales or redemption charges. (See The Funds and
Organization and Description of Shares.) This prospectus is not
a solicitation in any jurisdiction in which shares of the Funds
are not qualified for sale.
Investment Objectives and Policies. Each Fund seeks a high level
of current income that is exempt from federal income tax by
investing in various types of Municipal Securities. (See
Portfolio Investments and Strategies.)
Municipal Money Fund invests all of its net investable assets in
SR&F Municipal Money Market Portfolio ("Municipal Money
Portfolio"). Municipal Money Portfolio invests in a diversified
portfolio of securities in accordance with an investment
objective identical and investment policies substantially similar
to those of Municipal Money Fund.
Municipal Money Portfolio seeks current income exempt from
federal income tax by investing principally in "short-term"
Municipal Securities. In pursuing that objective, Municipal
Money Portfolio attempts to maintain relative stability of
principal and liquidity. Although there can be no assurance that
either Municipal Money Portfolio or Municipal Money Fund will
always be able to do so, each of them follows procedures that are
intended to afford a reasonable expectation that its price per
share will be stabilized at $1.00. Municipal Money Portfolio
invests primarily in Municipal Securities rated within the top
two grades assigned by Moody's or S&P, except for certain types
of issues which must carry the highest rating. Municipal Money
Portfolio may also invest in unrated securities that, in the
opinion of the Board of Trustees, are at least equal in quality
to the foregoing ratings.
Intermediate Municipals seeks a high current yield exempt from
federal income tax, consistent with the preservation of capital,
by investing primarily in "intermediate-term" Municipal
Securities. At least 75% of the Fund's investments in Municipal
Securities will be (i) rated at the time of purchase within the
three highest ratings by Moody's or S&P (except that if the Fund
relies on ratings by S&P for municipal notes, such notes must be
within the two highest ratings); (ii) if unrated, of comparable
quality as determined by the Adviser; or (iii) backed by the full
faith and credit or guarantee of the U.S. Government.
Managed Municipals seeks a high level of current income that is
exempt from federal income tax, consistent with the preservation
of capital, by investing primarily in long-term Municipal
Securities. At least 75% of the Fund's investments in Municipal
Securities will be (i) rated at the time of purchase within the
three highest ratings assigned by Moody's or S&P (except that if
the Fund relies on ratings by S&P for municipal notes, such notes
must be within the two highest ratings for such securities); or
(ii) backed by the full faith and credit or guarantee of the U.S.
Government.
High-Yield Municipals seeks a high current yield exempt from
federal income tax by investing principally in long-term, medium-
or lower-quality Municipal Securities. Medium-quality Municipal
Securities are obligations of issuers that the Adviser believes
possess adequate, but not outstanding, capacities to service the
obligations. Lower-quality Municipal Securities are obligations
of issuers that are considered predominantly speculative with
respect to the issuer's capacity to pay interest and repay
principal according to the terms of the obligation and,
therefore, carry greater investment risk, including the
possibility of issuer default and bankruptcy, and are commonly
referred to as "junk bonds." The Adviser attributes to medium-
and lower-quality obligations the same general characteristics as
do rating services. Because many issuers of medium- and lower-
quality Municipal Securities choose not to have their obligations
rated by a rating agency, many of the obligations in the Fund's
portfolio may be unrated. The market for unrated securities is
usually less broad than for rated obligations, which could
adversely affect their marketability.
Investment Risks. The risks inherent in each Fund and Municipal
Money Portfolio depend primarily upon the maturity and quality of
the obligations in their respective portfolios, as well as on
market conditions. Municipal Money Fund is designed for
investors who seek little or no fluctuation in portfolio value.
Intermediate Municipals is appropriate for investors who seek
more tax-exempt income than is usually available from tax-exempt
money funds and who can accept some fluctuation in portfolio
value. Managed Municipals is appropriate for investors who seek
higher tax-exempt income than normally provided by shorter-term
tax-exempt securities and who can accept the greater portfolio
fluctuation associated with long-term Municipal Securities.
High-Yield Municipals is designed for investors who seek a high
level of tax-exempt income and who can accept still greater
fluctuation in portfolio value and other risks, such as increased
credit risk, associated with medium- or lower-quality long-term
Municipal Securities. See Risks and Investment Considerations
for further information.
Each Fund and Municipal Money Portfolio may invest in
Municipal Securities the interest on which is subject to the
alternative minimum tax. For a more detailed discussion of the
investment objectives and policies, please see Investment
Policies. There is, of course, no assurance that any Fund or
Municipal Money Portfolio will achieve its investment objective.
Purchases. The minimum initial investment for each Fund is
$2,500, and additional investments must be at least $100 (only
$50 for purchases by electronic transfer). Lower initial
investment minimums apply to IRAs, UGMAs, and automatic
investment plans. Shares may be purchased by check, by bank
wire, by electronic transfer, or by exchange from another Stein
Roe Fund. For more detailed information, see How to Purchase
Shares.
Redemptions. For information on redeeming Fund shares, including
the special redemption privileges, see How to Redeem Shares.
Distributions. Dividends are declared each business day and are
paid monthly. Dividends will be reinvested in additional Fund
shares unless you elect to have them paid in cash, deposited by
electronic transfer into your bank account, or invested in shares
of another Stein Roe Fund. (See Distributions and Income Taxes
and Shareholder Services.)
Management and Fees. Stein Roe & Farnham Incorporated (the
"Adviser") provides investment advisory services to Intermediate
Municipals, Managed Municipals, High-Yield Municipals, and
Municipal Money Portfolio. In addition, it provides
administrative and bookkeeping and accounting services to each
Fund and Municipal Money Portfolio. For a description of the
Adviser and the fees it receives for these services, see
Management.
If you have any additional questions about the Funds or
Municipal Money Portfolio, please feel free to discuss them with
a Stein Roe account representative by calling 800-338-2550.
FEE TABLE
Muni- Inter-
cipal mediate High-
Money Muni- Managed Yield
Fund cipals Municipals Municipals
----- ------ ---------- ----------
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None None
Sales Load Imposed on Reinvested
Dividends None None None None
Deferred Sales Load None None None None
Redemption Fees* None None None None
Exchange Fees None None None None
ANNUAL FUND OPERATING EXPENSES
(after fee waiver in the case
of Municipal Money Fund and
Intermediate Municipals; as
a percentage of average net
assets)
Management and Administrative
Fees (after fee waiver in the
case of Municipal Money Fund ...0.34% 0.46% 0.41% 0.43%
12b-1 Fees.......................None None None None
Other Expenses...................0.36% 0.24% 0.32% 0.34%
----- ----- ----- -----
Total Fund Operating Expenses....0.70% 0.70% 0.73% 0.77%
===== ===== ===== =====
____________________
*There is a $7.00 charge for wiring redemption proceeds to your
bank.
Examples. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2) redemption at
the end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Municipal Money Fund $7 $22 $39 $87
Intermediate Municipals 7 22 39 87
Managed Municipals 7 23 41 91
High-Yield Municipals 8 25 43 95
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will bear
directly or indirectly as an investor in a Fund. The information
in the table is based upon actual expenses incurred in the last
fiscal year.
Municipal Money Fund pays the Adviser an administrative fee
based on the Fund's average daily net assets and Municipal Money
Portfolio pays the Adviser a management fee based on its average
daily net assets. The management and expenses of both Municipal
Money Fund and Municipal Money Portfolio are summarized in the
Fee Table and are described under Management. The Fund will bear
its proportionate share of Portfolio expenses. The trustees of
Municipal Trust have considered whether the annual operating
expenses of Municipal Money Fund, including its proportionate
share of the expenses of Municipal Money Portfolio, would be more
or less than if the Fund invested directly in the securities held
by Municipal Money Portfolio, and concluded that the Fund's
expenses would not be greater in such case.
From time to time, the Adviser may voluntarily waive a
portion of its fees payable by a Fund. The Adviser has agreed to
voluntarily waive such fees for Municipal Money Fund and
Intermediate Municipals to the extent that either Fund's ordinary
operating expenses exceed .7 of 1% of its annual average net
assets through Oct. 31, 1998, subject to earlier review and
possible termination by the Adviser on 30 days' notice to the
Fund. Any such reimbursement will lower a Fund's overall expense
ratio and increase its overall return to investors. Absent such
expense undertaking, Management and Administrative Fees and Total
Fund Operating Expenses would have been 0.50% and 0.86% for
Municipal Money Fund and 0.58% and 0.82% for Intermediate
Municipals, respectively.
For purposes of the Examples above, the figures assume that
the percentage amounts listed for the respective Funds under
Annual Fund Operating Expenses remain the same during each of the
periods; that all income dividends and capital gains
distributions are reinvested in additional Fund shares; and that,
for purposes of fee breakpoints, the Funds' respective net assets
remain at the same levels as in the most recently completed
fiscal year.
The figures in the Examples are not necessarily indicative
of past or future expenses, and actual expenses may be greater or
less than those shown. Although information such as that shown
in the Examples and Fee Table is useful in reviewing the Funds'
expenses and in providing a basis for comparison with other
mutual funds, it should not be used for comparison with other
investments using different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The tables below reflect the results of operations of the Funds
on a per-share basis for the periods shown and have been audited
by Ernst & Young LLP, independent auditors. These tables should
be read in conjunction with the respective Fund's financial
statements and notes thereto. The Funds' annual report, which
may be obtained from Municipal Trust without charge upon request,
contains additional performance information.
MUNICIPAL MONEY MARKET FUND
<TABLE>
<CAPTION>
Six
Year Months
Ended Ended
Dec.31, June 30, Years Ended June 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------- ------ ------ ------- ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Net investment income. .040 .021 .056 .054 .046 .032 .020 .019 .030 .031 .030
Distributions from net
investment income ... (.040) (.021) (.056) (.054) (.046) (.032) (.020) (.019) (.030) (.031) (.030)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- -----
NET ASSET VALUE, END
OF PERIOD............ $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of expenses to
average net assets (a) 0.69% *0.67% 0.67% 0.67% 0.68% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net invest-
ment income to
average net assets (b) 4.08% *4.25% 5.57% 5.40% 4.66% 3.19% 1.96% 1.88% 2.96% 3.09% 2.98%
Total return (b)........ 4.11% **2.13% 5.74% 5.52% 4.74% 3.25% 1.97% 1.90% 3.02% 3.13% 3.04%
Net assets, end of
period (000 omitted) $306,971 $294,116 $254,261 $255,953 $237,403 $199,037 $195,887 $165,820 $146,704 $120,432 $118,424
</TABLE>
INTERMEDIATE MUNICIPALS
<TABLE>
<CAPTION>
Six
Year Months
Ended Ended
Dec. 31, June 30, Years Ended June 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
----- ------ ------ ------ ------ ------- ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $10.76 $10.37 $10.43 $10.50 $10.54 $10.73 $11.06 $11.57 $11.00 $11.16 $11.22
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income... .57 .29 .62 .63 .62 .57 .54 .53 .53 .55 .55
Net realized and un-
realized gains (los-
ses) on investments... (.38) .06 .07 .07 .22 .50 .63 (.39) .16 .06 .22
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............ .19 .35 .69 .70 .84 1.07 1.17 .14 .69 .61 .77
DISTRIBUTIONS
Net investment income... (.57) (.29) (.62) (.63) (.62) (.57) (.54) (.53) (.53) (.55) (.55)
Net realized gains...... (.01) -- -- (.03) (.03) (.17) (.12) (.17) -- -- (.06)
In excess of realized
gains................. -- -- -- -- -- -- -- (.01) -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total distributions..... (.58) (.29) (.62) (.66) (.65) (.74) (.66) (.71) (.53) (.55) (.61)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
NET ASSET VALUE,
END OF PERIOD......... $10.37 $10.43 $10.50 $10.54 $10.73 $11.06 $11.57 $11.00 $11.16 $11.22 $11.38
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses
to average net
assets(a)............. 0.80% *0.80% 0.80% 0.80% 0.80% 0.79% 0.72% 0.71% 0.74% 0.70% 0.70%
Ratio of net investment
income to average
net assets (b)........ 5.47% *5.66% 5.96% 5.96% 5.79% 5.23% 4.79% 4.63% 4.94% 4.82% 4.84%
Portfolio turnover
rate.................. 49% **22% 83% 141% 96% 109% 96% 55% 67% 66% 44%
Total return (b)........ 1.93% **3.45% 6.85% 6.85% 8.18% 10.31% 10.92% 1.16% 6.59% 5.47% 7.07%
Net assets, end of
period (000s omitted). $96,143 $97,308 $91,304 $98,918 $118,651 $165,401 $245,441 $238,053 $212,489 $204,726 $196,006
</TABLE>
MANAGED MUNICIPALS
<TABLE>
<CAPTION>
Six
Year Months
Ended Ended
Dec. 31, June 30, Years Ended June 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $ 9.22 $ 8.50 $ 8.61 $ 9.02 $ 8.71 $ 8.85 $ 9.11 $ 9.38 $ 8.70 $ 8.79 $8.85
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Income from Investment
Operations
Net investment income.... .61 .30 .61 .59 .56 .55 .52 .50 .51 .48 .48
Net realized and
unrealized gains
(losses) on investments (.59) .11 .44 (.06) .19 .46 .42 (.51) .09 .06 .26
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from investment
operations............. .02 .41 1.05 .53 .75 1.01 .94 (.01) .60 .54 .74
DISTRIBUTIONS
Net investment income.... (.61) (.30) (.61) (.59) (.56) (.55) (.52) (.50) (.51) (.48) (.48)
Net realized gains...... (.13) -- (.03) (.25) (.05) (.20) (.15) (.11) -- -- --
In excess of realized
gains .............. -- -- -- -- -- -- -- (.06) -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total distributions... (.74) (.30) (.64) (.84) (.61) (.75) (.67) (.67) (.51) (.48) (.48)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
NET ASSET VALUE,
END OF PERIOD........ $ 8.50 $ 8.61 $ 9.02 $ 8.71 $ 8.85 $ 9.11 $ 9.38 $ 8.70 $ 8.79 $ 8.85 $9.11
====== ====== ====== ====== ====== ====== ====== ====== ======= ====== =====
Ratio of net expenses to
average net assets .. 0.65% *0.65% 0.65% 0.66% 0.66% 0.64% 0.64% 0.65% 0.65% 0.72% 0.73%
Ratio of net investment
income to average
net assets .......... 6.99% *7.03% 7.00% 6.66% 6.39% 6.17% 5.65% 5.45% 5.85% 5.41% 5.31%
Portfolio turnover
rate................. 113% **28% 102% 95% 203% 94% 63% 36% 33% 40% 16%
Total return........... 0.39% **4.90% 12.69% 6.15% 8.92% 11.95% 10.79% (0.29%) 7.12% 6.24% 8.56%
Net assets, end of
period (000 omitted).$458,170 $467,595 $514,898 $584,081 $655,930 $725,472 $776,694 $687,252 $629,730 $606,359 $582,366
</TABLE>
HIGH-YIELD MUNICIPALS
<TABLE>
<CAPTION>
Six
Year Months
Ended Ended
Dec.31, June 30, Years Ended June 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.. $12.06 $11.06 $11.37 $11.97 $11.78 $11.79 $11.83 $11.84 $11.06 $11.31 $11.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income.. .87 .44 .88 .85 .82 .80 .71 .67 .66 .67 .72
Net realized and
unrealized gains
(losses) on invest-
ments ............... (.89) .31 .63 .02 .17 .22 .18 (.54) .25 .09 .27
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............ (.02) .75 1.51 .87 .99 1.02 .89 .13 .91 .76 .99
DISTRIBUTIONS
Net investment income... (.87) (.44) (.88) (.85) (.82) (.80) (.71) (.67) (.66) (.67) (.72)
Net realized gains ..... (.11) -- (.03) (.21) (.16) (.18) (.17) (.17) -- -- --
In excess of realized
gains ................ -- -- -- -- -- -- -- (.07) -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions .... (.98) (.44) (.91) (1.06) (.98) (.98) (.88) (.91) (.66) (.67) (.72)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD......... $11.06 $11.37 $11.97 $11.78 $11.79 $11.83 $11.84 $11.06 $11.31 $11.40 $11.67
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses
to average net assets. 0.73% *0.76% 0.73% 0.71% 0.71% 0.69% 0.73% 0.76% 0.86% 0.85% 0.77%
Ratio of net investment
income to average
net assets............ 8.20% *7.87% 7.54% 7.22% 7.00% 6.75% 6.04% 5.76% 5.98% 5.86% 6.20%
Portfolio turnover
rate ................. 110% **53% 208% 261% 195% 88% 75% 36% 23% 34% 11%
Total return............ (0.16%) **6.89% 13.79% 7.59% 8.79% 9.01% 7.88% 0.95% 8.54% 6.83% 8.91%
Net assets, end of
period (000 omitted). $181,600 $201,274 $277,620 $310,582 $373,948 $410,613 $359,103 $308,181 $281,155 $282,956 $306,070
</TABLE>
______________________
*Annualized.
**Not annualized.
(a) If the Funds had paid all of their expenses and there had
been no reimbursement of expenses by the Adviser, these
ratios would have been: for Municipal Money Fund, 0.78%,
0.84% and 0.86% for the years ended June 30, 1995, 1996 and
1997, respectively; and for Intermediate Municipals, 0.83%
for the year ended Dec. 31, 1987, 0.87% for the six months
ended June 30, 1988, 0.82%, 0.81% and 0.81% for the years
ended June 30, 1989 through 1991, respectively, and 0.76%,
0.81% and 0.82% for the years ended June 30, 1995 , 1996 and
1997.
(b) Computed giving effect to the Adviser's fee waiver.
THE FUNDS
The mutual funds offered by this prospectus are Stein Roe
Municipal Money Market Fund ("Municipal Money Fund"), Stein Roe
Intermediate Municipals Fund ("Intermediate Municipals"), Stein
Roe Managed Municipals Fund ("Managed Municipals"), and Stein Roe
High-Yield Municipals Fund ("High-Yield Municipals")
(collectively, the "Funds"). Each of the Funds is a no-load
"mutual fund." Mutual funds sell their own shares to investors
and invest the proceeds in a portfolio of securities. A mutual
fund allows you to pool your money with that of other investors
in order to obtain professional investment management. Mutual
funds generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping. The Funds do not impose commissions or charges
when shares are purchased or redeemed.
The Funds are series of the Stein Roe Municipal Trust
("Municipal Trust"), an open-end management investment company,
which is authorized to issue shares of beneficial interest in
separate series. Each series, other than Municipal Money Fund,
represents interests in a separate portfolio of securities and
other assets, with its own investment objectives and policies.
Municipal Money Fund invests all of its assets in shares of SR&F
Municipal Money Portfolio ("Municipal Money Portfolio"), which is
a series of SR&F Base Trust ("Base Trust").
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and accounting and
recordkeeping services to the Funds and Municipal Money
Portfolio. The Adviser also manages several other mutual funds
with different investment objectives, including international
funds, equity funds, taxable bond funds, and money market funds.
To obtain prospectuses and other information on any of those
mutual funds, please call 800-338-2550.
Rather than invest in securities directly, each Fund may
seek to achieve its investment objective by converting to a
"master fund/feeder fund" structure. Under that structure, the
Fund and other investment companies with the same investment
objective would invest their assets in another investment company
having the same investment objective and substantially the same
investment policies. The purpose of such an arrangement is to
achieve greater operational efficiencies and reduce costs. It is
expected that the assets of any such investment company would be
managed by the Adviser in substantially the same manner as the
Fund. The only Fund operating under the master fund/feeder fund
structure is Municipal Money Fund, which converted to the master
fund/feeder fund structure on Sept. 28, 1995. If another Fund
were to convert to the master fund/feeder fund structure, it
would require the approval of the Board of Trustees of Municipal
Trust, and shareholders of that Fund would be given at least 30
days' prior notice. Such investment would be made only if the
Trustees determine it to be in the best interests of a Fund and
its shareholders. (See Master Fund/Feeder Fund: Structure and
Risk Factors.)
INVESTMENT POLICIES
Each Fund seeks a high level of current income that is exempt
from federal income tax by investing in Municipal Securities
(described under Portfolio Investments and Strategies below),
consistent with specified maturity and quality standards that
differ among the Funds. Each Fund will invest as described below
and also may employ the investment techniques described elsewhere
in this prospectus.
Municipal Money Fund. Municipal Money Fund seeks to achieve its
objective by investing all of its assets in Municipal Money
Portfolio. The investment policies of Municipal Money Portfolio
and Municipal Money Fund are identical.
Municipal Money Portfolio seeks maximum current income
exempt from federal income tax by investing principally in a
diversified portfolio of "short-term" Municipal Securities. In
pursuing that objective, Municipal Money Portfolio attempts to
maintain relative stability of principal and liquidity.
Generally, "short-term" securities are those with remaining
maturities of no more than thirteen months. Although there can
be no assurance that it will always be able to do so, Municipal
Money Portfolio follows procedures that its Board of Trustees
believes are reasonably designed to stabilize its price per share
at $1.00. These procedures and the definition of "short-term"
are described in detail in the Statement of Additional
Information.
It is a fundamental policy /1/ that normally at least 80% of
Municipal Money Portfolio's investments will produce income that
is exempt from federal income tax, except for periods that the
Adviser believes require a defensive position /2/ for the
protection of shareholders.
- -----------------
/1/ A fundamental policy may be changed only with the approval of
a "majority of the outstanding voting securities" as defined in
the Investment Company Act of 1940.
/2/ A defensive position is one that temporarily reduces exposure
to anticipated adverse market changes.
- -----------------
Municipal Money Portfolio may invest in Municipal Securities
that, at the time of purchase, are rated within the two highest
ratings assigned by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Corporation ("S&P"), except that if it
relies on ratings by Moody's for municipal commercial paper or
ratings by S&P for short-term municipal notes, such securities
must carry the highest rating assigned by the respective rating
service./3/ Municipal Money Portfolio may also invest in unrated
securities that, in the opinion of its Board of Trustees, are at
least equal in quality to the foregoing ratings. Municipal Money
Portfolio also may invest in [i] securities backed by the full
faith and credit of the U.S. Government or [ii] securities as to
which payment of principal and interest is collateralized by an
escrow of securities issued or guaranteed by the U.S. Government
or by its agencies or instrumentalities ["U.S. Government
Securities"]. The policies described in the preceding three
sentences (except for the portions in brackets) are fundamental
policies. In accordance with SEC Rule 2a-7 under the Investment
Company Act, each security in which Municipal Money Portfolio
invests will be U.S. dollar denominated and (i) rated (or be
issued by an issuer that is rated with respect to its short-term
debt) within the two highest rating categories for short-term
debt by at least two nationally recognized statistical rating
organizations ("NRSRO") or, if rated by only one NRSRO, rated
within the two highest rating categories by that NRSRO, or, if
unrated, determined by or under the direction of the Board of
Trustees of Base Trust to be of comparable quality, and (ii)
determined by or under the direction of the Board of Trustees of
Base Trust to present minimal credit risks.
- ----------
/3/ For a description of Moody's and S&P ratings, see the
Appendix. All references to ratings apply to any ratings
adopted in the future by a rating service that are determined by
the Board of Trustees to be equivalent to current ratings. In
addition, rating modifiers showing relative standing within a
rating category do not affect whether a security is eligible for
purchase.
- ----------
Intermediate Municipals. This Fund seeks a high current yield
exempt from federal income tax, consistent with the preservation
of capital, by investing primarily in a diversified portfolio of
"intermediate-term" Municipal Securities. Normally, at least 65%
of the Fund's assets will be invested in Municipal Securities
with a maturity of ten years or less (including Municipal
Securities with longer maturities, but under which the holder is
entitled to receive, upon demand at a stated time within ten
years, the entire principal and accrued interest). In addition,
the Fund's portfolio is expected to have a dollar-weighted
average maturity of between three and ten years.
It is a fundamental policy that normally at least 80% of the
Fund's investments will produce income that is exempt from
federal income tax, except during periods that the Adviser
believes require a temporary defensive position for the
protection of shareholders.
At least 75% of the Fund's investments in Municipal
Securities will be (i) rated at the time of purchase within the
three highest ratings by Moody's or S&P (except that if the Fund
relies on ratings by S&P for municipal notes, such notes must be
within the two highest ratings); (ii) if unrated, of comparable
quality as determined by the Adviser; or (iii) backed by the U.S.
Government or by an agency or instrumentality of the U.S.
Government or by U.S. Government Securities. The Fund may also
invest up to 25% of its assets in other Municipal Securities
without any minimum credit quality requirement, including those
for which a limited market may exist, which normally involve
greater risk of loss of principal or income and higher yield.
Managed Municipals. This Fund seeks a high level of current
income that is exempt from federal income tax, consistent with
the preservation of capital, by investing in a diversified
portfolio of Municipal Securities. The Fund invests primarily in
long-term Municipal Securities (generally maturing in more than
ten years) but may also invest in shorter-term securities as a
temporary defensive move.
It is a fundamental policy that the Fund's assets will be
invested so that at least 80% of its income will be exempt from
federal income tax, except during periods in which the Adviser
believes a temporary defensive position is advisable.
At least 75% of the Fund's investments in Municipal
Securities will be (i) rated at the time of purchase within the
three highest ratings assigned by Moody's or S&P (except that if
the Fund relies on ratings by S&P for municipal notes, such notes
must be within the two highest ratings for such securities); or
(ii) backed by the U.S. Government, by an agency or
instrumentality of the U.S. Government or by U.S. Government
Securities. The Fund may also invest up to 25% of its assets in
other Municipal Securities without any minimum credit quality
requirement, including those for which a limited market may
exist, which normally involve greater risk of loss of principal
or income and higher yield.
High-Yield Municipals. This Fund seeks a high current yield
exempt from federal income tax by investing primarily in a
diversified portfolio of Municipal Securities. The Fund invests
principally in long-term (generally maturing in more than ten
years) medium- or lower-quality Municipal Securities bearing a
high rate of interest income; possible capital appreciation is of
secondary importance.
It is a fundamental policy that normally the Fund's assets
will be invested so that at least 80% of its gross income will be
derived from securities the interest on which is exempt from
federal income tax in the opinion of counsel for the issuers of
such securities, except during periods in which the Adviser
believes a temporary defensive position is advisable.
Medium-quality Municipal Securities are obligations of
issuers that the Adviser believes possess adequate, but not
outstanding, capacities to service the obligations. Lower-
quality Municipal Securities are obligations of issuers that are
considered predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal according to the
terms of the obligation and, therefore, carry greater investment
risk, including the possibility of issuer default and bankruptcy,
and are commonly referred to as "junk bonds." The lowest rating
assigned by Moody's is for bonds that can be regarded as having
extremely poor prospects of ever attaining any real investment
standing. The Adviser attributes to medium- and lower-quality
obligations the same general characteristics as do rating
services. Because many issuers of medium- and lower-quality
Municipal Securities choose not to have their obligations rated
by a rating agency, many of the obligations in the Fund's
portfolio may be unrated.
Investment in medium- or lower-quality debt securities
involves greater investment risk, including the possibility of
issuer default or bankruptcy. An economic downturn could
severely disrupt this market and adversely affect the value of
outstanding bonds and the ability of the issuers to repay
principal and interest. During a period of adverse economic
changes, including a period of rising interest rates, issuers of
such bonds may experience difficulty in servicing their principal
and interest payment obligations.
Medium- and lower-quality debt securities tend to be less
marketable than higher-quality debt securities because the market
for them is less broad. The market for unrated debt securities
is even narrower. During periods of thin trading in these
markets, the spread between bid and asked prices is likely to
increase significantly, and the Fund may have greater difficulty
selling its portfolio securities.
Although the Fund invests principally in medium- or lower-
quality Municipal Securities, it may invest in Municipal
Securities of higher quality when the Adviser believes it is
appropriate to do so.
For the fiscal year ended June 30, 1997, High-Yield
Municipals' portfolio was invested, on average, as follows:
high-quality short-term instruments, 2.3%; AAA, 15.7%; AA, 9.0%;
A, 22.3%; BBB, 22.1%; BB, 9.7%; B, 0.7%; and unrated, 18.2%. The
ratings are based on a dollar-weighted average, computed monthly,
and reflect the higher of S&P or Moody's ratings. The ratings do
not necessarily reflect the current or future composition of the
Fund's portfolio.
PORTFOLIO INVESTMENTS AND STRATEGIES
For purposes of discussion under Portfolio Investments and
Strategies, Investment Restrictions and Risks and Investment
Considerations, the term "the Fund" refers to Municipal Money
Fund, Intermediate Municipals, Managed Municipals, High-Yield
Municipals, and Municipal Money Portfolio.
Municipal Securities. Municipal Securities are debt obligations
issued by or on behalf of the governments of states, territories
or possessions of the United States, the District of Columbia and
their political subdivisions, agencies and instrumentalities, the
interest on which is generally exempt from the regular federal
income tax. Except with respect to Municipal Money Fund and
Municipal Money Portfolio and subject to each Fund's investment
policies described above, each Fund may invest in Municipal
Securities rated with any credit rating below investment grade.
Medium- and lower-quality Municipal Securities involve greater
investment risk, as discussed above under Investment Policies--
High-Yield Municipals.
The two principal classifications of Municipal Securities
are "general obligation" and "revenue" bonds. "General
obligation" bonds are secured by the issuer's pledge of its
faith, credit, and taxing power for the payment of principal and
interest. "Revenue" bonds are usually payable only from the
revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special
excise tax or other specific revenue source. Industrial
development bonds are usually revenue bonds, the credit quality
of which is normally directly related to the credit standing of
the industrial user involved. Municipal Securities may bear
either fixed or variable rates of interest. Variable rate
securities bear rates of interest that are adjusted periodically
according to formulae intended to minimize fluctuation in values
of the instruments.
Within the principal classifications of Municipal
Securities, there are various types of instruments, including
municipal bonds, municipal notes, municipal leases, custodial
receipts, and participation certificates. Municipal notes
include tax, revenue, and bond anticipation notes of short
maturity, generally less than three years, which are issued to
obtain temporary funds for various public purposes. Municipal
lease securities, and participation certificates therein,
evidence certain types of interests in lease or installment
purchase contract obligations of a municipal authority or other
entity. Custodial receipts represent ownership in future
interest or principal payments (or both) on certain Municipal
Securities and are underwritten by securities dealers or banks.
Some Municipal Securities may not be backed by the faith, credit,
and taxing power of the issuer and may involve "non-
appropriation" clauses, which provide that the municipal
authority is not obligated to make lease or other contractual
payments, unless specific annual appropriations are made by the
municipality. Each Fund may invest more than 5% of its net
assets in municipal bonds and notes, but does not expect to
invest more than 5% of its net assets in the other Municipal
Securities described in this paragraph. The Board is responsible
for determining the credit quality of unrated municipal leases on
an ongoing basis, including an assessment of the likelihood that
such leases will not be cancelled.
The Funds may also purchase Municipal Securities that are
insured as to the timely payment of interest and principal. Such
insured Municipal Securities may already be insured when
purchased by a Fund or the Fund may purchase insurance in order
to turn an uninsured Municipal Security into an insured Municipal
Security.
Some Municipal Securities are backed by (i) the full faith
and credit of the U.S. Government; (ii) agencies or
instrumentalities of the U.S. Government; or (iii) U.S.
Government Securities.
Except with respect to Municipal Securities with a demand
feature acquired by Municipal Money Fund and Municipal Money
Portfolio (see the definition of "short-term" in the Statement of
Additional Information), if, after purchase by a Fund, an issue
of Municipal Securities ceases to meet the required rating
standards, if any, the Fund is not required to sell such
security, but the Adviser would consider such an event in
deciding whether the Fund should retain the security in its
portfolio. In the case of Municipal Securities with a demand
feature acquired by Municipal Money Fund or Municipal Money
Portfolio, if the quality of such a security falls below the
minimum level applicable at the time of acquisition, the Fund
must dispose of the security, unless the Board of Trustees
determines that it is in the best interests of the Fund and its
shareholders to retain the security.
When-Issued and Delayed-Delivery Securities; Forward Commitments.
Each Fund's assets may include securities purchased on a when-
issued or delayed-delivery basis, and each Fund may purchase
forward commitments. Although the payment and interest terms of
these securities are established at the time the purchaser enters
into the commitment, the securities may be delivered and paid for
a month or more after the date of purchase, when their value may
have changed. The Funds make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if it is deemed advisable for
investment reasons. Securities purchased in this manner involve
a risk of loss if the value of the security purchased declines
before settlement date. The Funds may participate in an
interfund lending program, subject to certain restrictions
described in the Statement of Additional Information.
Private Placements. Each Fund may invest in securities that are
purchased in private placements (including privately placed
securities eligible for purchase and sale under Rule 144A of the
Securities Act of 1933) and, accordingly, are subject to
restrictions on resale as a matter of contract or under federal
securities laws. Because there may be relatively few potential
purchasers for such investments, especially under adverse market
or economic conditions or in the event of adverse changes in the
financial condition of the issuer, a Fund could find it more
difficult to sell such securities when the Adviser believes it is
advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. At
times, it may also be more difficult to determine the fair value
of such securities for purposes of computing a Fund's net asset
value.
Standby Commitments. To facilitate portfolio liquidity, each
Fund may obtain standby commitments when it purchases Municipal
Securities. A standby commitment gives the holder the right to
sell the underlying security to the seller at an agreed-upon
price on certain dates or within a specified period.
Participation Interests. Each Fund may also purchase
participation interests or certificates of participation in all
or part of specific holdings of Municipal Securities, including
municipal lease obligations. Some participation interests,
certificates of participation, and municipal lease obligations
are illiquid and, as such, will be subject to the Funds' 10%
limit on investments in illiquid securities, except High-Yield
Municipals, which is subject to a 15% limitation on investments
in illiquid securities.
Short Sales Against the Box. Intermediate Municipals, Managed
Municipals, and High-Yield Municipals may sell short securities
the Fund owns or has the right to acquire without further
consideration, a technique called selling short "against the
box." Short sales against the box may protect the Fund against
the risk of losses in the value of its portfolio securities
because any unrealized losses with respect to such securities
should be wholly or partly offset by a corresponding gain in the
short position. However, any potential gains in such securities
should be wholly or partially offset by a corresponding loss in
the short position. Short sales against the box may be used to
lock in a profit on a security when, for tax reasons or
otherwise, the Adviser does not want to sell the security. For a
more complete explanation, please refer to the Statement of
Additional Information.
Futures and Options. Intermediate Municipals, Managed
Municipals, and High-Yield Municipals each may purchase and write
both call options and put options on securities and on indexes,
and enter into interest rate and index futures contracts and
options on such futures contracts in order to provide additional
revenue, or to hedge against changes in security prices or
interest rates. Each Fund may write a call or put option only if
the option is covered. As the writer of a covered call option,
the Fund foregoes, during the option's life, the opportunity to
profit from increases in market value of the security covering
the call option above the sum of the premium and the exercise
price of the call. Because of low margin deposits required, the
use of futures contracts involves a high degree of leverage, and
may result in losses in excess of the amount of the margin
deposit. Since there can be no assurance that a liquid market
will exist when the Fund seeks to close out a position, these
risks may become magnified.
Tender Option Bonds; Trust Receipts. Each Fund may purchase
tender option bonds and trust receipts. A tender option bond is
a Municipal Security (generally held pursuant to a custodial
arrangement) having a relatively long maturity and bearing
interest at a fixed rate substantially higher than prevailing
short-term tax-exempt rates, that has been coupled with the
agreement of a third party, such as a bank, broker-dealer or
other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to
tender their securities to the institution and receive the face
value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the
difference between the Municipal Security's fixed coupon rate and
the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at par on
the date of such determination. Thus, after payment of this fee,
the security holder effectively holds a demand obligation that
bears interest at the prevailing short-term tax-exempt rate. The
Adviser will consider on an ongoing basis the creditworthiness of
the issuer of the underlying Municipal Securities, of any
custodian, and of the third-party provider of the tender option.
In certain instances and for certain tender option bonds, the
option may be terminable in the event of a default in payment of
principal or interest on the underlying Municipal Securities and
for other reasons. A Fund may invest up to 10% of net assets in
tender option bonds and trust receipts.
INVESTMENT RESTRICTIONS
Each Fund is diversified as that term is defined in the
Investment Company Act of 1940.
No Fund will: (i) with respect to 75% of its total assets,
invest more than 5% of its total assets in the securities of any
one issuer (except for obligations issued or guaranteed by the
U.S. Government or by its agencies or instrumentalities or
repurchase agreements for such securities /4/; guarantees or
letters of credit of a single guarantor may exceed this limit;
see the Statement of Additional Information); or (ii) invest more
than 25% of its total assets in securities of non-governmental
issuers whose principal business activities are in the same
industry. Notwithstanding these limitations, each Fund, but not
Municipal Money Portfolio, may invest all or substantially all of
its assets in another investment company having the identical
investment objective under a master fund/feeder fund structure.
- ---------------
/4/ Notwithstanding the foregoing, and in accordance with Rule
2a-7 of the Investment Company Act of 1940 (the "Rule"),
Municipal Money Fund and Municipal Money Portfolio will not,
immediately after the acquisition of any security (other than a
Government Security or certain other securities as permitted
under the Rule), invest more than 5% of its total assets in the
securities of any one issuer; provided, however, that each may
invest up to 25% of its total assets in First Tier Securities (as
that term is defined in the Rule) of a single issuer for a period
of up to three business days after the purchase thereof.
- ---------------
No Fund may make loans except that each Fund may (1)
purchase money market instruments and enter into repurchase
agreements; (2) acquire publicly distributed or privately placed
debt securities; and (3) participate in an interfund lending
program with other Stein Roe Funds and Portfolios. A Fund may
not borrow money, except for nonleveraging, temporary, or
emergency purposes or in connection with participation in the
interfund lending program. Neither a Fund's aggregate borrowings
(including reverse repurchase agreements) nor a Fund's aggregate
loans at any one time may exceed 33 1/3% of the value of its
total assets. (See, however, Risks and Investment
Considerations.) Additional securities may not be purchased when
borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets.
The restrictions described in the second and third
paragraphs of this section are fundamental policies. All of the
investment restrictions are set forth in the Statement of
Additional Information.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although each Fund
seeks to reduce risk by investing (directly or, in the case of
Municipal Money Fund, through Municipal Money Portfolio) in a
diversified portfolio, this does not eliminate all risk. The
risks inherent in each Fund depend primarily upon the maturity
and quality of the obligations in which the Fund invests, as well
as on market conditions. A decline in prevailing levels of
interest rates generally increases the value of securities in
which a Fund invests, while an increase in rates usually reduces
the value of those securities.
Generally, high-quality, short-term obligations offer lower
yields and less fluctuation in value than long-term, low-quality
obligations. Consequently, Municipal Money Fund is designed for
investors who seek little or no fluctuation in portfolio value.
Intermediate Municipals is appropriate for investors who seek
more tax-exempt income than is usually available from tax-exempt
money funds and who can accept some fluctuation in portfolio
value. Managed Municipals is appropriate for investors who seek
higher tax-exempt income than normally provided by shorter-term
tax-exempt securities and who can accept the greater portfolio
fluctuation associated with long-term Municipal Securities.
High-Yield Municipals is designed for investors who seek a high
level of tax-exempt income and who can accept still greater
fluctuation in portfolio value and other risks, such as increased
credit risk, associated with medium- and lower-quality long-term
Municipal Securities.
Although the Funds currently limit their investments in
Municipal Securities to those the interest on which is exempt
from the regular federal income tax, each Fund may invest up to
100% of its total assets in Municipal Securities the interest on
which is subject to the federal alternative minimum tax. (See
Distributions and Income Taxes.)
Each Fund's objective is not fundamental and may be changed
by the Board of Trustees without a vote of shareholders. If
there is a change in a Fund's investment objective, shareholders
should consider whether the Fund remains an appropriate
investment in light of their then-current financial position and
needs. There can be no assurance that a Fund will achieve its
objective, nor can a Fund assure that payments of interest and
principal on portfolio obligations will be made when due. In
seeking to attain its objective, a Fund may sell securities
without regard to the period of time they have been held. As a
result, the turnover rate may vary from year to year. A high
rate of portfolio turnover may result in increased transaction
costs and the realization of capital gains or losses.
Each Fund may invest 25% or more of its assets in Municipal
Securities that are related in such a way that an economic,
business, or political development affecting one such security
could also affect the other securities. For example, Municipal
Securities the interest upon which is paid from revenues of
similar-type projects, such as hospitals, utilities, or housing,
would be so related. Each Fund may invest 25% or more of its
assets in industrial development bonds (subject to the
concentration restrictions described in this prospectus under
Investment Restrictions and in the Statement of Additional
Information). Assets that are not invested in Municipal
Securities may be held in cash or invested in short-term taxable
investments./5/ Because Municipal Money Fund or the Municipal
Money Portfolio invests in securities backed by banks and other
financial institutions, changes in the credit quality of these
institutions could cause losses to the Fund and affect its net
asset value.
- ---------------
/5/ The policy expressed in this sentence is a fundamental policy
of Municipal Money Fund, Municipal Money Portfolio, and Managed
Municipals.
- ---------------
High-Yield (High-Risk) Municipal Securities. High-Yield
Municipals may purchase high-yield Municipal Securities, commonly
referred to as "junk bonds," which are Municipal Securities rated
lower than investment grade. Although high-yield Municipal
Securities generally offer higher yields than investment grade
Municipal Securities with comparable maturities, high-yield
Municipal Securities involve greater risks and their total return
and yield can be expected to fluctuate more than those of
investment grade Municipal Securities. High-yield Municipal
Securities are regarded as predominantly speculative with respect
to the issuer's continuing ability to meet principal and interest
payments, and are also subject to the risks associated with
substantial market-price volatility resulting from changes in
interest rates and economic conditions, as well as the
possibility of default or bankruptcy. A real or perceived
economic downturn or higher interest rates could cause a decline
in the price of high-yield Municipal Securities. Some additional
risks include the possibility that the Fund's interest in a high-
yield Municipal Security could be subordinated to the prior
claims of other creditors, and the tax or other advantages of
high-yield Municipal Securities could be limited or restricted by
Congress. High-yield Municipal Securities are thinly traded and
can be more difficult to sell and value accurately than high-
quality Municipal Securities. Successful investment in high-
yield Municipal Securities involves greater investment risk and
is highly dependent on the Adviser's credit analysis. Because
reliable objective pricing data may not be readily available, the
Adviser's judgment may play a greater role in the valuation
process. Intermediate Municipals and Managed Municipals may also
invest in high-yield Municipal Securities, but at least 75% of
the total assets in each Fund must be invested in investment
grade Municipal Securities.
HOW TO PURCHASE SHARES
You may purchase shares of any of the Funds by check, by wire, by
electronic transfer, or by exchange from your account with
another Stein Roe Fund. The initial purchase minimum per Fund
account is $2,500; the minimum for Uniform Gifts/Transfers to
Minors Act ("UGMA") accounts is $1,000; and the minimum for
accounts established under an automatic investment plan (i.e.,
Regular Investments, Dividend Purchase Option, or the Automatic
Exchange Plan) is $1,000 for regular accounts and $500 for UGMA
accounts. The initial purchase minimum is waived for
shareholders who participate in the Stein Roe Counselor [service
mark] or Personal Counselor [service mark] programs and for
clients of the Adviser. Subsequent purchases must be at least
$100, or at least $50 if you purchase by electronic transfer.
(See Shareholder Services.)
By Check. To make an initial purchase of shares of a Fund by
check, please complete and sign the application and mail it,
together with a check made payable to Stein Roe Mutual Funds, to
SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205. Participants in the Stein Roe Counselor [service mark]
and Personal Counselor [service mark] programs should send orders
to SteinRoe Services Inc. at P.O. Box 803938, Chicago, Illinois
60680.
You may make subsequent investments by submitting a check
along with either the stub from your Fund account confirmation
statement or a note indicating the amount of the purchase, your
account number, and the name in which your account is registered.
Money orders will not be accepted for initial purchases into new
accounts. Each individual check submitted for purchase must be
at least $100, and Municipal Trust generally will not accept
cash, drafts, third or fourth party checks, or checks drawn on
banks outside of the United States. Should an order to purchase
shares of a Fund be cancelled because your check does not clear,
you will be responsible for any resulting loss incurred by that
Fund.
By Wire. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to the First National Bank of Boston. Your bank
may charge you a fee for sending the wire. If you are opening a
new account by wire transfer, you must first call 800-338-2550 to
request an account number and furnish your social security or
other tax identification number. Neither the Funds nor Municipal
Trust will be responsible for the consequences of delays,
including delays in the banking or Federal Reserve wire systems.
Your bank must include the full name(s) in which your account is
registered and your Fund account number, and should address its
wire as follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. ___; Stein Roe _____ Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Fund Numbers:
37--Managed Municipals
30--Municipal Money Fund
28--High-Yield Municipals
08--Intermediate Municipals
Participants in the Stein Roe Counselor [service mark] and
Personal Counselor [service mark] programs should address their
wires as follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. ___; Stein Roe _____ Fund
Account of (exact name(s) in registration)
Counselor Account No. ________
By Electronic Transfer. You may also make subsequent investments
by an electronic transfer of funds from your bank account.
Electronic transfer allows you to make purchases at your request
("Special Investments") by calling 800-338-2550 or at pre-
scheduled intervals ("Regular Investments") elected on your
application. (See Shareholder Services.) Electronic transfer
purchases are subject to a $50 minimum and a $100,000 maximum.
You may not open a new account through electronic transfer.
Should an order to purchase shares of a Fund be cancelled because
your electronic transfer does not clear, you will be responsible
for any resulting loss incurred by that Fund.
By Exchange. You may purchase shares by exchange of shares from
another Stein Roe Fund account either by phone (if the Telephone
Exchange Privilege has been established on the account from which
the exchange is being made), by mail, in person, or automatically
at regular intervals (if you have elected the Automatic Exchange
Privilege). Restrictions apply; please review the information
under How to Redeem Shares--By Exchange.
Conditions of Purchase. Each purchase order for a Fund must be
accepted by an authorized officer of Municipal Trust or its
authorized agent and is not binding until accepted and entered on
the books of that Fund. Once your purchase order has been
accepted, you may not cancel or revoke it; you may, however,
redeem the shares. Municipal Trust reserves the right not to
accept any purchase order that it determines not to be in the
best interests of the Trust or of a Fund's shareholders.
Municipal Trust also reserves the right to waive or lower its
investment minimums for any reason. Municipal Trust does not
issue certificates for shares.
Purchases Through Third Parties. You may purchase (or redeem)
shares through certain broker-dealers, banks, or other
intermediaries ("Intermediaries"). These Intermediaries may
charge for their services or place limitations on the extent to
which you may use the services offered by Municipal Trust. There
are no charges or limitations imposed by Municipal Trust (other
than those described in this prospectus) if shares are purchased
(or redeemed) directly from the Trust.
An Intermediary, who accepts orders that are processed at
the net asset value next determined after receipt of the order by
the Intermediary, accepts such orders as agent 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.
Some Intermediaries that maintain nominee accounts with the
Funds for their clients who are Fund shareholders charge an
annual fee of up to 0.25% of the average net assets held in such
accounts for accounting, servicing, and distribution services
they provide with respect to the underlying Fund shares. The
Adviser and the Funds' transfer agent share in the expense of
these annual fees, and the Adviser pays all sales and promotional
expenses.
Purchase Price and Effective Date. Each purchase of a Fund's
shares made directly with the Fund is made at that Fund's net
asset value (see Net Asset Value) next determined after receipt
of an order in good form, including receipt of payment as
follows:
A purchase by check or wire transfer is made at the net
asset value next determined after the Fund receives the check or
wire transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset
value next determined after the Fund receives the electronic
transfer from your bank. A Special Electronic Transfer
Investment instruction received by telephone on a business day
before 3:00 p.m., central time, is effective on the next business
day. Shares begin earning dividends on the day following the day
on which they are purchased.
Each purchase of Fund shares through an Intermediary that is
an authorized agent of the Trust for the receipt of orders is
made at the net asset value next determined after the receipt of
the order by the Intermediary.
HOW TO REDEEM SHARES
By Written Request. You may redeem all or a portion of your
shares of a Fund by submitting a written request in "good order"
to SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205. Participants in the Stein Roe Counselor [service mark]
and Personal Counselor [service mark] programs should send
redemption requests to SteinRoe Services Inc. at P.O. Box 803938,
Chicago, Illinois 60680. A redemption request will be considered
to have been received in good order if the following conditions
are satisfied:
(1) The request must be in writing and must indicate the number
of shares or the dollar amount to be redeemed and identify
the shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The request must be accompanied by any certificates for the
shares, either properly endorsed for transfer, or accompanied
by a stock assignment properly endorsed exactly as the shares
are registered;
(4) The signatures on either the written redemption request or
the certificates (or the accompanying stock power) must be
guaranteed (a signature guarantee is not a notarization, but
is a widely accepted way to protect you and the Funds by
verifying your signature);
(5) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this
prospectus (or a form of resolution acceptable to Municipal
Trust); and
(6) The request must include other supporting legal documents as
required from organizations, executors, administrators,
trustees, or others acting on accounts not registered in
their names.
By Exchange. You may redeem all or any portion of your Fund
shares and use the proceeds to purchase shares of any other Stein
Roe Fund offered for sale in your state if your signed, properly
completed application is on file. An exchange transaction is a
sale and purchase of shares for federal income tax purposes and
may result in capital gain or loss. Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it carefully.
The registration of the account to which you are making an
exchange must be exactly the same as that of the Fund account
from which the exchange is made and the amount you exchange must
meet any applicable minimum investment of the Stein Roe Fund
being purchased. Unless you have elected to receive your
dividends in cash, on an exchange of all shares, any accrued
unpaid dividends will be invested in the Stein Roe Fund to which
you exchange on the next business day. An exchange may be made
by following the redemption procedure described under By Written
Request and indicating the Stein Roe Fund to be purchased--a
signature guarantee normally is not required. (See also the
discussion below of the Telephone Exchange Privilege and
Automatic Exchanges.)
Special Redemption Privileges. The Telephone Exchange Privilege
and the Telephone Redemption by Check Privilege will be
established automatically for you when you open your account
unless you decline these Privileges on your application. Other
Privileges must be specifically elected. If you do not want the
Telephone Exchange and Redemption Privileges, check the box(es)
under the section "Telephone Redemption Options" when completing
your application. In addition, a signature guarantee may be
required to establish a Privilege after you open your account.
If you establish both the Telephone Redemption by Wire Privilege
and the Electronic Transfer Privilege, the bank account that you
designate for both Privileges must be the same.
You may not use any of the Special Redemption Privileges if
you hold certificates for any of your Fund shares. (See also
General Redemption Policies.)
Telephone Exchange Privilege. You may use the Telephone
Exchange Privilege to exchange an amount of $50 or more from your
account by calling 800-338-2550 or by sending a telegram; new
accounts opened by exchange are subject to the $2,500 initial
purchase minimum. Generally, you will be limited to four
Telephone Exchange round-trips per year and the Funds may refuse
requests for Telephone Exchanges in excess of four round-trips (a
round-trip being the exchange out of a Fund into another Stein
Roe Fund, and then back to that Fund). In addition, Municipal
Trust's general redemption policies apply to redemptions of
shares by Telephone Exchange. (See General Redemption Policies.)
Municipal Trust reserves the right to suspend or terminate
at any time and without prior notice the use of the Telephone
Exchange Privilege by any person or class of persons. Municipal
Trust believes that use of the Telephone Exchange Privilege by
investors utilizing market-timing strategies adversely affects
the Funds. Therefore, regardless of the number of telephone
exchange round-trips made by an investor, Municipal Trust
generally will not honor requests for Telephone Exchanges by
shareholders identified by the Trust as "market-timers" if the
officers of the Trust determine the order not to be in the best
interests of the Trust or its shareholders. Municipal Trust
generally identifies as a "market-timer" an investor whose
investment decisions appear to be based on actual or anticipated
near-term changes in the securities markets rather than other
investment considerations. Moreover, Municipal Trust reserves
the right to suspend, limit, modify, or terminate at any time and
without prior notice the Telephone Exchange Privilege in its
entirety. Because such a step would be taken only if the Board
of Trustees believes it would be in the best interests of the
Funds, Municipal Trust expects that it would provide shareholders
with prior written notice of any such action unless it appears
that the resulting delay in the suspension, limitation,
modification, or termination of the Telephone Exchange Privilege
would adversely affect the Funds. If Municipal Trust were to
suspend, limit, modify, or terminate the Telephone Exchange
Privilege, a shareholder expecting to make a Telephone Exchange
might find that an exchange could not be processed or that there
might be a delay in the implementation of the exchange. (See How
to Redeem Shares--By Exchange.) During periods of volatile
economic and market conditions, you may have difficulty placing
your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange
Privilege to automatically redeem a fixed amount from your Fund
account for investment in another Stein Roe Fund account on a
regular basis.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 800-338-2550. The
proceeds will be sent by check to your registered address.
Telephone Redemption by Wire Privilege. You may use this
Privilege to redeem shares from your account by calling 800-338-
2550. The proceeds will be transmitted by wire to your account
at a commercial bank previously designated by you that is a
member of the Federal Reserve System. The fee for wiring
proceeds (currently $7.00 per transaction) will be deducted from
the amount wired. There is a $1,000 minimum on each Telephone
Redemption by Wire; in addition, shareholders of Intermediate
Municipals, High-Yield Municipals, and Managed Municipals are
subject to a maximum amount of $100,000.
Check-Writing Privilege (Municipal Money Fund accounts
only). You may also redeem shares by writing special checks in
the amounts of $50 or more. Your checks are drawn against a
special checking account maintained with the First National Bank
of Boston, and you will be subject to the bank's procedures and
rules relating to its checking accounts and to this Privilege.
Electronic Transfer Privilege. You may redeem shares by
calling 800-338-2550 and requesting an electronic transfer
("Special Redemption") of the proceeds to an account previously
designated by you at a bank that is a member of the Automated
Clearing House or at scheduled intervals ("Automatic
Redemptions"--see Shareholder Services). Electronic transfers
are subject to a $50 minimum and a $100,000 maximum. A Special
Redemption request received by telephone after 3:00 p.m., central
time, is deemed received on the next business day.
General Redemption Policies. You may not cancel or revoke your
redemption order once instructions have been received and
accepted. Municipal Trust cannot accept a redemption request
that specifies a particular date or price for redemption or any
special conditions. Please call 800-338-2550 if you have any
questions about requirements for a redemption before submitting
your request. Municipal Trust reserves the right to require a
properly completed application before making payment for shares
redeemed.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon that Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
Municipal Trust will generally mail payment for shares
redeemed within seven days after proper instructions are
received. However, Municipal Money Fund normally intends to pay
proceeds of a written redemption within two business days and the
Trust intends to pay proceeds of a Telephone Redemption paid by
wire on the next business day. Municipal Trust will not be
responsible for the consequences of delays, including delays in
the mail, banking, or Federal Reserve wire systems. If you
attempt to redeem shares within 15 days after they have been
purchased by check or electronic transfer, the Trust may delay
payment of the redemption proceeds to you until it can verify
that payment for the purchase of those shares has been (or will
be) collected. To reduce such delays, Municipal Trust recommends
that your purchase be made by federal funds wire through your
bank. Generally, you may not use any Special Redemption
Privilege to redeem shares purchased by check (other than
certified or cashiers' checks) or electronic transfer until 15
days after their date of purchase.
Municipal Trust reserves the right at any time without prior
notice to suspend, limit, modify, or terminate any Privilege or
its use in any manner by any person or class.
Neither Municipal Trust, its transfer agent, nor their
respective officers, trustees, directors, employees, or agents
will be responsible for the authenticity of instructions provided
under the Privileges, nor for any loss, liability, cost or
expense for acting upon instructions furnished thereunder if they
reasonably believe that such instructions are genuine. The Funds
employ procedures reasonably designed to confirm that
instructions communicated by telephone under any Special
Redemption Privilege or the Special Electronic Transfer
Redemption Privilege are genuine. Use of any Special Redemption
Privilege or the Special Electronic Transfer Redemption Privilege
authorizes the Funds and their transfer agent to tape-record all
instructions to redeem. In addition, callers are asked to
identify the account number and registration, and may be required
to provide other forms of identification. Written confirmations
of transactions are mailed promptly to the registered address; a
legend on the confirmation requests that the shareholder review
the transactions and inform the Fund immediately if there is a
problem. If a Fund does not follow reasonable procedures for
protecting shareholders against loss on telephone transactions,
it may be liable for any losses due to unauthorized or fraudulent
instructions.
Municipal Trust reserves the right to redeem shares in any
account and send the proceeds to the owner of record if the
shares in the account do not have a value of at least $1,000. If
the value of the account is more than $10, a shareholder would be
notified that his account is below the minimum and would be
allowed 30 days to increase the account before the redemption is
processed. In addition, due to the proportionately higher costs
of maintaining small accounts, effective for the first quarter of
1998, the transfer agent may deduct a $5 per quarter minimum
balance fee from your regular account if its balance is under
$2,000 or from your UGMA account if its balance is under $800.
This minimum balance fee does not apply to Stein Roe IRAs and
other Stein Roe prototype retirement plans, accounts with
automatic investment plans (unless regular investments have been
discontinued), and omnibus and nominee accounts. The Adviser may
waive the fee, at its discretion, in the event of significant
market corrections.
Shares in any account you maintain with a Fund or any of the
other Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers or any Stein Roe Fund liability under the
Internal Revenue Code provisions on backup withholding).
SHAREHOLDER SERVICES
Reporting to Shareholders. You will receive a confirmation
statement reflecting each of
your purchases and redemptions of shares of a Fund, as well as
periodic statements detailing distributions made by that Fund.
Shares purchased by reinvestment of dividends, by cross-
reinvestment of dividends from another Fund, or through an
automatic investment plan will be confirmed to you quarterly. In
addition, Municipal Trust will send you semiannual and annual
reports showing Fund portfolio holdings and will provide you
annually with tax information.
To reduce the volume of mail you receive, only one copy of
certain materials, such as prospectuses and shareholder reports,
will be mailed to your household (same address). Please call
800-338-2550 if you wish to receive additional copies free of
charge. This policy may not apply if you purchased shares
through an Intermediary.
Funds-on-Call [registered trademark] Automated Telephone
Service. To access Stein Roe Funds-on-Call [registered
trademark], just call 800-338-2550 on any touch-tone telephone
and follow the recorded instructions. Funds-on-Call [registered
trademark] provides yields, prices, latest dividends, account
balances, last transaction, and other information 24 hours a day,
seven days a week. You also may use Funds-on-Call [registered
trademark] to make Special Investments and Redemptions, Telephone
Exchanges, and Telephone Redemptions by Check. These
transactions are subject to the terms and conditions of the
individual privileges. (See How to Purchase Shares and How to
Redeem Shares.) Information regarding your account is available
to you via Funds-on-Call [registered trademark] only after you
follow an activation process the first time you call. Your
account information is protected by a personal identification
number (PIN) that you establish.
Stein Roe Counselor [service mark] Program. The Adviser offers a
Stein Roe Counselor [service mark] and a Stein Roe Personal
Counselor [service mark] program. The programs are designed to
provide investment guidance in helping investors to select a
portfolio of Stein Roe Mutual Funds. The Stein Roe Personal
Counselor [service mark] program, which automatically adjusts
client portfolios, has a fee of up to 1% of assets.
Recordkeeping and Administration Services. If you oversee or
administer investments for a group of investors, we offer a
variety of services.
Special Services. The following special services are available
to shareholders. Please call 800-338-2550 or write Municipal
Trust for additional information and forms.
Dividend Purchase Option--to diversify your Fund investments
by having distributions from one Fund account automatically
invested in another Stein Roe Fund account. Before establishing
this option, you should obtain and carefully read the prospectus
of the Stein Roe Fund into which you wish to have your
distributions invested. The account from which distributions are
made must be of sufficient size to allow each distribution to
usually be at least $25. The account into which distributions
are to be invested may be opened with an initial investment of
only $1,000.
Automatic Dividend Deposit (electronic transfer)--to have
income dividends and capital gains distributions deposited
directly into your bank account.
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your application. (See How to Redeem Shares--Special
Redemption Privileges.)
Telephone Redemption by Wire Privilege--to redeem shares
from your account by phone and have the proceeds transmitted by
wire to your bank account ($1,000 minimum; $100,000 maximum for
shareholders of Intermediate Municipals, High-Yield Municipals,
and Managed Municipals).
Check-Writing Privilege--to redeem shares by writing special
checks against your Fund account ($50 minimum per check). (This
Privilege is available only for Municipal Money Fund accounts.)
Special Redemption Option (electronic transfer)--to redeem
shares at any time and have the proceeds deposited directly to
your bank account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--to purchase Fund
shares at regular intervals directly from your bank account ($50
minimum; $100,000 maximum).
Special Investments (electronic transfer)--to purchase Fund
shares by telephone and pay for them by electronic transfer of
funds from your bank account ($50 minimum; $100,000 maximum).
Automatic Exchange Plan--to automatically redeem a fixed
dollar amount from your Fund account and invest it in another
Stein Roe Fund account on a regular basis ($50 minimum; $100,000
maximum).
Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank account ($50 minimum; $100,000 maximum).
Systematic Withdrawals--to have a fixed dollar amount,
declining balance, or fixed percentage of your account redeemed
and sent at regular intervals by check to you or another payee.
NET ASSET VALUE
The purchase and redemption price of each Fund's shares is its
net asset value per share. Each Fund determines the net asset
value of its shares as of the close of trading on the New York
Stock Exchange ("NYSE") (currently 3:00 p.m., central time) by
dividing the difference between the values of its assets and
liabilities by the number of its shares outstanding. Municipal
Money Portfolio allocates net asset value, income and expenses to
Municipal Money Fund and any other of its feeder funds in
proportion to their respective interests in Municipal Money
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 of a Fund should be determined on any such day,
in which case the determination will be made at 3:00 p.m.,
central time.
Securities held by Intermediate Municipals, Managed
Municipals, or High-Yield Municipals are valued based on
valuations provided by a pricing service. These valuations are
reviewed by the Adviser. If the Adviser believes that a
valuation received from the service does not represent a fair
value, it values the obligation by a method that the Board of
Municipal Trust believes will determine a fair value. The Board
may approve the use of another pricing service and any pricing
service used may employ electronic data processing techniques,
including a so-called "matrix" system, to determine valuations.
Other assets and securities are valued by a method that the Board
believes will determine a fair value.
Securities held by Municipal Money Portfolio are valued at
their amortized cost, which does not take into account unrealized
gains or losses, in an attempt to maintain the net asset value of
each of Municipal Money Portfolio and Municipal Money Fund at
$1.00 per share. The extent of any deviation between the net
asset value based upon market quotations or equivalents and $1.00
per share based on amortized cost will be examined by the Board
of Trustees of the Base Trust. If such deviation were to exceed
1/2 of 1%, the Board would consider what action, if any, should
be taken, including selling portfolio securities, increasing,
reducing or suspending distributions, or redeeming shares in
kind. Other assets and securities of Municipal Money Portfolio
for which this valuation method does not produce a fair value are
valued at a fair value determined by its Board.
DISTRIBUTIONS AND INCOME TAXES
Distributions. Income dividends are declared each business day,
and are paid monthly and confirmed at least quarterly. For
federal income tax purposes, any distribution that is paid in
Jan. but was declared in the prior calendar year is deemed paid
in the prior calendar year. Each Fund intends to distribute by
the end of each calendar year at least 98% of any net capital
gains realized from the sale of securities during the 12-month
period ended Oct. 31 in that year. The Funds intend to
distribute any undistributed net realized capital gains in the
following year.
All of your income dividends and capital gains distributions
will be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank account; (3) applied to
purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment
normally occurs on the payable date. Municipal Trust reserves
the right to reinvest the proceeds and future distributions in
additional Fund shares if checks mailed to you for distributions
are returned as undeliverable or are not presented for payment
within six months.
Income Taxes. All of the Funds and Municipal Money Portfolio
currently limit their investments in Municipal Securities to
those the interest on which they believe is exempt from the
regular federal income tax ("exempt-interest dividends"). Each
Fund and Municipal Money Portfolio may invest up to 100% of its
total assets in Municipal Securities the interest on which is
subject to the alternative minimum tax. In addition, if a Fund
or Municipal Money Portfolio should ever invest in securities the
interest on which is not exempt, dividends paid by it from such
interest would be subject to federal income tax at ordinary
rates.
The portion of the dividends you receive representing net
short-term capital gains is taxable to you as ordinary income.
Distributions of net long-term capital gains are taxable to you
as long-term capital gains regardless of the length of time you
have held your Fund shares.
Promptly after the end of each calendar year, you will
receive a statement of the federal income tax status of all
dividends and capital gains distributions paid during the year.
The portion of your dividends and distributions that are taxable
will be taxable to you whether received in cash or reinvested in
additional shares.
If you are receiving social security benefits, tax-exempt
income, including exempt-interest dividends received from the
Funds, will be added to your taxable income in determining
whether a portion of your benefits will be subject to federal
income tax. Interest on borrowings you incur to purchase or
carry shares of a Fund is not deductible for federal income tax
purposes. You may be subject to state and local taxes on
distributions from the Funds, including those distributions that
are exempt from federal income tax.
For federal income tax purposes, each Fund is treated as a
separate taxable entity distinct from the other series of
Municipal Trust.
This section is not intended to be a full discussion of
income tax laws and their effect on shareholders. You may wish
to consult your own tax advisor.
Backup Withholding. Municipal Trust may be required to withhold
federal income tax ("backup withholding") from certain payments
to you--generally redemption proceeds. Backup withholding may be
required if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs Municipal Trust that your
tax identification number is incorrect.
These certifications are contained in the application that
you should complete and return when you open an account. The
Funds must promptly pay to the IRS all amounts withheld.
Therefore, it is usually not possible for a Fund to reimburse you
for amounts withheld. You may, however, claim the amount
withheld as a credit on your federal income tax return.
INVESTMENT RETURN
The total return from an investment in a Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value
of a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average
annual total return may be calculated by finding the average
annual compounded rate that would equate a hypothetical $1,000
investment to the ending redeemable value.
Because Municipal Money Fund strives to maintain a $1.00 per
share value, its return is usually quoted either as a current
seven-day yield, calculated by totaling the dividends on a Fund
share for the previous seven days and restating that yield as an
annual rate, or as an effective yield, calculated by adjusting
the current yield to assume daily compounding. Municipal Money
Fund's current and effective yields for the seven-day period
ended Sept. 30, 1997, were 3.35% and 3.41%, respectively. To
obtain current yield information, you may call 800-338-2550.
The value of the three other Funds will fluctuate.
Therefore, the current yield of each of these Funds is calculated
by dividing its net investment income per share (a hypothetical
figure as defined in the SEC rules) during a 30-day period by the
net asset value per share on the last day of the period. The
yield formula provides for semiannual compounding, which assumes
that net investment income is earned and reinvested at a constant
rate and annualized at the end of a six-month period.
Comparison of a Fund's yield or total return with those of
alternative investments should consider differences between that
Fund and the alternative investments, the periods and methods
used in the calculation of the return being compared, and the
impact of taxes on alternative investments. Except for Municipal
Money Fund, yield figures are not based on actual dividends paid.
Past performance is not necessarily indicative of future results.
MANAGEMENT
Trustees and Investment Adviser. The Board of Trustees of
Municipal Trust and the Board of Trustees of Base Trust have
overall management responsibility for the Trust and the Funds and
Municipal Money Portfolio, respectively. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. Since Municipal Trust and Base
Trust have the same trustees, the trustees have adopted conflict
of interest procedures to monitor and address potential conflicts
between the interests of Municipal Money Fund and Municipal Money
Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South
Wacker Drive, Chicago, Illinois 60606, is responsible for
managing the investment portfolios of the Funds and Municipal
Money Portfolio and the business affairs of the Funds, Municipal
Money Portfolio, Municipal Trust and Base Trust, subject to the
direction of the respective Boards. The Adviser is registered as
an investment adviser under the Investment Advisers Act. The
Adviser and its predecessor have 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.
In approving the use of a single combined prospectus, the
Boards considered the possibility that one Fund (or Municipal
Money Portfolio) might be liable for misstatements in the
prospectus regarding information concerning another Fund (or
Municipal Money Portfolio).
Portfolio Managers. Veronica M. Wallace has been portfolio
manager of Municipal Money Portfolio since Sept. 1995. Ms.
Wallace was formerly a trader in taxable money market instruments
for the Adviser. As of June 30, 1997, she was responsible for
managing $119 million in mutual fund net assets.
M. Jane McCart has been portfolio manager of Managed
Municipals since Aug. 1991 and of High-Yield Municipals since
Feb. 1995. Prior to Aug. 1991, she had been portfolio manager of
Municipal Money Fund since its inception in 1983 and of
Intermediate Municipals since its inception in 1985. Ms. McCart
is a senior vice president of the Adviser, and has been
associated with the Adviser since 1983. From 1973 to 1983, she
was with the National Bank of Detroit. She received her B.S.B.A.
degree from Lawrence Technological University in 1973 and, as of
June 30, 1997, was responsible for managing $888 million in
mutual fund net assets.
Joanne T. Costopoulos has been portfolio manager of
Intermediate Municipals since Aug. 1991 and is a senior vice
president of the Adviser. Responsible for managing $196 million
in mutual fund net assets as of June 30, 1997, she joined the
Adviser in 1982. In her previous position as a head trader in
the fixed-income area, she traded tax-exempt securities for both
institutional and individual investment portfolios. She received
her B.A. in business administration from Elmhurst College in
1985.
Fees and Expenses. The Adviser provides investment advisory and
administrative services to Intermediate Municipals, Managed
Municipals, and High-Yield Municipals under separate management
and administrative agreements. The Adviser also receives a
portfolio management fee from Municipal Money Portfolio and an
administrative fee from Municipal Money Fund. In return for its
services, the Adviser is entitled to receive the following
monthly management and administrative fees, computed and accrued
daily, based on average net assets at the following annual rates
(dollar amounts are show in millions):
MANAGEMENT ADMINISTRATIVE TOTAL
FUND FEE FEE FEES
- ------------- --------------- --------------- ----------------
Intermediate .450% up to $100, .150% up to $100, .600% up to $100,
Municipals .425% next $100, .125% next $100, .550% next $100,
Fund .400% thereafter .100% thereafter .500% thereafter
High-Yield .450% up to $100, .150% up to $100, .600% up to $100,
Municipals .425% next $100, .125% next $100, .550% next $100,
Fund .400% thereafter .100% thereafter .500% thereafter
Managed .450% up to $100, .150% up to $100, .600% up to $100,
Municipals .425% next $100, .125% next $100, .550% next $100,
Fund .400% next $800, .100% next $800, .500% next $800,
.375% thereafter .075% thereafter .450% thereafter
Municipal -- .250% up to $500, .250% up to $500,
Money .200% next $500, .200% next $500,
Fund .150% thereafter .150% thereafter
Municipal .250% -- .250%
Money
Portfolio
For the fiscal year ended June 30, 1997, the annualized
management fees for Intermediate Municipals, Managed Municipals
and High-Yield Municipals, after the fee waivers described under
Fee Table, were 0.46%, 0.41%, and 0.43% of average net assets,
respectively. Municipal Money Fund's administrative fee in
addition to its pro rata portion of Municipal Money Portfolio's
management fees was 0.34% of average net assets, after the fee
waiver.
Under a separate agreement with each Trust, the Adviser
provides certain accounting and bookkeeping services to the Funds
and the Municipal Money Portfolio, including computation of net
asset value and calculation of net income and capital gains and
losses on disposition of assets.
Portfolio Transactions. The Adviser places the orders for the
purchase and sale of portfolio securities. In doing so, the
Adviser seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors.
Transfer Agent. SteinRoe Services Inc., One South Wacker Drive,
Chicago, Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of Municipal Trust for the transfer of
shares, disbursement of dividends, and maintenance of shareholder
accounting records.
Distributor. The shares of each Fund are offered for sale
through Liberty Securities Corporation ("Distributor") without
any sales commissions or charges to the Funds or to their
shareholders. The Distributor is a wholly owned indirect
subsidiary of Liberty Financial. The business address of the
Distributor is 100 Manhattanville Road, Purchase, New York 10577;
however, all Fund correspondence (including purchase and
redemption orders) should be mailed to SteinRoe Services Inc. at
P.O. Box 8900, Boston, Massachusetts 02205. Participants in the
Stein Roe Counselor [service mark] and Personal Counselor
[service mark] programs should send orders to SteinRoe Services
Inc. at P.O. Box 803938, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
ORGANIZATION AND DESCRIPTION OF SHARES
Each Fund is a separate series of Municipal Trust, a
Massachusetts business trust organized under an Agreement and
Declaration of Trust ("Declaration of Trust") dated Oct. 6, 1987,
which provides that each shareholder shall be deemed to have
agreed to be bound by the terms thereof. The Declaration of
Trust may be amended by a vote of either Municipal Trust's
shareholders or its trustees. Municipal Trust may issue an
unlimited number of shares, in one or more series as the Board
may authorize. Currently, four series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as Municipal Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides that
persons extending credit to, contracting with, or having any
claim against, Municipal Trust or any particular Fund shall look
only to the assets of Municipal Trust or of the respective Fund
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 Municipal
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 Municipal 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 Municipal
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.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS
Municipal Money Fund, an open-end management investment
company, seeks to achieve its objective by investing all of its
assets in another mutual fund having an investment objective
identical to that of Municipal Money Fund. The shareholders of
Municipal Money Fund approved this policy of permitting Municipal
Money Fund to act as a feeder fund by investing in Municipal
Money Portfolio. Please refer to Investment Policies--Municipal
Money Fund, Portfolio Investments and Strategies, and Investment
Restrictions for a description of the investment objectives,
policies, and restrictions of Municipal Money Fund and Municipal
Money Portfolio. The management and expenses of both Municipal
Money Fund and Municipal Money Portfolio are described under Fee
Table and Management. Municipal Money Fund bears its
proportionate share of Portfolio expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
SR&F Municipal Money Market 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 Municipal Money Fund and other
investors in Municipal Money Portfolio will be liable for all
obligations of Municipal Money Portfolio that are not satisfied
by Municipal Money Portfolio. However, the risk of Municipal
Money Fund incurring financial loss on account of such liability
is limited to circumstances in which liability was inadequately
insured and Municipal Money Portfolio was unable to meet its
obligations. Accordingly, the trustees of Municipal Trust
believe that neither Municipal Money Fund nor its shareholders
will be adversely affected by reason of Municipal Money Fund's
investing in Municipal Money Portfolio.
The Declaration of Trust of Base Trust provides that
Municipal Money Portfolio will terminate 120 days after the
withdrawal of Municipal Money Fund or any other investor in
Municipal Money Portfolio, unless the remaining investors vote to
agree to continue the business of Municipal Money Portfolio. The
trustees of Municipal Trust may vote Municipal Money Fund's
interests in Municipal Money Portfolio for such continuation
without approval of Municipal Money Fund's shareholders.
The common investment objective of Municipal Money Fund and
Municipal Money Portfolio is non-fundamental and may be changed
without shareholder approval, subject, however, to at least 30
days' advance written notice to Municipal Money Fund's
shareholders. The fundamental policies of Municipal Money Fund
and the corresponding fundamental policies of Municipal Money
Portfolio can be changed only with shareholder approval.
If Municipal Money Fund, as an investor in Municipal Money
Portfolio, is requested to vote on a proposed change in a
fundamental policy of Municipal Money Portfolio or any other
matter pertaining to Municipal Money Portfolio (other than
continuation of the business of Municipal Money Portfolio after
withdrawal of another investor), Municipal Money Fund will
solicit proxies from its shareholders and vote its interest in
Municipal Money Portfolio for and against such matters
proportionately to the instructions to vote for and against such
matters received from Fund shareholders. Municipal Money Fund
will vote shares for which it receives no voting instructions in
the same proportion as the shares for which it receives voting
instructions. There can be no assurance that any matter
receiving a majority of votes cast by Fund shareholders will
receive a majority of votes cast by all Portfolio investors. If
other investors hold a majority interest in Municipal Money
Portfolio, they could have voting control over Municipal Money
Portfolio.
In the event that Municipal Money Portfolio's fundamental
policies were changed so as to be inconsistent with those of
Municipal Money Fund, the Board of Trustees of Municipal Trust
would consider what action might be taken, including changes to
Municipal Money Fund's fundamental policies, withdrawal of its
assets from Municipal Money Portfolio and investment of such
assets in another pooled investment entity, or the retention of
an investment adviser to invest those assets directly in
Municipal Securities. Any of these actions would require the
approval of Municipal Money Fund's shareholders. Municipal Money
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 Municipal Money
Fund's assets could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) to Municipal Money
Fund. Should such a distribution occur, Municipal Money 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 Municipal Money Fund and could affect the
liquidity of Municipal Money Fund.
Each investor in Municipal Money Portfolio, including
Municipal Money Fund, may add to or reduce its investment in
Municipal Money Portfolio on each day the NYSE is open for
business. The investor's percentage of the aggregate interests
in Municipal Money 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 Municipal Money
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 Municipal Money Portfolio effected on such day; and
(ii) the denominator of which is the aggregate beginning of the
day net asset value of Municipal Money Portfolio on such day plus
or minus, as the case may be, the amount of the net additions to
or withdrawals from the aggregate investment in Municipal Money
Portfolio by all investors in Municipal Money Portfolio. The
percentage so determined will then be applied to determine the
value of the investor's interest in Municipal Money Portfolio as
of the close of business.
Base Trust may permit other investment companies and/or
other institutional investors to invest in Municipal Money
Portfolio, but members of the general public may not invest
directly in Municipal Money Portfolio. Other investors in
Municipal Money Portfolio are not required to sell their shares
at the same public offering price as the Fund, could incur
different administrative fees and expenses than Municipal Money
Fund, and their shares might be sold with a sales commission.
Therefore, Municipal Money Fund shareholders might have different
investment returns than shareholders in another investment
company that invests exclusively in Municipal Money Portfolio.
Investment by such other investors in Municipal Money Portfolio
would provide funds for the purchase of additional portfolio
securities and would tend to reduce Municipal Money Portfolio's
operating expenses as a percentage of its net assets.
Conversely, large-scale redemptions by any such other investors
in Municipal Money Portfolio could result in untimely
liquidations of Municipal Money Portfolio's security holdings,
loss of investment flexibility, and increases in the operating
expenses of Municipal Money Portfolio as a percentage of its net
assets. As a result, Municipal Money Portfolio's security
holdings may become less diverse, resulting in increased risk.
Information regarding any other investors in Municipal Money
Portfolio may be obtained by writing to SR&F Base Trust, Suite
3200, One South Wacker Drive, Chicago, IL 60606, or by calling
800-338-2550. The Adviser may provide administrative or other
services to one or more of such investors.
APPENDIX--RATINGS
Ratings in General. A rating of a rating service represents the
service's opinion as to the credit quality of the security being
rated. However, the ratings are general and are not absolute
standards of quality or guarantees as to the creditworthiness of
an issuer. Consequently, the Adviser believes that the quality
of Municipal Securities should be continuously reviewed and that
individual analysts give different weightings to the various
factors involved in credit analysis. A rating is not a
recommendation to purchase, sell or hold a security, because it
does not take into account market value or suitability for a
particular investor. When a security has received a rating from
more than one service, each rating should be evaluated
independently. Ratings are based on current information
furnished by the issuer or obtained by the rating services from
other sources that they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or
unavailability of such information, or for other reasons. The
Adviser, through independent analysis, attempts to discern
variations in credit ratings of the published services, and to
anticipate changes in credit ratings. The following is a
description of the characteristics of certain ratings used by
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("S&P"), and Fitch Investors Service, L.P. ("Fitch").
Ratings by Moody's
Municipal Bonds: Aaa. Bonds rated Aaa are judged to be of
the best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable
margin and principal is secure. Although the various protective
elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of
such bonds.
Aa. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long term risks appear somewhat larger than in Aaa
bonds.
A. Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa. Bonds rated Baa are considered medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca. Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Conditional Ratings. Bonds for which the security depends
upon the completion of some act or the fulfillment of some
condition are rated conditionally. These are bonds secured by
(a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which
begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. Parenthetical rating
denotes probable credit stature upon completion of construction
or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in
the Aa through B classifications of its municipal bond rating
system and in the Aa through Caa classifications of its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
Municipal Notes: MIG 1. This designation denotes best
quality. There is present strong protection by established cash
flows, superior liquidity support or demonstrated broad-based
access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding
group.
MIG 3. This designation denotes favorable quality. All
security elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity and cash
flow protection may be narrow and market access for refinancing
is likely to be less well established.
Demand Feature of Variable Rate Demand Securities: Moody's
may assign a separate rating to the demand feature of a variable
rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the
market for refinancing.
VMIG 2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding
group.
VMIG 3. This designation denotes favorable quality. All
security elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity and cash
flow protection may be narrow and market access for refinancing
is likely to be less well established.
Commercial Paper: Moody's employs the following three
designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper
obligations are supported by the credit of another entity or
entities, Moody's, in assigning ratings to such issuers,
evaluates the financial strength of the indicated affiliated
corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the
total rating assessment.
Corporate Bonds: The description of the applicable rating
symbols and their meanings is identical to that of its Municipal
Bond ratings as set forth above.
Ratings by S&P:
Municipal Bonds: AAA. Bonds rated AAA have the highest
rating. Capacity to pay interest and repay principal is
extremely strong.
AA. Bonds rated AA have a very strong capacity to pay
interest and repay principal and differ from the higher rated
issues only in small degree.
A. Bonds rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than bonds in higher-rated categories.
BBB. Bonds rated BBB are regarded as having an adequate
capacity to pay principal and interest. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay principal and interest for bonds in this
category than for bonds in higher-rated categories.
BB, B, CCC, CC, and C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance
with the terms of the obligation. BB indicates the lowest degree
of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
C1. The rating C1 is reserved for income bonds on which no
interest is being paid.
D. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears. The D rating also
is issued upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
NOTE: The ratings from AA to CCC may be modified by the
addition of a plus (+) or minus (-) sign to show relative
standing within the major ratings categories.
Provisional Ratings. The letter "p" indicates that the
rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the debt
being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however,
although addressing credit quality subsequent to completion of
the project, makes no comment on the likelihood of, or the risk
of default upon failure of, such completion. The investor should
exercise his own judgment with respect to such likelihood and
risk.
Municipal Notes: SP-1. Notes rated SP-1 have very strong
or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay
principal and interest.
Notes due in three years or less normally receive a note
rating. Notes maturing beyond three years normally receive a
bond rating, although the following criteria are used in making
that assessment:
- Amortization schedule (the larger the final maturity
relative to other maturities, the more likely the issue will be
rated as a note).
- Source of payment (the more dependent the issue is on the
market for its refinancing, the more likely it will be rated as a
note).
Demand Feature of Variable Rate Demand Securities: S&P
assigns dual ratings to all long-term debt issues that have as
part of their provisions a demand feature. The first rating
addresses the likelihood of repayment of principal and interest
as due, and the second rating addresses only the demand feature.
The long-term debt rating symbols are used for bonds to denote
the long-term maturity and the commercial paper rating symbols
are usually used to denote the put (demand) option (for example,
AAA/A-1+). Normally, demand notes receive note rating symbols
combined with commercial paper symbols (for example, SP-1+/A-1+).
Commercial Paper: A. Issues assigned this highest rating
are regarded as having the greatest capacity for timely payment.
Issues in this category are further refined with the designations
1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong.
Those issues determined to possess overwhelming safety
characteristics are designed A-1+.
Corporate Bonds: The description of the applicable rating
symbols and their meanings is substantially the same as its
Municipal Bond ratings set forth above.
RATINGS BY FITCH
Investment Grade Bond Ratings
Fitch investment grade bond ratings provide a guide to
investors in determining the credit risk associated with a
particular security. The ratings represent Fitch's assessment of
the issuer's ability to meet the obligations of a specific debt
or preferred issue in a timely manner. The rating takes into
consideration special features of the issue, its relationship to
other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and
any guarantor, as well as the economic and political environment
that might affect the issuer's future financial strength and
credit quality.
Fitch ratings do not reflect any credit enhancement that may
be provided by insurance policies or financial guaranties unless
otherwise indicated.
Fitch ratings are not recommendations to buy, sell, or hold
any security. Ratings do not comment on the adequacy of market
price, the suitability of any security for a particular investor,
or the tax-exempt nature or taxability of payments made in
respect of any security. Fitch ratings are based on information
obtained from issuers, other obligors, underwriters, their
experts, and other sources Fitch believes to be reliable. Fitch
does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as
a result of changes in, or the unavailability of, information or
for other reasons.
AAA. Bonds and preferred stock considered to be investment
grade and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and/or dividends and
repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA. Bonds and preferred stock considered to be investment
grade and of very high credit quality. The obligor's ability to
pay interest and/or dividends and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bond
and preferred rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A. Bonds and preferred stock considered to be investment
grade and of high quality. The obligor's ability to pay interest
and/or dividends and repay principal is considered to be strong,
but may be more vulnerable to adverse changes in economic
conditions and circumstances than debt or preferred securities
with higher ratings.
BBB. Bonds and preferred stock considered to be investment
grade and of satisfactory credit quality. The obligor's ability
to pay interest or dividends and repay principal is considered to
be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on
these securities and, therefore, impair timely payment. The
likelihood that the ratings of these bonds or preferred will fall
below investment grade is higher than for securities with higher
ratings.
BB. Bonds are considered speculative. The obligor's
ability to pay interest and repay principal may be affected over
time by adverse economic changes. However, business and
financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B. Bonds are considered highly speculative. While bonds in
this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest
reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of
the issue.
CCC. Bonds have certain identifiable characteristics which,
if not remedied, may lead to default. The ability to meet
obligations requires an advantageous business and economic
environment.
CC. Bonds are minimally protected. Default in payment of
interest and/or principal seems probable over time.
C. Bonds are in imminent default in payment of interest or
principal.
DDD, DD, and D. Bonds are in default on interest and/or
principal payments. Such bonds are extremely speculative and
should be valued on the basis of their ultimate recovery value in
liquidation or reorganization of the obligor. DDD represents the
highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) or Minus (-). Plus and minus signs are used with a
rating symbol to indicate the relative position of a credit
within the rating category. Plus and minus signs, however, are
not used in the AAA, DDD, DD or D categories.
NR. Indicates that Fitch does not rate the specific issue.
Conditional. A conditional rating is premised on the
successful completion of a project or the occurrence of a
specific event.
Suspended. A rating is suspended when Fitch deems the
amount of information available from the issuer to be inadequate
for rating purposes.
Withdrawn. A rating will be withdrawn when an issue matures
or is called or refinanced, and, at Fitch's discretion, when an
issuer fails to furnish proper and timely information.
FitchAlert. Ratings are placed on FitchAlert to notify
investors of an occurrence that is likely to result in a rating
change and the likely direction of such change. These are
designated as "Positive," indicating a potential upgrade,
"Negative," for potential downgrade, or "Evolving," where ratings
may be raised or lowered. FitchAlert is relatively short-term
and should be resolved within 12 months.
Ratings Outlook. An outlook is used to describe the most
likely direction of any rating change over the intermediate term.
It is described as "Positive" or "Negative." The absence of a
designation indicates a stable outlook.
<PAGE>
Stein Roe Mutual Funds
Certificate of Authorization
for use by corporations and associations only
Corporations or associations must complete this Certificate and
submit it with the Fund Application, each written redemption,
transfer or exchange request, and each request to terminate or
change any of the Privileges or special service elections.
If the entity submitting the Certificate is an association, the
word "association" shall be deemed to appear each place the word
"corporation" appears. If the officer signing this Certificate
is named as an authorized person, another officer must
countersign the Certificate. If there is no other officer, the
person signing the Certificate must have his signature
guaranteed. If you are not sure whether you are required to
complete this Certificate, call a Stein Roe account
representative at 800-338-2550 .
The undersigned hereby certifies that he is the duly elected
Secretary of ____________________________
(name of Corporation/Association)
(the "Corporation") and that the following individual(s):
Authorized Persons
_______________________________ __________________________
Name Title
_______________________________ __________________________
Name Title
_______________________________ __________________________
Name Title
is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or
redeem shares of that Fund payable to any person or in any
manner, or to redeem shares of that Fund and apply the proceeds
of such redemption to purchase shares of another Fund (an
"exchange"), and to execute any necessary forms in connection
therewith.
Unless a lesser number is specified, all of the Authorized
Persons must sign written instructions. Number of signatures
required: ________.
If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that
the Corporation's Charter and By-laws provide that he is the only
person authorized to so act.
Unless expressly declined on the Application (or other form
acceptable to the Funds), the undersigned further certifies that
the Corporation has authorized by resolution or otherwise the
establishment of the Telephone Exchange and Telephone Redemption
by Check Privileges for the Corporation's account with any Fund
offering any such Privilege. If elected on the Application (or
other form acceptable to the Funds), the undersigned also
certifies that the Corporation has similarly authorized
establishment of the Electronic Transfer, Telephone Redemption by
Wire, and Check-Writing Privileges for the Corporation's account
with any Fund offering said Privileges. The undersigned has
further authorized each Fund and its transfer agent to honor any
written, telephonic, or telegraphic instructions furnished
pursuant to any such Privilege by any person believed by the Fund
or its transfer agent or their agents, officers, directors,
trustees, or employees to be authorized to act on behalf of the
Corporation and agrees that neither the Fund nor its transfer
agent, their agents, officers, directors, trustees, or employees
will be liable for any loss, liability, cost, or expense for
acting upon any such instructions.
These authorizations shall continue in effect until five business
days after the Fund and its transfer agent receive written notice
from the Corporation of any change.
IN WITNESS WHEREOF, I have hereunto subscribed my name as
Secretary and affixed the seal of this Corporation this ____ day
of ________________, 19____.
________________________________
Secretary
_________________________________
Signature Guarantee*
*Only required if the person signing
the Certificate is the only person
named as "Authorized Person."
CORPORATE
SEAL
HERE
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
The Stein Roe Funds
Stein Roe Cash Reserves Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Balanced Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Young Investor Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
Stein Roe International Fund
Stein Roe Emerging Markets Fund
Stein Roe Mutual Funds
P. O. Box 8900
Boston, Massachusetts 02205-8900
Financial Advisors call: 1-800-322-0593
Shareholders call 1-800-338-2550
http://www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive,
Suite 3200
Liberty Securities Corporation, Distributor
Member, SIPC
<PAGE>
Statement of Additional Information Dated Nov. 1, 1997
STEIN ROE MUNICIPAL TRUST
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
This Statement of Additional Information is not a prospectus
but provides additional information that should be read in
conjunction with the Prospectus dated Nov. 1, 1997, and any
supplements thereto. The Prospectus may be obtained at no charge
by telephoning 800-338-2550.
TABLE OF CONTENTS
Page
General Information and History..........................2
Investment Policies......................................3
Municipal Money Fund..................................3
Intermediate Municipals...............................4
Managed Municipals....................................5
High-Yield Municipals.................................6
Portfolio Investments and Strategies.....................6
Investment Restrictions.................................19
Additional Investment Considerations....................22
Purchases and Redemptions...............................24
Management..............................................25
Financial Statements....................................28
Principal Shareholders..................................28
Investment Advisory Services............................29
Distributor.............................................32
Transfer Agent..........................................32
Custodian...............................................32
Independent Auditors....................................33
Portfolio Transactions..................................33
Additional Income Tax Considerations....................35
Investment Performance..................................36
Additional Information on Net Asset Value--Municipal
Money Fund and Municipal Money Portfolio.............43
Glossary ........................................... 44
GENERAL INFORMATION AND HISTORY
Stein Roe Municipal Money Market Fund, Stein Roe
Intermediate Municipals Fund, Stein Roe Managed Municipals Fund,
and Stein Roe High-Yield Municipals Fund are series of shares of
beneficial interest of the Stein Roe Municipal Trust ("Municipal
Trust") and are referred to collectively as "the Funds." Each
series of Municipal Trust other than Stein Roe Municipal Money
Market Fund ("Municipal Money Fund") invests in a separate
portfolio of securities and other assets, with its own objectives
and policies. Municipal Money Fund invests all of its net
investable assets in SR&F Municipal Money Market Portfolio
("Municipal Money Portfolio"), which is a series of SR&F Base
Trust ("Base Trust").
As used herein, "Intermediate Municipals," "Managed
Municipals," and "High-Yield Municipals" refer to the series of
Municipal Trust designated Stein Roe Intermediate Municipals
Fund, Stein Roe Managed Municipals Fund, and Stein Roe High-Yield
Municipals Fund, respectively. The name of Municipal Trust and
each of its series was changed on Nov. 1, 1995 to separate
"SteinRoe" into two words.
Currently, four series of Municipal 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) of Municipal Trust outstanding on the record date
established in accordance with the By-Laws shall be entitled to a
number of votes on any matter on which it is entitled to vote
equal to the net asset value of the share (or fractional share)
in United States dollars determined at the close of business on
the record date (for example, a share having a net asset value of
$10.50 would be entitled to 10.5 votes). As a business trust,
Municipal Trust is not required to hold annual shareholder
meetings. However, special meetings may be called for purposes
such as electing or removing trustees, changing fundamental
policies, or approving an investment advisory contract. If
requested to do so by the holders of at least 10% of its
outstanding shares, Municipal Trust will call a special meeting
for the purpose of voting upon the question of removal of a
trustee or trustees and will assist in the communications with
other shareholders as required by Section 16(c) of the Investment
Company Act of 1940. All shares of Municipal Trust are voted
together in the election of trustees. On any other matter
submitted to a vote of shareholders, shares are voted in the
aggregate and not by individual series, except that shares are
voted by individual series when required by the Investment
Company Act of 1940 or other applicable law, or when the Board of
Trustees determines that the matter affects only the interests of
one or more series, in which case shareholders of the unaffected
series are not entitled to vote on such matters.
Stein Roe & Farnham Incorporated (the "Adviser") is
responsible for the business affairs of the Trusts and serves as
investment adviser to the Funds (other than Municipal Money Fund)
and Municipal Money Portfolio. It also provides administrative
and bookkeeping and accounting services to the Funds and
Municipal Money Portfolio.
Special Considerations Regarding Master Fund/Feeder Fund
Structure
Rather than invest in securities directly, each Fund may
seek to achieve its objective by pooling its assets with those of
other investment companies for investment in another mutual fund
having the same investment objective and substantially the same
investment policies as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The Adviser is expected to manage any such mutual
fund in which a Fund would invest. Such investment would be
subject to determination by the trustees that it was in the best
interests of the Fund and its shareholders, and shareholders
would receive advance notice of any such change. The only Fund
currently operating under the master fund/feeder fund structure
is Municipal Money Fund, which converted into a feeder fund on
Sept. 28, 1995. For more information, please refer to the
Prospectus under the caption Master Fund/Feeder Fund: Structure
and Risk Factors.
INVESTMENT POLICIES
The following information supplements the discussion of the
Funds' respective investment objectives and policies described in
the Prospectus. In pursuing its objective, each Fund will invest
as described below and may employ investment techniques described
in the Prospectus and elsewhere in this Statement of Additional
Information. Investments and strategies that are common to two
or more Funds are described under Portfolio Investments and
Strategies. Each Fund's investment objective is not fundamental
and may be changed by the Board of Trustees without the approval
of a "majority of the outstanding voting securities" (see
definition in the Glossary) of that Fund.
Municipal Money Fund
This Fund seeks maximum current income exempt from federal
income tax. The Fund seeks to achieve its objective by investing
all of its net investable assets in shares of Municipal Money
Portfolio, another mutual fund that has an identical investment
objective and identical investment policies to the Fund. In
pursuing its objective, Municipal Money Portfolio attempts to
maintain relative stability of principal and liquidity.
Municipal Money Portfolio invests principally in a diversified
portfolio of short-term Municipal Securities (as defined in the
Prospectus). "Short-term" means a remaining maturity of no more
than thirteen months (or comparable period) as defined in the
Glossary.
It is a fundamental policy that normally at least 80% of
Municipal Money Portfolio's investments will produce income that
is exempt from federal income tax, except for periods in which
the Adviser believes require a defensive position for the
protection of shareholders.
As a fundamental policy, Municipal Money Portfolio invests
in Municipal Securities that, at the time of purchase, are: (i)
variable rate demand securities (as defined in the Glossary)
whose demand feature is rated within the two highest ratings
assigned by Moody's Investors Service, Inc. ("Moody's"), VMIG 1
or VMIG 2 /1/; (ii) notes rated within the two highest short-term
municipal ratings assigned by Moody's, MIG 1 or MIG 2, or within
the highest rating assigned by Standard & Poor's Corporation
("S&P") /2/, SP-l+; (iii) municipal commercial paper (short-term
promissory notes) rated Prime-1 by Moody's, or A-l by S&P; (iv)
municipal bonds, including industrial development bonds, rated
within the two highest ratings assigned to municipal bonds by
S&P, AAA or AA, or by Moody's, Aaa or Aa; (v) securities not
rated as described in (i) through (iv) but determined by the
Board of Trustees to be at least equal in quality to one or more
of the foregoing ratings, although other types of obligations of
the same issuer might not be within the foregoing ratings; (vi)
securities backed by the full faith and credit of the U.S.
Government; or (vii) securities as to which the payment of
principal and interest is collateralized by securities issued or
guaranteed by the U.S. Government or by its agencies or
instrumentalities ["U.S. Government Securities"] deposited in an
escrow for the benefit of holders of the securities. In
accordance with SEC Rule 2a-7 under the Investment Company Act,
each security in which Municipal Money Portfolio invests will be
U.S. dollar denominated and (i) rated (or be issued by an issuer
that is rated with respect to its short-term debt) within the two
highest rating categories for short-term debt by at least two
nationally recognized statistical rating organizations ("NRSRO")
or, if rated by only one NRSRO, rated within the two highest
rating categories by that NRSRO, or, if unrated, determined by or
under the direction of the Board of Trustees to be of comparable
quality, and (ii) determined by or under the direction of the
Board of Trustees to present minimal credit risks.
- ------------
/1/ The Boards of Trustees of Municipal Trust and Base Trust have
determined that the demand feature of a variable rate demand
security rated SP-1+, A-1+ or A-1 by S&P or MIG 1, MIG 2 or
Prime-1 by Moody's is at least equal in quality to the demand
feature of a variable rate demand security rated VMIG 2 by
Moody's. As a non-fundamental policy, Municipal Money Portfolio
will not invest in a variable rate security whose demand feature
is conditional unless the Board of Trustees determines that the
security is at least the economic equivalent of a variable rate
security with an unconditional demand feature or (a) the demand
feature is rated within the two highest ratings assigned by
Moody's or within the equivalent ratings assigned by S&P and (b)
the underlying security is rated within the two highest ratings
assigned by Moody's or S&P. The 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.
/2/ For a description of Moody's and S&P quality ratings, see the
Appendix to the Prospectus. 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. In addition, rating modifiers showing relative standing
within a rating category do not affect whether a security is
eligible for purchase.
- ------------
Intermediate Municipals
This Fund seeks a high current yield exempt from federal
income tax, consistent with the preservation of capital. The
Fund attempts to achieve its objective by investing primarily in
a diversified portfolio of "intermediate-term" Municipal
Securities. Normally, at least 65% of the Fund's assets will be
invested in Municipal Securities with a maturity of ten years or
less (including Municipal Securities with a longer maturity, but
under which the holder is entitled to receive, upon demand at a
stated time within ten years, the entire principal and accrued
interest). In addition, the Fund's portfolio is expected to have
a dollar-weighted average maturity of between three and ten
years.
It is a fundamental policy that normally at least 80% of the
Fund's investments will produce income that is exempt from
federal income tax, except during periods that the Adviser
believes require a temporary defensive position for the
protection of shareholders.
The Fund will invest not less than 75% (taken at current
value at time of purchase) of its Municipal Securities
investments, in such proportions as the Adviser shall determine,
in municipal bonds rated at the time of purchase within the three
highest grades by Moody's (Aaa, Aa, and A) or by S&P (AAA, AA and
A) (or in variable rate demand securities whose demand feature is
rated VMIG 1, VMIG 2 or Prime-1 by Moody's or SP-1+, A-1+ or A-1
by S&P), or backed by the U.S. Government or by an agency or
instrumentality of the U.S. Government or by U.S. Government
Securities, or municipal notes that are rated at the time of
purchase within the three highest ratings for such securities by
Moody's (MIG 1, MIG 2, and MIG 3), within the two highest ratings
for such securities by S&P (SP-1+ and SP-1), or, if unrated, of
comparable quality, as determined by the Adviser. The Fund may
also invest up to 25% of its assets in other Municipal Securities
without any minimum credit quality requirement, including
Municipal Securities for which a limited market may exist. These
investments (which are medium- or lower-quality debt securities)
normally involve greater risk of loss of principal or income and
higher yield.
Managed Municipals
This Fund's investment objective is to provide its
shareholders a high level of current income that is exempt from
federal income tax, consistent with the preservation of capital.
The Fund attempts to achieve this objective by investing in a
diversified portfolio of Municipal Securities, the interest from
which is exempt from federal income tax.
It is a fundamental policy that the Fund's assets will be
invested so that at least 80% of its income will be exempt from
federal income tax, except for temporary periods during which, in
the opinion of the Adviser, normal market conditions are not
expected to prevail, including, without limitation, circumstances
that, in the opinion of the Adviser, require an unusual defensive
position for protection of the Fund's shareholders. For purposes
of this policy the Fund does not regard realized capital gains as
income.
The Fund will invest not less than 75% (taken at current
value at time of purchase) of its Municipal Securities
investments, in such proportions as the Adviser shall determine,
in municipal bonds rated at the time of purchase within the three
highest ratings for such securities by Moody's (Aaa, Aa, and A)
or by S&P (AAA, AA, and A) (or in variable rate demand securities
whose demand feature is rated VMIG 1, VMIG 2 or Prime-1 by
Moody's or SP-1+, A-1+ or A-1 by S&P), or backed by the U.S.
Government, by an agency or instrumentality of the U.S.
Government or by U.S. Government Securities, or municipal notes
that are rated at the time of purchase within the three highest
ratings for municipal notes by Moody's (MIG 1, MIG 2, and MIG 3)
or within the two highest ratings for municipal notes by S&P (SP-
1+ and SP-1). The Fund may also invest up to 25% of its assets
in other Municipal Securities without any minimum credit quality
requirement, including Municipal Securities for which a limited
market may exist. These investments (which are medium- or lower-
quality debt securities) normally involve greater risk of loss of
principal or income and higher yield.
The Fund invests primarily in long-term Municipal Securities
(generally maturing in more than ten years) but may also invest
in both short-term and medium-term securities from time to time
as a defensive move.
High-Yield Municipals
This Fund seeks a high current yield exempt from federal
income tax. The Fund attempts to achieve this objective by
investing primarily in a diversified portfolio of long-term
medium- or lower-quality Municipal Securities (generally maturing
in more than ten years) bearing a high rate of interest income;
possible capital appreciation is of secondary importance. Of
course, there is no guarantee that the payments of interest and
principal on securities held by the Fund will be made when due.
It is a fundamental policy that normally the Fund's assets
will be invested so that at least 80% of the gross income will be
derived from securities the interest on which is exempt from
federal income tax in the opinion of counsel for the issuers of
such securities, except during periods in which the Adviser
believes a temporary defensive position is advisable.
Although the Fund invests primarily in medium- and lower-
quality Municipal Securities, it may invest in Municipal
Securities of higher quality when the Adviser believes it is
appropriate to do so.
PORTFOLIO INVESTMENTS AND STRATEGIES
In addition to the policies described above, the following
investment policies and techniques have been adopted by each Fund
as indicated. Unless otherwise noted, for purposes of discussion
under Portfolio Investments and Strategies, Investment
Restrictions, and Additional Investment Considerations, the term
"the Fund" refers to Municipal Money Fund, Municipal Money
Portfolio, Intermediate Municipals, Managed Municipals, and High-
Yield Municipals.
Taxable Securities
Assets of each Fund that are not invested in Municipal
Securities may be held in cash or invested in short-term taxable
investments /3/ such as: (1) U.S. Government bills, notes and
bonds; (2) obligations of agencies and instrumentalities of the
U.S. Government (including obligations not backed by the full
faith and credit of the U.S. Government); (3) in the case of
Intermediate Municipals and High-Yield Municipals, other money
market instruments, and in the case of Municipal Money Fund,
Municipal Money Portfolio and Managed Municipals, other money
market instruments such as certificates of deposit and bankers'
acceptances of domestic banks having total assets in excess of $1
billion, and corporate commercial paper rated Prime-1 by Moody's
or A-1 by S&P at the time of purchase, or, if unrated, issued or
guaranteed by an issuer with outstanding debt rated Aa or better
by Moody's or AA or better by S&P; and (4) repurchase agreements
(defined in the Glossary) with banks and, for all Funds except
Managed Municipals, securities dealers. Municipal Money Fund and
Municipal Money Portfolio limit repurchase agreements to those
that are short-term, subject to item (g) under Investment
Restrictions (although the underlying securities may not be
short-term). Managed Municipals limits repurchase agreements to
those in which the underlying collateral consists of securities
that the Fund may purchase directly.
- ---------
/3/ In the case of Municipal Money Fund, Municipal Money
Portfolio, and Managed Municipals, the policies described in this
paragraph are fundamental.
- ---------
AMT Securities
Although the Funds currently limit their investments in
Municipal Securities to those the interest on which is exempt
from the regular federal income tax, each Fund may invest 100% of
its total assets in Municipal Securities the interest on which is
subject to the federal alternative minimum tax ("AMT").
Private Placements
Each Fund may invest in securities that are purchased in
private placements (including privately placed securities
eligible for purchase and sale under Rule 144A of the Securities
Act of 1933 ["1933 Act"]) and, accordingly, are subject to
restrictions on resale as a matter of contract or under federal
securities laws. Because there may be relatively few potential
purchasers for such investments, especially under adverse market
or economic conditions or in the event of adverse changes in the
financial condition of the issuer, a Fund could find it more
difficult to sell such securities when the Adviser believes it is
advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. At
times, it may also be more difficult to determine the fair value
of such securities for purposes of computing a Fund's net asset
value.
Rule 144A Securities
Rule 144A permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities that
have not been registered for sale under the 1933 Act. The
Adviser, under the supervision of the Board of Trustees, will
consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Funds' restriction of investing
no more than 10% of its net assets in illiquid securities for all
Funds other than High-Yield Municipals and no more than 15% for
that Fund. A determination of whether a Rule 144A security is
liquid or not is a question of fact. In making this
determination, the Adviser will consider the trading markets for
the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Adviser could
consider the (1) frequency of trades and quotes, (2) number of
dealers and potential purchasers, (3) dealer undertakings to make
a market, and (4) nature of the security and of marketplace
trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer). The
liquidity of Rule 144A securities would be monitored and if, as a
result of changed conditions, it is determined that a Rule 144A
security is no longer liquid, a Fund's holdings of illiquid
securities would be reviewed to determine what, if any, steps are
required to assure that the Fund does not invest more than 10% of
its assets in illiquid securities for all Funds other than High-
Yield Municipals and no more than 15% for that Fund. Investing
in Rule 144A securities could have the effect of increasing the
amount of a Fund's assets invested in illiquid securities if
qualified institutional buyers are unwilling to purchase such
securities. No Fund expects to invest as much as 5% of its total
assets in Rule 144A securities that have not been deemed to be
liquid by the Adviser.
Standby Commitments
Each Fund may obtain standby commitments when it purchases
Municipal Securities. A standby commitment gives the holder the
right to sell the underlying security to the seller at an agreed-
upon price on certain dates or within a specified period. A Fund
will acquire standby commitments solely to facilitate portfolio
liquidity and not with a view to exercising them at a time when
the exercise price may exceed the current value of the underlying
securities. If the exercise price of a standby commitment held
by a Fund should exceed the current value of the underlying
securities, a Fund may refrain from exercising the standby
commitment in order to avoid causing the issuer of the standby
commitment to sustain a loss and thereby jeopardizing the Fund's
business relationship with the issuer. A Fund will enter into
standby commitments only with banks and securities dealers that,
in the opinion of the Adviser, present minimal credit risks.
However, if a securities dealer or bank is unable to meet its
obligation to repurchase the security when a Fund exercises a
standby commitment, the Fund might be unable to recover all or a
portion of any loss sustained from having to sell the security
elsewhere. Standby commitments will be valued at zero in
determining each Fund's net asset value. Municipal Trust has
received an opinion of Bell, Boyd & Lloyd, counsel to the Trust,
that interest earned by the Funds on Municipal Securities will
continue to be exempt from the regular federal income tax
regardless of the fact that the Fund holds standby commitments
with respect to such Municipal Securities.
Participation Interests
Each Fund may purchase participation interests in all or
part of specific holdings of Municipal Securities, but does not
intend to do so unless the tax-exempt status of those
participation interests or certificates of participation is
confirmed to the satisfaction of the Board of Trustees, which may
include consideration of an opinion of counsel as to the tax-
exempt status. Each participation interest would meet the
prescribed quality standards of the Fund or be backed by an
irrevocable letter of credit or guarantee of a bank that meets
the prescribed quality standards of the Fund. (See Investment
Policies.) Some participation interests are illiquid securities.
Each Fund may also purchase participations in lease
obligations or installment purchase contract obligations
(hereinafter collectively called "lease obligations") of
municipal authorities or entities. Although lease obligations do
not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for,
appropriate, and make the payments due under the lease
obligation. However, certain lease obligations contain "non-
appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in
future years unless money is appropriated for such purpose on a
yearly basis. In addition to the "non-appropriation" risk, these
securities represent a relatively new type of financing that has
not yet developed the depth of marketability associated with more
conventional bonds. Although "non-appropriation" lease
obligations are secured by leased property, disposition of the
property in the event of foreclosure might prove difficult. Each
Fund will seek to minimize these risks by investing primarily in
those "non-appropriation" lease obligations where (1) the nature
of the leased equipment or property is such that its ownership or
use is essential to a governmental function of the municipality,
(2) the lease obligor has maintained good market acceptability in
the past, (3) the investment is of a size that will be attractive
to institutional investors, and (4) the underlying leased
equipment has elements of portability and/or use that enhance its
marketability in the event foreclosure on the underlying
equipment were ever required.
The Board of Trustees has delegated to the Adviser the
responsibility to determine the credit quality of participation
interests. The determinations concerning the liquidity and
appropriate valuation of a municipal lease obligation, as with
any other municipal security, are made based on all relevant
factors. These factors may include, among others: (1) the
frequency of trades and quotes for the obligation; (2) the number
of dealers willing to purchase or sell the security and the
number of other potential buyers; (3) the willingness of dealers
to undertake to make a market in the security; and (4) the nature
of the marketplace trades, including the time needed to dispose
of the security, the method of soliciting offers, and the
mechanics of transfer.
Tender option bonds are not included in the calculation of
the 5% total net asset limitation for participation interests.
When-Issued and Delayed-Delivery Securities; Forward Commitments
Each Fund may purchase securities on a when-issued or
delayed-delivery basis or purchase forward commitments, as
described in the Prospectus. A Fund makes such commitments only
with the intention of actually acquiring the securities, but may
sell the securities before settlement date if it is deemed
advisable for investment reasons. Securities purchased in this
manner involve a risk of loss if the value of the security
purchased declines before settlement date.
At the time a Fund enters into a binding obligation to
purchase securities on a when-issued basis, liquid assets (cash,
U.S. Government or other "high grade" debt obligations) of the
Fund having a value of at least as great as the purchase price of
the securities to be purchased will be segregated on the books of
the Fund and held by the custodian throughout the period of the
obligation.
Short Sales Against the Box
Each Fund may sell securities short against the box; that
is, enter into short sales of securities that it currently owns
or has the right to acquire through the conversion or exchange of
other securities that it owns at no additional cost. A Fund may
make short sales of securities only if at all times when a short
position is open the Fund owns at least an equal amount of such
securities or securities convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the
securities sold short, at no additional cost.
In a short sale against the box, a Fund does not deliver
from its portfolio the securities sold. Instead, the Fund
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 Fund, to the purchaser of such
securities. The Fund 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 Fund must deposit and continuously
maintain in a separate account with its custodian an equivalent
amount of the securities sold short or securities convertible
into or exchangeable for such securities at no additional cost.
A Fund is said to have a short position in the securities sold
until it delivers to the broker-dealer the securities sold. A
Fund may close out a short position by purchasing on the open
market and delivering to the broker-dealer an equal amount of the
securities sold short, rather than by delivering portfolio
securities.
Short sales may protect a Fund 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 Fund owns,
either directly or indirectly, and, in the case where the Fund
owns convertible securities, changes in the conversion premium.
Short sale transactions involve certain risks. If the price
of the security sold short increases between the time of the
short sale and the time a Fund replaces the borrowed security,
the Fund will incur a loss and if the price declines during this
period, the Fund 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 Fund may have to pay
in connection with such short sale. Certain provisions of the
Internal Revenue Code may limit the degree to which a Fund is
able to enter into short sales. There is no limitation on the
amount of each Fund's assets that, in the aggregate, may be
deposited as collateral for the obligation to replace securities
borrowed to effect short sales and allocated to segregated
accounts in connection with short sales. No Fund currently
expects that more than 5% of its total assets would be involved
in short sales against the box.
Repurchase Agreements
Each Fund may invest in repurchase agreements, provided that
it will not invest more than 15% (High-Yield Municipals) or 10%
(Managed Municipals, Intermediate Municipals, Municipal Money
Fund and Municipal Money Portfolio) of net assets in repurchase
agreements maturing in more than seven days and any other
illiquid securities. A repurchase agreement is a sale of
securities to a Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, a Fund could
experience both losses and delays in liquidating its collateral.
Borrowings; Reverse Repurchase Agreements
Subject to restriction (iv) under Investment Restrictions,
each Fund may establish and maintain a line of credit with a
major bank in order to permit borrowing on a temporary basis to
meet share redemption requests in circumstances in which
temporary borrowing may be preferable to liquidation of portfolio
securities.
Each Fund may also enter into reverse repurchase agreements
(defined in the Glossary) with banks and securities dealers. Use
of a reverse repurchase agreement may be preferable to a regular
sale and later repurchase of the securities because it avoids
certain market risks and transaction costs. The Funds did not
enter into reverse repurchase agreements during the last year and
have no present intention to do so.
A Fund's reverse repurchase agreements and any other
borrowings may not exceed 33 1/3% of its total assets, and the
Fund may not purchase additional securities when its borrowings,
less proceeds receivable from the sale of portfolio securities,
exceed 5% of its total assets.
Rated Securities
The rated securities described under Investment Policies
above for each Fund except for Municipal Money Fund and Municipal
Money Portfolio include obligations given a rating conditionally
by Moody's or provisionally by S&P.
Except with respect to Municipal Securities with a demand
feature (see the definition of "short-term" in the Glossary)
acquired by Municipal Money Fund or Municipal Money Portfolio,
the fact that the rating of a Municipal Security held by a Fund
may be lost or reduced below the minimum level applicable to its
original purchase by a Fund does not require that obligation to
be sold, but the Adviser will consider such fact in determining
whether that Fund should continue to hold the obligation. In the
case of Municipal Securities with a demand feature acquired by
Municipal Money Fund or Municipal Money Portfolio, if the quality
of such a security falls below the minimum level applicable at
the time of acquisition, the Fund must dispose of the security
within a reasonable period of time either by exercising the
demand feature or by selling the security in the secondary
market, unless the Board of Trustees determines that it is in the
best interests of the Fund and its shareholders to retain the
security.
To the extent that the ratings accorded by Moody's, S&P, or
Fitch Investors Service for Municipal Securities may change as a
result of changes in such organizations, or changes in their
rating systems, each Fund will attempt to use comparable ratings
as standards for its investments in Municipal Securities in
accordance with its investment policies. The Board of Trustees
is required to review such ratings with respect to Municipal
Money Fund and Municipal Money Portfolio.
Zero Coupon Bonds
Each of Intermediate Municipals, Managed Municipals, and
High-Yield Municipals may invest in zero coupon bonds. A zero
coupon bond is a bond that does not pay interest for its entire
life. The market prices of zero coupon bonds are affected to a
greater extent by changes in prevailing levels of interest rates
and thereby tend to be more volatile in price than securities
that pay interest periodically. In addition, because a Fund
accrues income with respect to these securities prior to the
receipt of such interest, it may have to dispose of portfolio
securities under disadvantageous circumstances in order to obtain
cash needed to pay income dividends in amounts necessary to avoid
unfavorable tax consequences.
Tender Option Bonds; Trust Receipts
Each Fund may purchase tender option bonds and trust
receipts. A tender option bond is a Municipal Security
(generally held pursuant to a custodial arrangement) having a
relatively long maturity and bearing interest at a fixed rate
substantially higher than prevailing short-term tax-exempt rates,
that has been coupled with the agreement of a third party, such
as a bank, broker-dealer or other financial institution, pursuant
to which such institution grants the security holders the option,
at periodic intervals, to tender their securities to the
institution and receive the face value thereof. As consideration
for providing the option, the financial institution receives
periodic fees equal to the difference between the Municipal
Security's fixed coupon rate and the rate, as determined by a
remarketing or similar agent at or near the commencement of such
period, that would cause the securities, coupled with the tender
option, to trade at par on the date of such determination. Thus,
after payment of this fee, the security holder effectively holds
a demand obligation that bears interest at the prevailing short-
term tax-exempt rate. The Adviser will consider on an ongoing
basis the creditworthiness of the issuer of the underlying
Municipal Securities, of any custodian, and of the third-party
provider of the tender option. In certain instances and for
certain tender option bonds, the option may be terminable in the
event of a default in payment of principal or interest on the
underlying Municipal Securities and for other reasons. A Fund
may invest up to 10% of net assets in tender option bonds and
trust receipts.
Interfund Borrowing and Lending Program
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the Funds have received permission to lend
money to, and borrow money from, other mutual funds advised by
the Adviser. A Fund 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 Funds do not purchase securities with a view
toward rapid turnover, there are no limitations on the length of
time that portfolio securities must be held. As a result, the
turnover rate may vary from year to year. A high rate of
portfolio turnover in a Fund, if it should occur, may result in
the realization of capital gains or losses, and, to the extent
net short-term capital gains are realized, any distributions
resulting from such gains will be considered ordinary income for
federal income tax purposes.
For further information on the portfolio turnover rate of
each Fund, see Financial Highlights and Risks and Investment
Considerations in the Prospectus and Additional Tax
Considerations herein.
Options
Each of Intermediate Municipals, Managed Municipals, and
High-Yield Municipals is permitted to purchase and to write both
call options and put options on debt or other securities or
indexes in standardized contracts traded on U.S. securities
exchanges, boards of trade, or similar entities, or quoted on
Nasdaq, and agreements, sometimes called cash puts, that may
accompany the purchase of a new issue of bonds from a dealer.
Currently there are no publicly-traded options on individual
tax-exempt securities. However, it is anticipated that such
instruments may become available in the future.
An option is a contract that gives the purchaser (holder) of
the option, in return for a premium, the right to buy from (call)
or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of an index) at a
specified exercise price at any time during the term of the
option (normally not exceeding nine months). The writer of the
option has the obligation upon exercise of the option to deliver
the underlying security upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security.
Upon exercise, the writer of an option on an index is obligated
to pay the difference between the cash value of the index and the
exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect specified facets
of a particular financial or securities market, a specific group
of financial instruments or securities or certain economic
indicators.)
A Fund is permitted to write call options and put options
only if they are "covered." In the case of a call option on a
security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or
if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by
its custodian) upon conversion or exchange of other securities
held in its portfolio.
If an option written by a Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by a Fund expires, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option
may be closed out by an offsetting purchase or sale of an option
of the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when a Fund desires.
A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to
purchase the option, the Fund will realize a capital gain or, if
it is less, the Fund will realize a capital loss. The principal
factors affecting the market value of a put or a call option
include supply and demand, interest rates, the current market
price of the underlying security or index in relation to the
exercise price of the option, the volatility of the underlying
security or index and the time remaining until the expiration
date.
A put or call option purchased by a Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange
or no closing price is available, at the mean between the last
bid and asked prices.
Risks Associated with Options. There are several risks
associated with transactions in options on securities and on
indexes. For example, there are significant differences between
the securities markets and options markets that could result in
an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or
unexpected events.
There can be no assurance that a liquid market will exist
when a Fund seeks to close out an option position. If a Fund
were unable to close out an option that it had purchased on a
security, it would have to exercise the option in order to
realize any profit or the option would expire and become
worthless. If a Fund were unable to close out a covered call
option that it had written on a security, it would not be able to
sell the underlying security until the option expired. As the
writer of a covered call option, a Fund foregoes, during the
option's life, the opportunity to profit from increases in the
market value of the security covering the call option above the
sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased or written
by a Fund, the Fund would not be able to close out the option.
If restrictions on exercise were imposed, the Fund might be
unable to exercise an option it had purchased.
Futures Contracts and Options on Futures Contracts
Each of Intermediate Municipals, Managed Municipals, and
High-Yield Municipals may enter into interest rate futures
contracts and index futures contracts. An interest rate or index
futures contract provides for the future sale by one party and
purchase by another party of a specified quantity of a financial
instrument or the cash value of an index (such as The Bond Buyer
Municipal Bond Index) /4/ at a specified price and time. A
public market exists in futures contracts covering a number of
indexes as well as the following financial instruments: U.S.
Treasury bonds; U.S. Treasury notes; Government National Mortgage
Association certificates; three-month U.S. Treasury bills; 90-day
commercial paper; bank certificates of deposit; and Eurodollar
certificates of deposit. It is expected that other futures
contracts will be developed and traded. A Fund will engage in
transactions involving new futures contracts (or options thereon)
if, in the opinion of the Board of Trustees, they are appropriate
instruments for the Fund.
- -------------
/4/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at
the close of the last trading day of the contract and the price
at which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made. The Bond Buyer Municipal Bond Index is based on The Bond
Buyer index of 40 actively-traded long-term general obligation
and revenue bonds carrying at least an A rating by Moody's or
S&P.
- -------------
Each Fund may purchase and write call options and put
options on futures contracts (futures options). Futures options
possess many of the same characteristics as options on securities
and indexes (discussed above). A futures option gives the holder
the right, in return for the premium paid, to assume a long
position (call) or a short position (put) in a futures contract
at a specified exercise price at any time during the period of
the option. Upon exercise of a call option, the holder acquires
a long position in the futures contract and the writer is
assigned the opposite short position. In the case of a put
option, the opposite is true. For example, a Fund might use
futures contracts to hedge against anticipated changes in
interest rates which might adversely affect either the value of
the Fund's securities or the price of the securities that the
Fund intends to purchase. Although other techniques could be
used to reduce that Fund's exposure to interest rate
fluctuations, the Fund may be able to hedge its exposure more
effectively and perhaps at a lower cost by using futures
contracts and futures options.
The success of any futures technique depends on the Adviser
correctly predicting changes in the level and direction of
interest rates and other factors. Should those predictions be
incorrect, a Fund's return might have been better had the
transaction not been attempted; however, in the absence of the
ability to use futures contracts, the Adviser might have taken
portfolio actions in anticipation of the same market movements
with similar investment results but, presumably, at greater
transaction costs.
A Fund will only enter into futures contracts and futures
options that are standardized and traded on a U.S. exchange,
board of trade or similar entity, or quoted on an automated
quotation system.
When a purchase or sale of a futures contract is made by a
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the
broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded
and may be modified during the term of the contract. The initial
margin is in the nature of a performance bond or good faith
deposit on the futures contract that is returned to the Fund upon
termination of the contract, assuming all contractual obligations
have been satisfied. Each Fund expects to earn interest income
on its initial margin deposits. A futures contract held by a
Fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day the Fund pays or
receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known
as "marking-to-market." Variation margin paid or received by a
Fund does not represent a borrowing or loan by the Fund but is
instead settlement between the Fund and the broker of the amount
one would owe the other if the futures contract had expired at
the close of the previous trading day. In computing daily net
asset value, each Fund will mark to market its open futures
positions.
A Fund is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by
it. Such margin deposits will vary depending on the nature of
the underlying futures contract (and the related initial margin
requirements), the current market value of the option and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or
sales, as the case may be, of matching futures contracts (same
exchange, underlying security or index, and delivery month). If
an offsetting purchase price is less than the original sale
price, the Fund realizes a capital gain, or if it is more, the
Fund realizes a capital loss. Conversely, if an offsetting sale
price is more than the original purchase price, the Fund realizes
a capital gain, or if it is less, the Fund realizes a capital
loss. The transaction costs must also be included in these
calculations.
Risks Associated with Futures. There are several risks
associated with the use of futures contracts and futures options
as hedging techniques. A purchase or sale of a futures contract
may result in losses in excess of the amount invested in the
futures contract. In trying to increase or reduce market
exposure, there can be no guarantee that there will be a
correlation between price movements in the futures contract and
in the portfolio exposure sought. In addition, there are
significant differences between the securities and futures
markets that could result in an imperfect correlation between the
markets, causing a given transaction not to achieve its
objectives. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand
for futures, futures options and debt securities, including
technical influences in futures and futures options trading and
differences between the financial instruments and the instruments
underlying the standard contracts available for trading in such
respects as interest rate levels, maturities, and
creditworthiness of issuers. A decision as to whether, when and
how to hedge involves the exercise of skill and judgment, and
even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected interest rate
trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit
governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may
work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily
limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial
losses.
There can be no assurance that a liquid market will exist at
a time when a Fund seeks to close out a futures or futures option
position. The Fund would be exposed to possible loss on the
position during the interval of inability to close and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant
trading history. As a result, there can be no assurance that an
active secondary market will develop or continue to exist.
Limitations on Options and Futures
If options, futures contracts, or futures options of types
other than those described herein or in the prospectus are traded
in the future, each of Intermediate Municipals, Managed
Municipals, and High-Yield Municipals may also use those
investment vehicles, provided the Board of Trustees determines
that their use is consistent with the Fund's investment
objective.
A Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin
deposits for futures contracts held by the Fund plus premiums
paid by it for open futures option positions, less the amount by
which any such options are "in-the-money" (as defined in the
Glossary), would exceed 5% of the Fund's total assets.
When purchasing a futures contract or writing a put on a
futures contract, a Fund must maintain with its custodian (or
broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contracts. When
writing a call option on a futures contract, a Fund similarly
will maintain cash or cash equivalents (including any margin)
equal to the amount by which such option is in-the-money until
the option expires or is closed out by the Fund.
A Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical
relative volatility of the relationship between the portfolio and
the positions. For this purpose, to the extent a Fund has
written call options on specific securities in its portfolio, the
value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," each Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within
the meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of a Fund, after taking into account unrealized profits
and unrealized losses on any such contracts it has entered into
[in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section
190.01(x) of the Commission Regulations) may be excluded in
computing such 5%].
Taxation of Options and Futures
If a Fund exercises a call or put option that it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by a Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by a Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by a Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by a Fund was in-the-
money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If a
Fund delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities. For federal
income tax purposes, a Fund generally is required to recognize as
income for each taxable year its net unrealized gains and losses
as of the end of the year on options, futures and futures options
positions ("year-end mark-to-market"). Generally, any gain or
loss recognized with respect to such positions (either by year-
end mark-to-market or by actual closing of the positions) is
considered to be 60% long-term and 40% short-term, without regard
to the holding periods of the contracts. However, in the case of
positions classified as part of a "mixed straddle," the
recognition of losses on certain positions (including options,
futures and futures options positions, the related securities and
certain successor positions thereto) may be deferred to a later
taxable year. Sale of futures contracts or writing of call
options (or futures call options) or buying put options (or
futures put options) that are intended to hedge against a change
in the value of securities held by a Fund: (1) will affect the
holding period of the hedged securities; and (2) may cause
unrealized gain or loss on such securities to be recognized upon
entry into the hedge.
In order for a Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies or other income (including but not limited to
gains from options, futures, or forward contracts). Any net gain
realized from futures (or futures options) contracts will be
considered gain from the sale of securities and therefore be
qualifying income for purposes of the 90% requirement.
Each Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options and
futures transactions. Such distributions are combined with
distributions of capital gains realized on the Fund's other
investments and shareholders will be advised of the nature of the
payments.
The Taxpayer Relief Act of 1997 (the "Act") imposed
constructive sale treatment for federal income tax purposes on
certain hedging strategies with respect to appreciated
securities. Under these rules, taxpayers will recognize gain,
but not loss, with respect to securities if they enter into short
sales of "offsetting notional principal contracts" (as defined by
the Act) or futures or "forward contracts" (as defined by the
Act) with respect to the same or substantially identical
property, or if they enter into such transactions and then
acquire the same or substantially identical property. These
changes generally apply to constructive sales after June 8, 1997.
Furthermore, the Secretary of the Treasury is authorized to
promulgate regulations that will treat as constructive sales
certain transactions that have substantially the same effect as
short sales, offsetting notional principal contracts, and futures
or forward contracts to deliver the same or substantially similar
property.
INVESTMENT RESTRICTIONS
Each Fund operates under the following investment
restrictions. Restrictions that are fundamental policies, as
indicated below, may not be changed without the approval of a
"majority of the outstanding voting securities" (as defined in
the Glossary). For purposes of discussion under Investment
Restrictions, the term "the Fund" also refers to Municipal Money
Portfolio unless otherwise noted. A Fund may not:
(i) invest in a security if, with respect to 75% of the
Fund's assets, as a result of such investment, more than 5% of
its total assets (taken at market value at the time of
investment) would be invested in the securities of any one issuer
(for this purpose, the issuer(s) of a security being deemed to be
only the entity or entities whose assets or revenues are subject
to the principal and interest obligations of the security), other
than obligations issued or guaranteed by the U.S. Government or
by its agencies or instrumentalities or repurchase agreements for
such securities, and [all Funds except Municipal Money Portfolio]
except that all or substantially all of the assets of the Fund
may be invested in another registered investment company having
the same investment objective and substantially similar
investment policies as the Fund [however, in the case of a
guarantor of securities (including an issuer of a letter of
credit), the value of the guarantee (or letter of credit) may be
excluded from this computation if the aggregate value of
securities owned by the Fund and guaranteed by such guarantor
(plus any other investments of the Fund in securities issued by
the guarantor) does not exceed 10% of the Fund's total
assets];/5/ /6/
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/5/ In the case of a security that is insured as to payment of
principal and interest, the related insurance policy is not
deemed a security, nor is it subject to this investment
restriction.
/6/ Notwithstanding the foregoing, and in accordance with Rule
2a-7 of the Investment Company Act of 1940 (the "Rule"),
Municipal Money Fund and Municipal Money Portfolio will not,
immediately after the acquisition of any security (other than a
Government Security or certain other securities as permitted
under the Rule), invest more than 5% of its total assets in the
securities of any one issuer; provided, however, that each may
invest up to 25% of its total assets in First Tier Securities (as
that term is defined in the Rule) of a single issuer for a period
of up to three business days after the purchase thereof.
- ------------
(ii) purchase any securities on margin, except for use of
short-term credit necessary for clearance of purchases and sales
of portfolio securities (this restriction does not apply to
securities purchased on a when-issued or delayed-delivery basis
or to reverse repurchase agreements), [Intermediate Municipals,
Managed Municipals, and High-Yield Municipals only] but the Fund
may make margin deposits in connection with futures and options
transactions;
(iii) make loans, although it may (a) 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; (b) purchase money market instruments
and enter into repurchase agreements; and (c) acquire publicly
distributed or privately placed debt securities;
(iv) borrow except that it may (a) borrow for nonleveraging,
temporary or emergency purposes and (b) engage in reverse
repurchase agreements and make other borrowings, provided that
the combination of (a) and (b) shall not exceed 33 1/3% of the
value of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law; it may borrow from banks, other Stein Roe Funds
and Portfolios, and other persons to the extent permitted by
applicable law;
(v) mortgage, pledge, hypothecate or in any manner transfer,
as security for indebtedness, any securities owned or held by the
Fund except (a) as may be necessary in connection with borrowings
mentioned in (iv) above, and [Intermediate Municipals, Managed
Municipals, and High-Yield Municipals only] (b) it may enter into
futures and options transactions;
(vi) invest more than 25% of its total assets (taken at
market value at the time of each investment) in securities of
non-governmental issuers whose principal business activities are
in the same industry, [all Funds except Municipal Money
Portfolio] except that all or substantially all of the assets of
the Fund may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies as the Fund;
(vii) purchase portfolio securities for the Fund from, or
sell portfolio securities to, any of the officers, directors, or
trustees of the Trust or of its investment adviser;
(viii) purchase or sell commodities or commodities contracts
or oil, gas, or mineral programs, [Intermediate Municipals,
Managed Municipals, and High-Yield Municipals only] except that
the Fund may enter into futures and options transactions;
(ix) [Municipal Money Fund only] purchase any securities
other than those described under Investment Policies--Municipal
Money Fund, and under Portfolio Investments and Strategies;
[Managed Municipals only] purchase any securities other than
those described under Investment Policies--Managed Municipals and
under Portfolio Investments and Strategies; or
(x) issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
The above restrictions (other than material within brackets)
are fundamental policies of the Funds. The Funds have also
adopted the following restrictions that may be required by
various laws and administrative positions. These restrictions
are not fundamental. None of the following restrictions shall
prevent Municipal Money Fund, Intermediate Municipals, Managed
Municipals, or High-Yield Municipals from investing all or
substantially all of its assets in another investment company
having the same investment objective and substantially similar
investment policies as the Fund. A Fund may not:
(a) own more than 10% of the outstanding voting securities
of an issuer;
(b) invest in companies for the purpose of exercising
control or management;
(c) make investments in the securities of other investment
companies, except in connection with a merger, consolidation, or
reorganization;
(d) purchase or sell real estate (other than Municipal
Securities or money market securities secured by real estate or
interests therein or such securities issued by companies which
invest in real estate or interests therein);
(e) act as an underwriter of securities, except that it may
participate as part of a group in bidding, or bid alone, for the
purchase of Municipal Securities directly from an issuer for its
own portfolio;
(f) sell securities short unless (1) it 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 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 it may purchase standby commitments and
securities subject to a demand feature entitling it to require
sellers of securities to the Fund to repurchase them upon demand
by the Fund [Intermediate Municipals, Managed Municipals, and
High-Yield Municipals only] and that transactions in options,
futures, and options on futures are not treated as short sales;
(g) [Municipal Money Fund, Municipal Money Portfolio,
Intermediate Municipals, and Managed Municipals only] invest more
than 10% 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; [High-
Yield Municipals only] 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.
In addition, as long as a Fund continues to sell its shares
in certain states, it may not: (i) purchase shares of other open-
end investment companies, except in connection with a merger,
consolidation, acquisition, or reorganization; or (ii) invest
more than 5% of its net assets (valued at time of investment) in
warrants, nor more than 2% of its net assets in warrants that are
not listed on the New York or American Stock Exchange. Further,
as long as a Fund (except Municipal Money Fund and Municipal
Money Portfolio) continues to sell its shares in certain states,
it may not: (1) write an option on a security unless the option
is issued by the Options Clearing Corporation, an exchange, or
similar entity; or (2) 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.
ADDITIONAL INVESTMENT CONSIDERATIONS
Medium-quality Municipal Securities are obligations of
municipal issuers that, in the opinion of the Adviser, possess
adequate, but not outstanding, capacities to service the
obligations. Lower-quality Municipal Securities are obligations
of issuers that are considered predominantly speculative with
respect to the issuer's capacity to pay interest and repay
principal according to the terms of the obligation and,
therefore, carry greater investment risk, including the
possibility of issuer default and bankruptcy, and are commonly
referred to as "junk bonds." The characteristics attributed to
medium- and lower-quality obligations by the Adviser are much the
same as those attributed to medium- and lower-quality obligations
by rating services (see the Appendix to the Prospectus). Because
many issuers of medium- and lower-quality Municipal Securities
choose not to have their obligations rated by a rating agency,
many of the obligations in the Fund's portfolio may be unrated.
Investment in medium- or lower-quality debt securities
involves greater investment risk, including the possibility of
issuer default or bankruptcy. An economic downturn could
severely disrupt this market and adversely affect the value of
outstanding bonds and the ability of the issuers to repay
principal and interest. During a period of adverse economic
changes, including a period of rising interest rates, issuers of
such bonds may experience difficulty in servicing their principal
and interest payment obligations.
Medium- and lower-quality debt securities tend to be less
marketable than higher-quality debt securities because the market
for them is less broad. The market for unrated debt securities
is even narrower. During periods of thin trading in these
markets, the spread between bid and asked prices is likely to
increase significantly, and the Fund may have greater difficulty
selling its portfolio securities.
The federal bankruptcy statutes relating to the debts of
political subdivisions and authorities of states of the United
States provide that, in certain circumstances, such subdivisions
or authorities may be authorized to initiate bankruptcy
proceedings without prior notice to or consent of creditors,
which proceedings could result in material and adverse changes in
the rights of holders of their obligations.
Lawsuits challenging the validity under state constitutions
of present systems of financing public education have been
initiated or adjudicated in a number of states, and legislation
has been introduced to effect changes in public school financing
in some states. In other instances there have been lawsuits
challenging the issuance of pollution control revenue bonds or
the validity of their issuance under state or federal law which
could ultimately affect the validity of those Municipal
Securities or the tax-free nature of the interest thereon. In
addition, from time to time proposals have been introduced in
Congress to restrict or eliminate the federal income tax
exemption for interest on Municipal Securities, and similar
proposals may be introduced in the future. Some of the past
proposals would have applied to interest on Municipal Securities
issued before the date of enactment, which would have adversely
affected their value to a material degree. If such proposals are
enacted, the availability of Municipal Securities for investment
by the Funds and the value of the Funds' portfolios would be
affected and, in such an event, the Funds would reevaluate their
investment objectives and policies.
Because the Funds may invest in industrial development
bonds, the Funds' shares may not be an appropriate investment for
"substantial users" of facilities financed by industrial
development bonds or for "related persons of substantial users."
In addition, the Funds invest in Municipal Securities issued
after the effective date of the Tax Reform Act of 1986 (the "1986
Act"), which may be subject to retroactive taxation if they fail
to continue to comply after issuance with certain requirements
imposed by the 1986 Act.
Although the banks and securities dealers from which a Fund
may acquire repurchase agreements and standby commitments, and
the entities from which a Fund may purchase participation
interests in Municipal Securities, will be those that the Adviser
believes to be financially sound, there can be no assurance that
they will be able to honor their obligations to the Fund.
* * * * *
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,
Net Asset Value, and Shareholder Services, and that information
is incorporated herein by reference. The Prospectus discloses
that you may purchase (or redeem) shares through investment
dealers, banks, or other institutions. It is the responsibility
of any such institution to establish procedures insuring the
prompt transmission to Municipal Trust of any such purchase
order. The state of Texas has asked that mutual funds disclose
in their Statement of Additional Information, as a reminder to
any such bank or institution, that it must be registered as a
dealer in Texas.
Each Fund's net asset value is determined on days on which
the New York Stock Exchange (the "NYSE") is open for trading.
The NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in Jan., the third Monday in Feb.,
Good Friday, the last Monday in May, Independence Day, Labor Day,
Thanksgiving, and Christmas. If one of these holidays falls on a
Saturday or Sunday, the NYSE will be closed on the preceding
Friday or the following Monday, respectively. Net asset value
will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, net asset value of a Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
Municipal Trust intends to pay all redemptions in cash and
is obligated to redeem shares of a Fund solely in cash up to the
lesser of $250,000 or one percent of the net assets of that Fund
during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly
by a distribution in kind of securities. If redemptions were
made in kind, the redeeming shareholders might incur transaction
costs in selling the securities received in the redemptions.
Although Municipal Money Fund does not currently charge a
fee to its shareholders for the use of the special Check-Writing
Redemption Privilege offered by that Fund, described under How to
Redeem Shares in the Prospectus, the Fund pays for the cost of
printing and mailing checks to its shareholders and pays charges
of the bank for payment of each check. Municipal Trust reserves
the right to establish a direct charge to shareholders for use of
the Privilege and both the Trust and the bank reserve the right
to terminate this service.
Municipal Trust reserves the right to suspend or postpone
redemptions of shares of any Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the
Securities and Exchange Commission, or the NYSE is closed for
other than customary weekend and holiday closings; (b) the
Securities and Exchange Commission has by order permitted such
suspension; or (c) an emergency, as determined by the Securities
and Exchange Commission, exists, making disposal of portfolio
securities or valuation of net assets of such Fund not reasonably
practicable.
Due to the relatively high cost of maintaining smaller
accounts, Municipal Trust reserves the right to redeem shares in
any account for their then-current value (which will be promptly
paid to the investor) if at any time the shares in the account do
not have a value of at least $1,000. An investor will be
notified that the value of his account is less than that minimum
and allowed at least 30 days to bring the value of the account up
to at least $1,000 before the redemption is processed. The
Agreement and Declaration of Trust also authorizes Municipal
Trust to redeem shares under certain other circumstances as may
be specified by the Board of Trustees.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers of Municipal Trust:
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AGE WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ----------------------- --- ---------------------- ----------------------------------------------------
<S> <C> <C> <C>
Gary A. Anetsberger (4) 41 Senior Vice-President Chief Financial Officer of the Mutual Funds
division of Stein Roe & Farnham Incorporated
(the "Adviser"); senior vice president of the
Adviser since April, 1996; vice president of
the Adviser prior thereto
Timothy K. Armour 49 President; Trustee President of the Mutual Funds division of the Adviser
(1)(2) (4) and director of the Adviser
Jilaine Hummel Bauer (4) 42 Executive Vice-President; General counsel and secretary (since Nov. 1995) and
Secretary senior vice president of the Adviser
Kenneth L. Block (3)(4) 77 Trustee Chairman Emeritus of A. T. Kearney, Inc.
(international management consultants)
William W. Boyd (3) (4) 70 Trustee Chairman and director of Sterling Plumbing Group,
Inc. (manufacturer of plumbing products)
Thomas W. Butch (4) 40 Executive Vice-President Senior vice president of the Adviser since Sept.
1994; first vice president, corporate communications,
of Mellon Bank Corporation prior thereto
Lindsay Cook (1)(4) 45 Trustee Executive vice president of Liberty Financial
Companies, Inc. (the indirect parent of the Adviser)
since Mar. 1997; senior vice president prior thereto
Joanne T. Costopoulos 50 Vice-President Senior portfolio manager of the Adviser; senior vice
president of the Adviser since Nov. 1995; vice
president of the Adviser from Jan. 1994 to Nov. 1995;
associate of the Adviser prior thereto
Philip J. Crosley 51 Vice-President Senior vice president of the Adviser since Feb. 1996;
vice president, institutional sales - advisor sales,
Invesco Funds Group prior thereto
Douglas A. Hacker (3)(4) 42 Trustee Senior vice president and chief financial officer of
United Airlines, since July 1994; senior vice
president, finance, United Airlines, Feb. 1993 to
July 1994; vice president, American Airlines prior
thereto
Janet Langford Kelly 39 Trustee Senior vice president, secretary and general counsel
(3)(4) of Sara Lee Corporation (branded, packaged, consumer-
products manufacturer), since 1995; partner, Sidley &
Austin (law firm) prior thereto
Lynn C. Maddox 56 Vice-President Senior vice president of the Adviser
Anne E. Marcel 39 Vice-President Vice president of the Adviser since Apr. 1996;
manager of mutual fund sales & services of the
Adviser since Oct. 1994; supervisor of the Counselor
Department of the Adviser prior thereto
M. Jane McCart 42 Vice-President Senior vice president of the Adviser
Francis W. Morley 77 Trustee Chairman of Employer Plan Administrators and
(2)(3)(4) Consultants Co. (designer, administrator, and
communicator of employee benefit plans)
Charles R. Nelson(3)(4) 55 Trustee Van Voorhis Professor of Political Economy of the
University of Washington
Nicolette D. Parrish(4) 47 Vice-President; Senior compliance administrator and assistant
Assistant Secretary secretary of the Adviser since Nov. 1995; senior
legal assistant for the Adviser prior thereto
Sharon R. Robertson (4) 35 Controller Accounting manager for the Adviser's Mutual Funds
division
Janet B. Rysz (4) 42 Assistant Secretary Senior compliance administrator and assistant
secretary of the Adviser
Thomas C. Theobald 60 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 prior thereto
Veronica M. Wallace 51 Vice-President Portfolio manager for the Adviser since Sept. 1995;
trader in taxable short-term instruments for the
Adviser prior thereto
Heidi J. Walter (4) 30 Vice-President Legal counsel for the Adviser since Mar. 1995;
associate with Beeler Schad & Diamond PC (law firm)
prior thereto
Stacy H. Winick (4) 32 Vice-President Senior legal counsel for the Adviser since Oct. 1996;
associate of Bell, Boyd & Lloyd (law firm) from June
1993 to Sept. 1996; associate of Debevoise & Plimpton
(law firm) prior thereto
Hans P. Ziegler (4) 56 Executive Vice-President Chief executive officer of the Adviser since May
1994; president of the Investment Counsel division of
the Adviser from July 1993 to July 1994; president
and chief executive officer, Pitcairn Financial
Management Group prior thereto
Margaret O. Zwick (4) 31 Assistant Treasurer Project manager for the Adviser's Mutual Funds
division since Apr. 1997; compliance manager from
Aug. 1995 to Apr. 1997; compliance accountant, Jan.
1995 to July 1995; section manager, Jan. 1994 to Jan.
1995; supervisor prior thereto
<FN>
____________________________
(1) Trustee who is an "interested person" of the Trust and of the
Adviser, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of auditors
and confers with the auditors regarding the scope and results of
the audit.
(4) This person also holds the corresponding officer or trustee
position with Base Trust.
</TABLE>
Certain of the trustees and officers of Municipal Trust and
of Base Trust are trustees or officers of other investment
companies managed by the Adviser. Mr. Armour, Ms. Bauer, Mr.
Cook, and Ms. Walter are also vice presidents of the Funds'
distributor, Liberty Securities Corporation. The address of Mr.
Block is 11 Woodley Road, Winnetka, Illinois 60093; that of Mr.
Boyd is 2900 Golf Road, Rolling Meadows, Illinois 60008; that of
Mr. Cook is 600 Atlantic Avenue, Boston, MA 02210; that of Mr.
Hacker is P.O. Box 66100, Chicago, IL 60666; that of Ms. Kelly is
Three First National Plaza, Chicago, Illinois 60602; that of Mr.
Morley is 20 North Wacker Drive, Suite 2275, Chicago, Illinois
60606; that of Mr. Nelson is Department of Economics, University
of Washington, Seattle, Washington 98195; that of Mr. Theobald is
Suite 3300, 222 West Adams Street, Chicago, IL 60606; and that of
the officers is One South Wacker Drive, Chicago, Illinois 60606.
Officers and trustees affiliated with the Adviser serve
without any compensation from Municipal Trust. In compensation
for their services to Municipal Trust, trustees who are not
"interested persons" of Municipal Trust or the Adviser are paid
an annual retainer of $8,000 (divided equally among the Funds of
Municipal Trust) plus an attendance fee from each Fund for each
meeting of the Board or standing committee thereof attended at
which business for that Fund is conducted. The attendance fees
(other than for a Nominating Committee or Compensation Committee
meeting) are based on each Fund's net assets as of the preceding
Dec. 31. For a Fund with net assets of less than $50 million,
the fee is $50 per meeting; with $51 to $250 million, the fee is
$200 per meeting; with $251 million to $500 million, $350; with
$501 million to $750 million, $500; with $751 million to $1
billion, $650; and with over $1 billion in net assets, $800. For
a Fund participating in the master fund/feeder fund structure,
the trustees' attendance fees are paid solely by the master
portfolio. Each non-interested trustee also receives $500 from
the Trust for attending each meeting of the Nominating Committee
and Compensation Committee. Municipal Trust has no retirement or
pension plan. The following table sets forth compensation paid
during the fiscal year ended June 30, 1997, to the trustees:
Aggregate Compensation Total Compensation from the
Name of Trustee from Municipal Trust Stein Roe Fund Complex*
- --------------- ---------------------- -----------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Kenneth L. Block $14,700 $70,693
William W. Boyd 16,750 80,593
Douglas A. Hacker 15,750 76,593
Janet Langford Kelly 8,200 51,600
Francis W. Morley 15,750 76,943
Charles R. Nelson 16,750 80,593
Thomas C. Theobald 15,750 76,593
_______________
* At June 30, 1997, the Stein Roe Fund Complex consisted of four
series of Municipal Trust, six series of Stein Roe Income Trust,
ten series of Stein Roe Investment Trust, one series of Stein Roe
Institutional Trust, one series of Stein Roe Trust, seven series
of Stein Roe Advisor Trust, and nine series of Base Trust.
FINANCIAL STATEMENTS
Please refer to the Funds' June 30, 1997 Financial
Statements (balance sheets and schedules of investments as of
June 30, 1997 and the statements of operations, changes in net
assets, and notes thereto) and the report of independent auditors
contained in the June 30, 1997 Annual Report of the Funds. The
Financial Statements and the report of independent auditors (but
no other material from the Annual Report) are incorporated herein
by reference. The Annual Report may be obtained at no charge by
telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of Sept. 30, 1997, the only person known by Municipal
Trust to own of record or "beneficially" 5% or more of the
outstanding shares of any Fund within the definition of that term
as contained in Rule 13d-3 under the Securities Exchange Act of
1934, were as follows:
Approximate % of
Outstanding
Name and Address Fund Shares Held
- ---------------------- ----------------------- ----------------
First Bank National Intermediate Municipals 7%
Association* High-Yield Municipals 10%
410 N. Michigan Avenue
Chicago, IL 60611
Charles Schwab & Co., Intermediate Municipals 11%
Inc.* High-Yield Municipals 6%
Attn: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104
___________________
*Shares held of record, but not beneficially.
The following table shows shares of the Funds as of Sept.
30, 1997, held by the categories of persons indicated and in each
case the approximate percentage of outstanding shares
represented:
Clients of the Adviser
in their Client Accounts* Trustees and Officers
------------------------- ---------------------
Shares Held Percent Shares Held Percent
----------- ------- ----------- -------
Municipal Money Fund 39,434,369 32% 405,514 **
Intermediate Municipals 6,566,279 38% 23,999 **
Managed Municipals 16,854,873 27% 43,525 **
High-Yield Municipals 7,269,923 27% 22,276 **
_________________
*The Adviser may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by the Adviser under Rule 13d-3. However, the
Adviser disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated (the "Adviser") serves as
investment adviser to Intermediate Municipals, Managed
Municipals, High-Yield Municipals, and Municipal Money Portfolio.
The Adviser also provides administrative services to each Fund
and Municipal Money Portfolio. The Adviser is a wholly owned
subsidiary of SteinRoe Services Inc. ("SSI"), the Funds' transfer
agent, which is a wholly owned subsidiary of Liberty Financial
Companies, Inc. ("Liberty Financial"), which is a majority owned
subsidiary of LFC Holdings, Inc., which is a wholly owned
subsidiary of Liberty Mutual Equity Corporation, which is a
wholly owned subsidiary of Liberty Mutual Insurance Company.
Liberty Mutual Insurance Company is a mutual insurance company,
principally in the property/casualty insurance field, organized
under the laws of Massachusetts in 1912.
The directors of the Adviser are Kenneth R. Leibler, Harold
W. Cogger, C. Allen Merritt, Jr., Timothy K. Armour, 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 Executive Vice President and
Treasurer of Liberty Financial; Mr. Armour 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. Armour and
Ziegler is One South Wacker Drive, Chicago, Illinois 60606.
The Adviser and its predecessor have been providing
investment advisory services since 1932. The Adviser acts as
investment adviser to wealthy individuals, trustees, pension and
profit sharing plans, charitable organizations, and other
institutional investors. As of June 30, 1997, the Adviser
managed over $28 billion in assets: over $9 billion in equities
and over $19 billion in fixed income securities (including $1.7
billion in municipal securities). The $28 billion in managed
assets included over $7.9 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 259,000 shareholders. The $7.9 billion in
mutual fund assets included over $766 million in over 50,000 IRA
accounts. In managing those assets, the Adviser utilizes a
proprietary computer-based information system that maintains and
regularly updates information for approximately 7,000 companies.
The Adviser also monitors over 1,400 issues via a proprietary
credit analysis system. At June 30, 1997, the Adviser employed
16 research analysts and 55 account managers. The average
investment-related experience of these individuals was 24 years.
Stein Roe Counselor [service mark] and Stein Roe Personal
Counselor [service mark] are professional investment advisory
services offered by the Adviser to Fund shareholders. Each is
designed to help shareholders construct Fund investment
portfolios to suit their individual needs. Based on information
shareholders provide about their financial goals and objectives
in response to a questionnaire, the Adviser's investment
professionals create customized portfolio recommendations.
Shareholders participating in Stein Roe Counselor [service mark]
are free to self direct their investments while considering the
Adviser's recommendations; shareholders participating in Stein
Roe Personal Counselor [service mark] enjoy the added benefit of
having the Adviser implement portfolio recommendations
automatically for a fee of 1% or less, depending on the size of
their portfolios. In addition to reviewing shareholders' goals
and objectives periodically and updating portfolio
recommendations to reflect any changes, the Adviser provides
shareholders participating in these programs with a dedicated
Counselor [service mark] representative. Other distinctive
services include specially designed account statements with
portfolio performance and transaction data, newsletters, and
regular investment, economic, and market updates. A $50,000
minimum investment is required to participate in either program.
Please refer to the descriptions of the Adviser,
administrative agreement, management agreements, fees, expense
limitations, and transfer agency services under Management and
Fee Table in the Prospectus, which is incorporated herein by
reference. The advisory agreements relating to Intermediate
Municipals, Managed Municipals, and High-Yield Municipals were
replaced with administrative and management agreements on July 1,
1996. The table below shows gross fees paid and any expense
reimbursements by the Adviser for the past three fiscal years:
YEAR YEAR YEAR
TYPE OF ENDED ENDED ENDED
FUND PAYMENT 6/30/97 6/30/96 6/30/95
- ----------------- ---------------- --------- --------- ----------
Municipal Money
Fund Advisory fee -- $ 169,982 $ 786,956
Administrative fee $300,244 248,793 --
Reimbursement 194,629 194,035 120,433
Municipal Money
Portfolio Management fee 351,742 289,880 --
Intermediate
Municipals Advisory fee -- 1,220,311 1,248,808
Management fee 876,108 -- --
Administrative fee 274,088 -- --
Reimbursement 240,300 227,352 36,038
Managed Municipals Advisory fee -- 3,261,714 3,392,060
Management fee 2,482,110 -- --
Administrative fee 674,444 -- --
High-Yield
Municipals Advisory fee -- 1,549,376 1,587,995
Management fee 1,255,595 -- --
Administrative fee 368,923 -- --
The Adviser provides office space and executive and other
personnel to the Funds and bears any sales or promotional
expenses. Each Fund pays all expenses other than those paid by
the Adviser, including but not limited to printing and postage
charges 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 total annual expenses of
the Fund (including fees paid to the Adviser, but excluding
taxes, interest, brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities, and
expenses of litigation to the extent permitted under applicable
state law) exceed the applicable limits prescribed by any state
in which the shares of such Fund are being offered for sale to
the public; however, such reimbursement for any fiscal year will
not exceed the amount of the fees paid by the Fund under that
agreement for such year. In addition, in the interest of further
limiting expenses, from time to time, the Adviser may voluntarily
waive its management fee and/or absorb certain expenses for a
Fund, as described in the Prospectus under Fee Table. Any such
reimbursements will enhance the yield of such Fund.
Each management agreement also provides that neither the
Adviser nor any of its directors, officers, stockholders (or
partners of stockholders), agents, or employees shall have any
liability to the Trust or any shareholder of the Fund (or
Municipal Money Portfolio) for any error of judgment, mistake of
law or any loss arising out of any investment, or for any other
act or omission in the performance by the Adviser of its duties
under the agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on the Adviser's part
in the performance of its duties or from reckless disregard by
the Adviser of the Adviser's obligations and duties under that
agreement.
Any expenses that are attributable solely to the
organization, operation, or business of a Fund shall be paid
solely out of that Fund's assets. Any expenses incurred by
Municipal Trust that are not solely attributable to a particular
Fund are apportioned in such a manner as the Adviser determines
is fair and appropriate, unless otherwise specified by the Board
of Trustees.
Bookkeeping and Accounting Agreement
Pursuant to a separate agreement with Municipal Trust, the
Adviser receives a fee for performing certain bookkeeping and
accounting services for the Funds. For these services, the
Adviser receives an annual fee of $25,000 per Fund plus .0025 of
1% of average net assets over $50 million. During the fiscal
years ended June 30, 1995, 1996 and 1997, the Adviser received
aggregate fees of $74,069, $147,330 and $125,437 from Municipal
Trust for services performed under this agreement.
DISTRIBUTOR
Shares of the Funds are distributed by Liberty Securities
Corporation ("LSC") under a Distribution Agreement as described
under Management in the Prospectus, which is incorporated herein
by reference. The Distribution Agreement continues in effect
from year to year, provided such continuance is approved annually
(i) by a majority of the trustees or by a majority of the
outstanding voting securities of Municipal Trust, and (ii) by a
majority of the trustees who are not parties to the Agreement or
interested persons of any such party. Municipal Trust has agreed
to pay all expenses in connection with registration of its shares
with the Securities and Exchange Commission and auditing and
filing fees in connection with registration of its shares under
the various state blue sky laws and assumes the cost of
preparation of prospectuses and other expenses.
As agent, LSC offers shares of the Funds to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. No sales commission or "12b-1" payment is paid by any
Fund. LSC offers the Funds' shares only on a best-efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for Municipal
Trust, as described under Management in the Prospectus. For
performing these services, SSI receives payments from Municipal
Money Fund of 0.150% of average daily net assets and payments
from Intermediate Municipals, Managed Municipals, and High-Yield
Municipals of 0.140% of 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 also
provides certain investor accounting services to Municipal Money
Portfolio.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02101, is the custodian for the Municipal
Trust and 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 custodian does not
exercise any supervisory function in such matters as purchase and
sale of portfolio securities, payment of dividends, or payment of
expenses of the Funds. The Trusts have authorized the custodian
to deposit certain portfolio securities in central depository
systems as permitted under federal law. The Funds may invest in
obligations of the custodian and may purchase or sell securities
from or to the custodian.
INDEPENDENT AUDITORS
The independent auditors for Municipal Trust and Municipal
Money Portfolio are Ernst & Young LLP, 233 South Wacker Drive,
Chicago, Illinois 60606. The independent auditors audit and
report on the annual financial statements, review certain
regulatory reports and the federal income tax returns, and
perform other professional accounting, auditing, tax and advisory
services when engaged to do so by the Trusts.
PORTFOLIO TRANSACTIONS
For the purposes of discussion under Portfolio Transactions,
the term "Fund" refers to Municipal Money Fund, Municipal Money
Portfolio, Intermediate Municipals, Managed Municipals, and High-
Yield Municipals.
The Adviser places the orders for the purchase and sale of
portfolio securities for each Fund and options and futures
contracts entered into by Intermediate Municipals, Managed
Municipals, and High-Yield Municipals. Portfolio securities are
purchased both in underwritings and in the over-the-counter
market. The following table shows any commissions paid by the
Funds on futures transactions during the past three fiscal years.
The Funds did not pay commissions on any other transactions.
High-Yield Managed Intermediate
Municipals Municipals Municipals
---------- ---------- ------------
Total brokerage commissions
paid during year ended
6/30/97 -0- -0- -0-
Number of futures contracts -0- -0- -0-
Total brokerage commissions
paid during year ended
6/30/96 -0- -0- -0-
Total brokerage commissions
paid during year ended
6/30/95 $58,366 $58,366 $14,023
Included in the price paid to an underwriter of a portfolio
security is the spread between the price paid by the underwriter
to the issuer and the price paid by the purchaser. Purchases and
sales of portfolio securities in the over-the-counter market
usually are transacted with a broker or dealer on a net basis,
without any brokerage commission being paid by a Fund, but do
reflect the spread between the bid and asked prices. The Adviser
may also transact purchases of portfolio securities directly with
the issuers.
The Adviser's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price
and execution. The best net price, giving effect to transaction
charges and other costs, is normally an important factor in this
decision, but a number of other judgmental factors may also enter
into the decision. These include: the Adviser's knowledge of
current transaction costs; the nature of the security being
traded; the size of the transaction; the desired timing of the
trade; the activity existing and expected in the market for the
particular security; confidentiality; the execution, clearance
and settlement capabilities of the broker or dealer selected and
others which are considered; the Adviser's knowledge of the
financial stability of the broker or dealer selected and such
other brokers or dealers; and the Adviser's knowledge of actual
or apparent operational problems of any broker or dealer.
Recognizing the value of these factors, a Fund may pay a price in
excess of that which another broker or dealer may have charged
for effecting the same transaction or receive a price lower than
that which another broker-dealer may have paid. Evaluations of
the reasonableness of the costs of portfolio transactions, based
on the foregoing factors, are made on an ongoing basis by the
Adviser's staff while effecting portfolio transactions and
reports are made annually to the Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to
be capable of providing the best combination of price and
execution with respect to a particular portfolio transaction for
a Fund, the Adviser often selects a broker or dealer that has
furnished it with research products or services such as research
reports, subscriptions to financial publications and research
compilations, compilations of securities prices, earnings,
dividends and similar data, and computer databases, quotation
equipment and services, research-oriented computer software and
services, and services of economic and other consultants.
Selection of brokers or dealers is not made pursuant to an
agreement or understanding with any of the brokers or dealers;
however, the Adviser uses an internal allocation procedure to
identify those brokers or dealers who provide it with research
products or services and the amount of research products or
services they provide, and endeavors to direct sufficient
commissions generated by its clients' accounts in the aggregate,
including the Funds, to such brokers or dealers to ensure the
continued receipt of research products or services the Adviser
feels are useful. In certain instances, the Adviser receives
from brokers and dealers products or services which are used both
as investment research and for administrative, marketing, or
other non-research purposes. In such instances, the Adviser
makes a good faith effort to determine the relative proportions
of such products or services which may be considered as
investment research. The portion of the costs of such products
or services attributable to research usage may be defrayed by the
Adviser (without prior agreement or understanding, as noted
above) through brokerage commissions generated by transactions of
clients (including the Funds), while the portion of the costs
attributable to non-research usage of such products or services
is paid by the Adviser in cash. No person acting on behalf of a
Fund is authorized, in recognition of the value of research
products or services, to pay a price in excess of that which
another broker or dealer might have charged for effecting the
same transaction. The Adviser may also receive research in
connection with selling concessions and designations in fixed
price offerings in which the Funds participate. Research
products or services furnished by brokers and dealers through
whom a Fund effects transactions may be used in servicing any or
all of the clients of the Adviser and not all such research
products or services are used in connection with the management
of such Fund.
The Board of Trustees of each Trust has reviewed the legal
aspects and the practicability of attempting to recapture
underwriting discounts or selling concessions included in prices
paid by the Funds for purchases of Municipal Securities in
underwritten offerings. Each Fund attempts to recapture selling
concessions on purchases during underwritten offerings; however,
the Adviser will not be able to negotiate discounts from the
fixed offering price for those issues for which there is a strong
demand, and will not allow the failure to obtain a discount to
prejudice its ability to purchase an issue. Each Board
periodically reviews efforts to recapture concessions and whether
it is in the best interests of the Funds to continue to attempt
to recapture underwriting discounts or selling concessions.
ADDITIONAL INCOME TAX CONSIDERATIONS
Each Fund and Municipal Money 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. Throughout this section, the term "Fund" also
refers to Municipal Money Portfolio.
Each Fund intends to distribute substantially all of its
income, tax-exempt and taxable, including any net realized
capital gains, and thereby be relieved of any federal income tax
liability to the extent of such distributions. Each Fund intends
to retain for its shareholders the tax-exempt status with respect
to tax-exempt income received by the Fund. The distributions
will be designated as "exempt-interest dividends," taxable
ordinary income, and capital gains. The Funds may also invest in
Municipal Securities the interest on which is subject to the
federal alternative minimum tax. The source of exempt-interest
dividends on a state-by-state basis and the federal income tax
status of all distributions will be reported to shareholders
annually. Such report will allocate income dividends between
tax-exempt, taxable income, and alternative minimum taxable
income in approximately the same proportions as that Fund's total
income during the year. Accordingly, income derived from each of
these sources by a Fund may vary substantially in any particular
distribution period from the allocation reported to shareholders
annually. The proportion of such dividends that constitutes
taxable income will depend on the relative amounts of assets
invested in taxable securities, the yield relationships between
taxable and tax-exempt securities, and the period of time for
which such securities are held. Each Fund may, under certain
circumstances, temporarily invest its assets so that less than
80% of gross income during such temporary period will be exempt
from federal income taxes. (See Investment Policies.)
Because capital gain distributions reduce net asset value,
if a shareholder purchases shares shortly before a record date he
will, in effect, receive a return of a portion of his investment
in such distribution. The distribution would nonetheless be
taxable to him, even if the net asset value of shares were
reduced below his cost. However, for federal income tax purposes
the shareholder's original cost would continue as his tax basis.
Because the taxable portion of each Fund's investment income
consists primarily of interest, none of its dividends, whether or
not treated as "exempt-interest dividends," will qualify under
the Internal Revenue Code for the dividends received deduction
available to corporations.
Interest on indebtedness incurred or continued by
shareholders to purchase or carry shares of a Fund is not
deductible for federal income tax purposes. Under rules applied
by the Internal Revenue Service to determine whether borrowed
funds are used for the purpose of purchasing or carrying
particular assets, the purchase of shares may, depending upon the
circumstances, be considered to have been made with borrowed
funds even though the borrowed funds are not directly traceable
to the purchase of shares.
If you redeem at a loss shares of a Fund held for six months
or less, that loss will not be recognized for federal income tax
purposes to the extent of exempt-interest dividends you have
received with respect to those shares. If any such loss exceeds
the amount of the exempt-interest dividends you received, that
excess loss will be treated as a long-term capital loss to the
extent you receive any long-term capital gain distribution with
respect to those shares.
Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds
should consult their own tax advisors before purchasing shares.
Such persons may find investment in the Funds unsuitable for tax
reasons. Corporate investors may also wish to consult their own
tax advisors before purchasing shares. In addition, certain
property and casualty insurance companies, financial
institutions, and United States branches of foreign corporations
may be adversely affected by the tax treatment of the interest on
Municipal Securities.
INVESTMENT PERFORMANCE
Municipal Money Fund
Municipal Money Fund may quote a "Current Yield" or
"Effective Yield" or both from time to time. The Current Yield
is an annualized yield based on the actual total return for a
seven-day period. The Effective Yield is an annualized yield
based on a daily compounding of the Current Yield. These yields
are each computed by first determining the "Net Change in Account
Value" for a hypothetical account having a share balance of one
share at the beginning of a seven-day period ("Beginning Account
Value"), excluding capital changes. The Net Change in Account
Value will always equal the total dividends declared with respect
to the account, assuming a constant net asset value of $1.00. A
"Tax-Equivalent Yield" is computed by dividing the portion of the
"Yield" that is tax-exempt by one minus a stated income tax rate
and adding the product to that portion, if any, of the yield that
is not tax-exempt.
The Yields are then computed as follows:
Net Change in Account Value 365
--------------------------- ----
Current Yield = Beginning Account Value x 7
[1 + Net Change in Account Value]365/7
--------------------------------------
Effective Yield = Beginning Account Value - 1
For example, the yields of Municipal Money Fund for the seven-day
period ended June 30, 1997 were:
$0.0.000657808 365
-------------- ---
Current Yield = $1.00 x 7 = 3.43%
[1+$0.0.000657808]365/7
---------------------
Effective Yield = $1.00 - 1 = 3.48%
Tax-Equivalent Current Yield = 5.67% (assuming 39.6% tax rate)
Tax-Equivalent Effective Yield = 5.77% (assuming 39.6% tax rate)
The average dollar-weighted portfolio maturity for the seven
days ended June 30, 1997, was 53 days.
In addition to fluctuations reflecting changes in net income
of the Fund, resulting from changes in its proportionate share of
Municipal Money Portfolio's investment income and expenses, the
Fund's yield also would be affected if the Fund or Municipal
Money Portfolio were to restrict or supplement their respective
dividends in order to maintain a net asset value at $1.00 per
share. (See Net Asset Value in the Prospectus.) Asset changes
resulting from net purchases or net redemptions of Fund or
Portfolio shares may affect yield. Accordingly, the Fund's yield
may vary from day to day and the yield stated for a particular
past period is not a representation as to its future yield. The
Fund's yield is not assured and its principal is not insured;
however, the Fund will attempt to maintain its net asset value
per share at $1.00.
Comparison of the Fund's yield with those of alternative
investments (such as savings accounts, various types of bank
deposits, and other money market funds) should be made with
consideration of differences between the Fund and the alternative
investments, differences in the periods and methods used in the
calculation of the yields being compared, and the impact of
income taxes on alternative investments.
Intermediate Municipals, Managed Municipals, and High-Yield
Municipals
Intermediate Municipals, Managed Municipals, and High-Yield
Municipals may quote yield figures from time to time. The
"Yield" of a Fund is computed by dividing the net investment
income per share earned during a 30-day period (using the average
number of shares entitled to receive dividends) by the net asset
value per share on the last day of the period. The Yield formula
provides for semiannual compounding which assumes that net
investment income is earned and reinvested at a constant rate and
annualized at the end of a six-month period. A "Tax-Equivalent
Yield" is computed by dividing the portion of the Yield that is
tax-exempt by one minus a stated income tax rate and adding the
product to that portion, if any, of the Yield that is not tax-
exempt.
6
The Yield formula is as follows: YIELD = 2[((a-b/cd) +1) - 1]
Where: a = dividends and interest earned during the period.
(For this purpose, the Fund will recalculate the
yield to maturity based on market value of each
portfolio security on each business day on which net
asset value is calculated.)
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the ending net asset value of the Fund for the period.
For example, the Yields of the Funds for the 30-day period ended
June 30, 1997 were:
Intermediate Municipals
Yield = 4.23%
Tax-Equivalent Yield = 7.00%
(assuming 39.6% tax rate)
Managed Municipals
Yield = 4.73%
Tax-Equivalent Yield = 7.83%
(assuming 39.6% tax rate)
High-Yield Municipals
Yield = 5.10%
Tax-Equivalent Yield = 8.45%
(assuming 39.6% tax rate)
All Funds
Each Fund may quote total return figures from time to time.
A "Total Return" on a per share basis is the amount of dividends
distributed per share plus or minus the change in the net asset
value per share for a period. A "Total Return Percentage" may be
calculated by dividing the value of a share at the end of a
period (including reinvestment of distributions) by the value of
the share at the beginning of the period and subtracting one.
For a given period, an "Average Annual Total Return" may be
computed by finding the average annual compounded rate that would
equate a hypothetical initial amount invested of $1,000 to the
ending redeemable value. A Fund may also quote tax-equivalent
total return figures or other tax-equivalent measures of
performance.
n
Average Annual Total Return is computed as follows: ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion thereof).
For example, for a $1,000 investment in a Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at June 30, 1997 were:
TOTAL RETURN AVERAGE ANNUAL
FUND TOTAL RETURN PERCENTAGE TOTAL RETURN
- --------------------- ------------ ------------ -------------
Municipal Money Fund
1 year $1,030 3.04% 3.04%
5 years 1,138 13.76 2.61
10 years 1,432 43.16 3.65
Intermediate Municipals
1 year 1,071 7.07 7.07
5 years 1,351 35.07 6.20
10 years 1,943 94.33 6.87
Managed Municipals
1 year 1,086 8.56 8.56
5 years 1,365 36.48 6.42
10 years 2,141 114.09 7.91
High-Yield Municipals
1 year 1,089 8.91 8.91
5 years 1,376 37.55 6.58
10 years 2,170 117.01 8.06
Investment performance figures assume reinvestment of all
dividends and distributions, and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of
future results. The performance of a Fund is a result of
conditions in the securities markets, portfolio management, and
operating expenses. Although investment performance information
is useful in reviewing a Fund's performance and in providing some
basis for comparison with other investment alternatives, it
should not be used for comparison with other investments using
different reinvestment assumptions or time periods.
In advertising and sales literature, a Fund may compare its
yield and performance with that of other mutual funds, indexes or
averages of other mutual funds, indexes of related financial
assets or data, and other competing investment and deposit
products available from or through other financial institutions.
The composition of these indexes or averages differs from that of
the Funds. Comparison of a Fund to an alternative investment
should be made with consideration of differences in features and
expected performance.
All of the indexes and averages noted below will be obtained
from the indicated sources or reporting services, which the Funds
believe to be generally accurate. A Fund may also note its
mention in newspapers, magazines, or other media from time to
time. However, the Funds assume no responsibility for the
accuracy of such data. Newspapers and magazines that might
mention the Funds include, but are not limited to, the following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Associated Press
Barron's
Bloomberg
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Decoder
Gourmet
Individual Investor
Investment Adviser
Investment Dealers' Digest
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
All of the Funds may compare their performance to the
Consumer Price Index (All Urban), a widely-recognized measure of
inflation.
Municipal Money Fund
Municipal Money Fund may compare its yield to the average
yield of the following: Donoghue's Money Fund Averages
[trademark]--Stockbroker and General Purpose categories; and the
Lipper All Short-Term Tax-Free Categories [trademark].
Municipal Money Fund may also compare its tax-equivalent
yield to the average rate for the taxable fund category for the
aforementioned services. Should these services reclassify the
Fund into a different category or develop (and place the Fund
into) a new category, the Fund may compare its performance, rank,
or yield with those of other funds in the newly-assigned category
as published by the service.
Investors may desire to compare Municipal Money Fund's
performance and features to that of various bank products. The
Fund may compare its tax-equivalent yield to the average rates of
bank and thrift institution money market deposit accounts, Super
N.O.W. accounts, and certificates of deposit. The rates
published weekly by the BANK RATE MONITOR [copyright], a North
Palm Beach (Florida) financial reporting service, in its BANK
RATE MONITOR [copyright] National Index are averages of the
personal account rates offered on the Wednesday prior to the date
of publication by one hundred leading banks and thrift
institutions in the top ten Consolidated Standard Metropolitan
Statistical Areas. Account minimums range upward from $2,500 in
each institution and compounding methods vary. Super N.O.W.
accounts generally offer unlimited checking, while money market
deposit accounts generally restrict the number of checks that may
be written. If more than one rate is offered, the lowest rate is
used. Rates are subject to change at any time specified by the
institution. Bank account deposits may be insured. Shareholder
accounts in the Fund are not insured. Bank passbook savings
accounts compete with money market mutual fund products with
respect to certain liquidity features but may not offer all of
the features available from a money market mutual fund, such as
check writing. Bank passbook savings accounts normally offer a
fixed rate of interest while the yield of the Fund fluctuates.
Bank checking accounts normally do not pay interest but compete
with money market mutual funds with respect to certain liquidity
features (e.g., the ability to write checks against the account).
Bank certificates of deposit may offer fixed or variable rates
for a set term. (Normally, a variety of terms are available.)
Withdrawal of these deposits prior to maturity will normally be
subject to a penalty. In contrast, shares of the Fund are
redeemable at the next determined net asset value (normally,
$1.00 per share) after a request is received, without charge.
Intermediate Municipals, Managed Municipals, and High-Yield
Municipals
Intermediate Municipals, Managed Municipals, and High-Yield
Municipals may compare performance to the following as indicated
below:
BENCHMARK FUND(S)
- ----------------------------------- ----------------------
Lehman Brothers Municipal Bond Index High-Yield Municipals,
Managed Municipals
Lehman Brothers 10-Year Municipal
Bond Index Intermediate Municipals
Lehman Brothers 7-Year Municipal
Bond Index Intermediate Municipals
Lipper Intermediate (5-10 year)
Municipal Bond Funds Average Intermediate Municipals
Lipper General Municipal Bond Funds
Average Managed Municipals
Lipper High-Yield Municipal Bond
Funds Average High-Yield Municipals
Lipper Municipal Bond Fund Average Intermediate Municipals,
Managed Municipals,
High-Yield Municipals
Morningstar Municipal Bond
(General) Funds Average Managed Municipals,
Intermediate Municipals
Morningstar Municipal Bond (High-
Yield) Funds Average High-Yield Municipals
Morningstar Long-Term Tax-Exempt
Fund Average High-Yield Municipals,
Intermediate Municipals,
Managed Municipals
The Lipper and Morningstar averages are unweighted averages
of total return performance of mutual funds as classified,
calculated, and published by these independent services that
monitor the performance of mutual funds. The Funds may also use
comparative performance as computed in a ranking by those
services or category averages and rankings provided by another
independent service. Should these services reclassify a Fund to
a different category or develop (and place a Fund into) a new
category, that Fund may compare its performance or rank with
those of other funds in the newly-assigned category (or the
average of such category) as published by the service.
In advertising and sales literature, a Fund may also cite
its rating, recognition, or other mention by Morningstar or any
other entity. Morningstar's rating system is based on risk-
adjusted total return performance and is expressed in a star-
rating format. The risk-adjusted number is computed by
subtracting a fund's risk score (which is a function of its
monthly returns less the 3-month T-bill return) from its load-
adjusted total return score. This numerical score is then
translated into rating categories, with the top 10% labeled five
star, the next 22.5% labeled four star, the next 35% labeled
three star, the next 22.5% labeled two star, and the bottom 10%
one star. A high rating reflects either above-average returns or
below-average risk, or both.
Investors may desire to compare a Fund's performance to that
of various bank products. A Fund may compare its tax-equivalent
yield to the average rates of bank and thrift institution
certificates of deposit. The rates published weekly by the BANK
RATE MONITOR [copyright], a North Palm Beach (Florida) financial
reporting service, in its BANK RATE MONITOR [copyright] National
Index are averages of the personal account rates offered on the
Wednesday prior to the date of publication by one hundred leading
banks and thrift institutions in the top ten Consolidated
Standard Metropolitan Statistical Areas. Bank account minimums
range upward from $2,500 in each institution and compounding
methods vary. Rates are subject to change at any time specified
by the institution. A Fund's net asset value and investment
return will vary. Bank account deposits may be insured; Fund
accounts are not insured. Bank certificates of deposit may offer
fixed or variable rates for a set term. Withdrawal of these
deposits prior to maturity will normally be subject to a penalty.
In contrast, shares of the Fund are redeemable at the next
determined net asset value after a request is received, without
charge.
Intermediate Municipals, Managed Municipals, and High-Yield
Municipals may also compare their respective tax-equivalent
yields to the average rate for the taxable fund category of the
aforementioned services.
Of course, past performance is not indicative of future
results.
________________
To illustrate the historical returns on various types of
financial assets, the Funds may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based
investment firm. Ibbotson constructs (or obtains) very long-term
(since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total
returns and standard deviations of such returns) for the
following asset types:
Common stocks
Small company stock
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
A Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such
example is reflected in the chart below, which shows the effect
of tax-exempt investing on a hypothetical investment. Tax-exempt
income, however, may be subject to state and local taxes and the
federal alternative minimum tax. Marginal tax brackets are based
on 1993 federal tax rates and are subject to change. "Joint
Return" is based on two exemptions and "Single return" is based
on one exemption. The results would differ for different numbers
of exemptions.
TAX-EQUIVALENT YIELDS
A taxable
investment must yield the following
Taxable Income (thousands) Marginal to equal a tax-exempt yield of:
- ----------------------------- Tax ----------------------------------
Joint Return Single Return Bracket 4% 5% 6% 7% 8%
- -------------- ------------- -------- ---- ---- ---- ----- -----
$0.0 - 36.9 $0.0 - 22.1 15% 4.71 5.88 7.06 8.24 9.41
$36.9 - 89.2 $22.1 - 53.5 28% 5.56 6.94 8.33 9.72 11.11
$89.2 - 140.0 $53.5 - 115.0 31% 5.80 7.25 8.70 10.14 11.59
$140.0 - 250.0 $115.0 - 250.0 36% 6.25 7.81 9.38 10.94 12.50
$250.0+ $250.0+ 39.6% 6.62 8.28 9.93 11.59 13.25
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average
cost per share. Like any investment strategy, dollar cost
averaging can't guarantee a profit or protect against losses in a
steadily declining market. Dollar cost averaging involves
uninterrupted investing regardless of share price and therefore
may not be appropriate for every investor.
From time to time, a Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[service mark] and the Stein Roe Personal Counselor [service
mark] programs and asset allocation and other investment
strategies.
ADDITIONAL INFORMATION ON NET ASSET VALUE--MUNICIPAL
MONEY FUND AND MUNICIPAL MONEY PORTFOLIO
Please refer to Net Asset Value in the Prospectus, which is
incorporated herein by reference. Municipal Money Portfolio
values its portfolio by the "amortized cost method" by which it
attempts to maintain its net asset value at $1.00 per share.
This involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates
on the market value of the instrument. Although this method
provides certainty in valuation, it may result in periods during
which value as determined by amortized cost is higher or lower
than the price Municipal Money Portfolio would receive if it sold
the instrument. Other assets are valued at a fair value
determined in good faith by the Board of Trustees.
In connection with Municipal Money Portfolio's use of
amortized cost and the maintenance of its per share net asset
value of $1.00, Base Trust has agreed, with respect to Municipal
Money Portfolio: (i) to seek to maintain a dollar-weighted
average portfolio maturity appropriate to its objective of
maintaining relative stability of principal and not in excess of
90 days; (ii) not to purchase a portfolio instrument with a
remaining maturity of greater than thirteen months (for this
purpose Municipal Money Portfolio considers that an instrument
has a maturity of thirteen months or less if it is a "short-term"
obligation as defined in the Glossary); and (iii) to limit its
purchase of portfolio instruments to those instruments that are
denominated in U.S. dollars which the Board of Trustees
determines present minimal credit risks and that are of eligible
quality as determined by any major rating service as defined
under SEC Rule 2a-7 or, in the case of any instrument that is not
rated, of comparable quality as determined by the Board.
Municipal Money Portfolio has also agreed to establish
procedures reasonably designed to stabilize its price per share
as computed for the purpose of sales and redemptions at $1.00.
Such procedures include review of Municipal Money Portfolio's
portfolio holdings by the Board of Trustees, at such intervals as
it deems appropriate, to determine whether Municipal Money
Portfolio's net asset value calculated by using available market
quotations or market equivalents deviates from $1.00 per share
based on amortized cost. Calculations are made to compare the
value of its investments valued at amortized cost with market
value. Market values are obtained by using actual quotations
provided by market makers, estimates of market value, values from
yield data obtained from reputable sources for the instruments,
values obtained from the Adviser's matrix, or values obtained
from an independent pricing service. Any such service might
value Municipal Money Portfolio's investments based on methods
which include consideration of: yields or prices of Municipal
Securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market
conditions. The service may also employ electronic data
processing techniques, a matrix system, or both to determine
valuations.
In connection with Municipal Money Portfolio's use of the
amortized cost method of portfolio valuation to maintain its net
asset value at $1.00 per share, Municipal Money Portfolio might
incur or anticipate an unusual expense, loss, depreciation, gain
or appreciation that would affect its net asset value per share
or income for a particular period. The extent of any deviation
between Municipal Money Portfolio's net asset value based upon
available market quotations or market equivalents and $1.00 per
share based on amortized cost will be examined by the Board of
Trustees of Base Trust as it deems appropriate. If such
deviation exceeds 1/2 of 1%, the Board of Trustees will promptly
consider what action, if any, should be initiated. In the event
the Board of Trustees determines that a deviation exists that may
result in material dilution or other unfair results to investors
or existing shareholders, it will take such action as it
considers appropriate to eliminate or reduce to the extent
reasonably practicable such dilution or unfair results. Actions
which the Board might take include: selling portfolio
instruments prior to maturity to realize capital gains or losses
or to shorten average portfolio maturity; increasing, reducing,
or suspending dividends or distributions from capital or capital
gains; or redeeming shares in kind. The Board might also
establish a net asset value per share by using market values, as
a result of which the net asset value might deviate from $1.00
per share.
GLOSSARY
In-the-money. A call option on a futures contract is "in-the-
money" if the value of the futures contract that is the subject
of the option exceeds the exercise price. A put option on a
futures contract is "in-the-money" if the exercise price exceeds
the value of the futures contract that is the subject of the
option.
Issuer. For purposes of diversification under the Investment
Company Act of 1940, identification of the issuer (or issuers) of
a Municipal Security depends on the terms and conditions of the
obligation. If the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the
obligation is backed only by the assets and revenues of the
subdivision, such subdivision would be regarded as the sole
issuer. Similarly, if the obligation is backed only by the
assets and revenues of the non-governmental user, the non-
governmental user would be deemed to be the sole issuer. In
addition, if the bond is backed by the full faith and credit of
the U.S. Government, agencies or instrumentalities of the U.S.
Government or U.S. Government Securities, the U.S. Government or
the appropriate agency or instrumentality would be deemed to be
the sole issuer, and would not be subject to the 5% limitation
applicable to investments in a single issuer as described under
Investment Restrictions in the Prospectus and restriction number
(i) under Investment Restrictions in this Statement of Additional
Information. If, in any case, the creating municipal government
or another entity guarantees an obligation or issues a letter of
credit to secure the obligation, the guarantee (or letter of
credit) would be considered a separate security issued by such
government or entity and would be separately valued and included
in the issuer limitation. In the case of Municipal Money Fund,
Municipal Money Portfolio and Intermediate Municipals, guarantees
and letters of credit described in this paragraph from banks
whose credit is acceptable to these Funds are not restricted in
amount by the restriction against investing more than 25% of
their total assets in securities of non-governmental issuers
whose principal business activities are in the same industry.
Majority of the outstanding voting securities. As used in the
Prospectus and this Statement of Additional Information, this
term means the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy or (ii) more than
50% of the outstanding shares of the Fund.
Municipal Securities. Municipal Securities are debt obligations
issued by or on behalf of the governments of states, territories
or possessions of the United States, the District of Columbia and
their political subdivisions, agencies and instrumentalities, the
interest on which is generally exempt from the regular federal
income tax.
The two principal classifications of Municipal Securities
are "general obligation" and "revenue" bonds. "General
obligation" bonds are secured by the issuer's pledge of its
faith, credit, and taxing power for the payment of principal and
interest. "Revenue" bonds are usually payable only from the
revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special
excise tax or other specific revenue source. Industrial
development bonds are usually revenue bonds, the credit quality
of which is normally directly related to the credit standing of
the industrial user involved. Municipal Securities may bear
either fixed or variable rates of interest. Variable rate
securities bear rates of interest that are adjusted periodically
according to formulae intended to minimize fluctuation in values
of the instruments.
Within the principal classifications of Municipal
Securities, there are various types of instruments, including
municipal bonds, municipal notes, municipal leases, custodial
receipts, and participation certificates. Municipal notes
include tax, revenue, and bond anticipation notes of short
maturity, generally less than three years, which are issued to
obtain temporary funds for various public purposes. Municipal
lease securities, and participation certificates therein,
evidence certain types of interests in lease or installment
purchases contract obligations of a municipal authority or other
entity. Custodial receipts represent ownership in future
interest or principal payments (or both) on certain Municipal
Securities and are underwritten by securities dealers or banks.
Some Municipal Securities may not be backed by the faith, credit,
and taxing power of the issuer and may involve "non-
appropriation" clauses which provide that the municipal authority
is not obligated to make lease or other contractual payments,
unless specific annual appropriations are made by the
municipality. Each Fund may invest more than 5% of its net
assets in municipal bonds and notes, but does not expect to
invest more than 5% of its net assets in the other Municipal
Securities described in this paragraph.
Some Municipal Securities are backed by (i) the full faith
and credit of the U.S. Government, (ii) agencies or
instrumentalities of the U.S. Government, or (iii) U.S.
Government Securities.
Repurchase Agreement. A repurchase agreement involves the sale
of securities to the Fund, with the concurrent agreement of the
seller to repurchase the securities at the same price plus an
amount equal to an agreed-upon interest rate, within a specified
time, usually less than one week, but, on occasion, at a later
time. In the event of a bankruptcy or other default of a seller
of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying securities and losses, including:
(a) possible decline in the value of the collateral during the
period while the Fund seeks to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.
Reverse Repurchase Agreement. A reverse repurchase agreement is
a repurchase agreement in which the Fund is the seller of, rather
than the investor in, securities and agrees to repurchase them at
an agreed-upon time and price.
Short-term. This term, as used with respect to Municipal Money
Fund and Municipal Money Portfolio, refers to an obligation of
one of the following types, measured from the date of an
investment by the Fund in the obligation (regardless of the
duration of the obligation from the date of original issuance):
1. An obligation of the issuer to pay the entire principal and
accrued interest in no more than thirteen months;
2. An obligation (regardless of the duration before its
maturity) issued or guaranteed by the U.S. Government or by its
agencies or instrumentalities, bearing a variable rate of
interest providing for automatic establishment, no less
frequently than annually, of a new rate or successive new rates
of interest by a formula, that can reasonably be expected to have
a market value approximating its principal amount (a) whenever a
new interest rate is established, in the case of an obligation
having a variable rate of interest, or (b) at any time, in the
case of an obligation having a "floating rate of interest" that
changes concurrently with any change in an identified market
interest rate to which it is pegged;
3. Any other obligation (regardless of the duration before its
maturity) that: (a) has a demand feature entitling the holder to
receive from an issuer the entire principal [or, under the
circumstances described under Investment Policies--Municipal
Money Fund above, the issuer of a guarantee or a letter of credit
with respect to a participation interest in the obligation
(acquired from such issuer)], (i) at any time upon no more than
thirty days' notice or (ii) at specified intervals not exceeding
thirteen months and upon no more than thirty days' notice, (b)(i)
has a variable rate of interest that changes on set dates or (ii)
has a floating rate of interest (as defined in 2 above), and (c)
can reasonably be expected to have a market value approximating
its principal amount (i) whenever a new rate of interest is
established, in the case of an obligation having a variable rate
of interest, or (ii) at any time, in the case of an obligation
having a floating rate of interest; provided that, with respect
to each such obligation that is not rated eligible quality by
Moody's or S&P, the Board of Trustees has determined that the
obligation is of eligible quality; or
4. A repurchase agreement that is to be fully performed (or that
the Fund may require be performed) in not more than thirteen
months (regardless of the maturity of the obligation to which the
repurchase agreement relates).
Variable Rate Demand Security. This type of security is a
Variable Rate Security (as defined in the Prospectus under
Municipal Securities) which has a demand feature entitling the
purchaser to resell the security to the issuer of the demand
feature at an amount approximately equal to amortized cost or the
principal amount thereof, which may be more or less than the
price the Fund paid for it. The interest rate on a Variable Rate
Demand Security also varies either according to some objective
standard, such as an index of short-term tax-exempt rates, or
according to rates set by or on behalf of the issuer.
-------------------------
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) 1. Financial statements included in Part A of this Amendment
to the Registration Statement: Financial Highlights.
2. Financial statements included in Part B of this Amendment:
The following financial statements are incorporated by
reference to Registrant's June 30, 1997 annual report:
Investments as of June 30, 1997 of SR&F Municipal Money
Market Portfolio, Stein Roe Intermediate Municipals Fund,
Stein Roe Managed Municipals Fund and Stein Roe High-Yield
Municipals Fund; and balance sheets as of June 30, 1997,
statements of operations for the year ended June 30, 1997,
statements of changes in net assets for each of the two
years in the period ended June 30, 1997, notes thereto and
report of independent auditors of SR&F Municipal Money
Market Portfolio, Stein Roe Municipal Money Market Fund,
Stein Roe Intermediate Municipals Fund, Stein Roe Managed
Municipals Fund and Stein Roe High-Yield Municipals Fund.
(b) Exhibits: [Note: As used herein, the term "Registration
Statement" refers to the Registration Statement of the
Registrant under the Securities Act of 1933, No. 2-99356. The
terms "Pre-Effective Amendment" and "PEA" refer, respectively,
to a pre-effective and a post-effective amendment to the
Registration Statement.]
1. (a) Agreement and Declaration of Trust of Registrant as
amended through 10/25/94. (Exhibit 1 to PEA #18.)*
(b) Amendment to Agreement and Declaration of Trust dated
11/1/95. (Exhibit 1(b) to PEA #20.)*
2. By-Laws of Registrant as amended through 2/3/93. (Exhibit
2 to PEA #21.)*
3. None.
4. None.
5. Management agreement dated 7/1/96 between Registrant and
Stein Roe & Farnham Incorporated (the "Adviser") relating
to the series designated Stein Roe Intermediate Municipals
Fund, Stein Roe High-Yield Municipals Fund and Stein Roe
Managed Municipals Fund. (Exhibit 5(a) to PEA #21.)*
6. Underwriting agreement between Registrant and Liberty
Securities Corporation as amended through 10/28/92.
(Exhibit 6 to PEA #21.)*
7. None.
8. Custodian contract between Registrant and State Street
Bank and Trust Company ("Bank") dated 12/31/87 as amended
through May 8, 1995. (Exhibit 8 to PEA #18.)*
9. (a) Transfer agency agreement between Registrant and
SteinRoe Services Inc. dated 8/1/95. (Exhibit 9(a) to
PEA #19.)*
(b) Accounting and Bookkeeping Agreement between
the Registrant and the Adviser dated 11/1/94.
(Exhibit 9(b) to PEA #21.)*
(c) Administrative agreement between Registrant and the
Adviser as amended through 7/1/96. (Exhibit 9(c) to
PEA #21.)*
(d) Sub-transfer agent agreement between SteinRoe Services
Inc. and Colonial Investors Service Center, Inc. as
amended through June 30, 1997.
10. Opinions and consents of Bell, Boyd & Lloyd and Ropes &
Gray with respect to the series of Registrant designated
SteinRoe Tax-Exempt Money Fund (now named Stein Roe
Municipal Money Market Fund), Stein Roe Intermediate
Municipals Fund, Stein Roe Managed Municipals Fund, and
Stein Roe High-Yield Municipals Fund. (Exhibit 10 to PEA
#21.)*
11. (a) Opinion and consent of Bell, Boyd & Lloyd regarding
tax-exempt status of standby commitments. (Exhibit
11(a) to PEA #21.)*
(b) Consent of Morningstar, Inc. (Exhibit 11(b) to PEA
#21.)*
(c) Consent of Ernst & Young LLP.
12. None.
13. Inapplicable.
14. None.
15. None.
16. Schedules for computation of yield and total return of
SteinRoe Tax-Exempt Money Fund (now named Stein Roe
Municipal Money Market Fund), Stein Roe Intermediate
Municipals Fund, Stein Roe Managed Municipals Fund, and
Stein Roe High-Yield Municipals Fund. (Exhibit 16 to PEA
#21.)*
17. (a) Financial Data Schedule, 6/30/97--Intermediate
Municipals Fund.
(b) Financial Data Schedule, 6/30/97--High-Yield
Municipals Fund.
(c) Financial Data Schedule, 6/30/97--Municipal Money
Market Fund.
(d) Financial Data Schedule, 6/30/97--Managed Municipals
Fund.
18. Inapplicable.
19. (Miscellaneous.)
(a) Funds Application.
(b) Automatic Redemption Services Application. (Exhibit
19(b) to PEA #21.)*
_______________________________
*Incorporated by reference.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
The Registrant does not consider that it is directly or indirectly
controlled by, or under common control with, other persons within
the meaning of this Item. See "Investment Advisory Services,"
"Management," "Distributor," and "Transfer Agent" in the statement
of additional information, each of which is incorporated herein by
reference.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record
Title of Series Holders as of September 30, 1997
- ----------------- --------------------------------
Stein Roe Intermediate Municipals Fund 2,794
Stein Roe High-Yield Municipals Fund 5,954
Stein Roe Municipal Money Market Fund 3,102
Stein Roe Managed Municipals Fund 8,561
ITEM 27. INDEMNIFICATION.
Article Tenth of the Agreement and Declaration of Trust of
Registrant (Exhibit 1), which Article is incorporated herein by
reference, provides that Registrant shall provide indemnification
of its trustees and officers (including each person who serves or
has served at Registrant's request as a director, officer, or
trustee of another organization in which Registrant has any
interest as a shareholder, creditor or otherwise) ("Covered
Persons") under specified circumstances.
Section 17(h) of the Investment Company Act of 1940 ("1940 Act")
provides that neither the Agreement and Declaration of Trust nor
the By-Laws of Registrant, nor any other instrument pursuant to
which Registrant is organized or administered, shall contain any
provision which protects or purports to protect any trustee or
officer of Registrant against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. In
accordance with Section 17(h) of the 1940 Act, Article Tenth shall
not protect any person against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
To the extent required under the 1940 Act,
(i) Article Tenth does not protect any person against any
liability to Registrant or to its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office;
(ii) in the absence of a final decision on the merits by a
court or other body before whom a proceeding was brought that a
Covered Person was not liable by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office, no indemnification is
permitted under Article Tenth unless a determination that such
person was not so liable is made on behalf of Registrant by (a) the
vote of a majority of the trustees who are neither "interested
persons" of Registrant, as defined in Section 2(a)(19) of the 1940
Act, nor parties to the proceeding ("disinterested, non-party
trustees"), or (b) an independent legal counsel as expressed in a
written opinion; and
(iii) Registrant will not advance attorneys' fees or other
expenses incurred by a Covered Person in connection with a civil or
criminal action, suit or proceeding unless Registrant receives an
undertaking by or on behalf of the Covered Person to repay the
advance (unless it is ultimately determined that he is entitled to
indemnification) and (a) the Covered Person provides security for
his undertaking, or (b) Registrant is insured against losses
arising by reason of any lawful advances, or (c) a majority of the
disinterested, non-party trustees of Registrant or an independent
legal counsel as expressed in a written opinion, determine, based
on a review of readily-available facts (as opposed to a full trial-
type inquiry), that there is reason to believe that the Covered
Person ultimately will be found entitled to indemnification.
Any approval of indemnification pursuant to Article Tenth does not
prevent the recovery from any Covered Person of any amount paid to
such Covered Person in accordance with Article Tenth as
indemnification if such Covered Person is subsequently adjudicated
by a court of competent jurisdiction not to have acted in good
faith in the reasonable belief that such Covered Person's action
was in, or not opposed to, the best interests of Registrant or to
have been liable to Registrant or its shareholders by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such Covered
Person's office.
Article Tenth also provides that its indemnification provisions are
not exclusive.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers, and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer, or
controlling person of Registrant in the successful defense of any
action, suit, or proceeding) is asserted by such trustee, officer,
or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Registrant, its trustees and officers, Stein Roe & Farnham
Incorporated (the "Adviser"), the other investment companies
advised by the Adviser, and persons affiliated with them are
insured against certain expenses in connection with the defense of
actions, suits, or proceedings, and certain liabilities that might
be imposed as a result of such actions, suits, or proceedings.
Registrant will not pay any portion of the premiums for coverage
under such insurance that would (1) protect any trustee or officer
against any liability to Registrant or its shareholders to which he
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office or (2) protect the Adviser or
principal underwriter, if any, against any liability to Registrant
or its shareholders to which such person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence,
in the performance of its duties, or by reason of its reckless
disregard of its duties and obligations under its contract or
agreement with the Registrant; for this purpose the Registrant will
rely on an allocation of premiums determined by the insurance
company.
Pursuant to the indemnification agreement dated July 1, 1995, among
the Registrant, its transfer agent and the Adviser, Registrant, its
trustees, officers and employees, its transfer agent and the
transfer agent's directors, officers and employees are indemnified
by Registrant's Adviser against any and all losses, liabilities,
damages, claims and expenses arising out of any act or omission of
the Registrant or its transfer agent performed in conformity with a
request of the Adviser that the transfer agent and the Registrant
deviate from their normal procedures in connection with the issue,
redemption or transfer of shares for a client of the Adviser.
Registrant, its trustees, officers, employees and representatives
and each person, if any, who controls the Registrant within the
meaning of Section 15 of the Securities Act of 1933 are indemnified
by the distributor of Registrant's shares (the "distributor"),
pursuant to the terms of the distribution agreement, which governs
the distribution of Registrant's shares, against any and all
losses, liabilities, damages, claims and expenses arising out of
the acquisition of any shares of the Registrant by any person which
(i) may be based upon any wrongful act by the distributor or any of
the distributor's directors, officers, employees or representatives
or (ii) may be based upon any untrue or alleged untrue statement of
a material fact contained in a registration statement, prospectus,
statement of additional information, shareholder report or other
information covering shares of the Registrant filed or made public
by the Registrant or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
therein not misleading if such statement or omission was made in
reliance upon information furnished to the Registrant by the
distributor in writing. In no case does the distributor's
indemnity indemnify an indemnified party against any liability to
which such indemnified party would otherwise be subject by reason
of willful misfeasance, bad faith, or negligence in the performance
of its or his duties or by reason of its or his reckless disregard
of its or his obligations and duties under the distribution agreement.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The Adviser is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), which in turn is a wholly owned subsidiary of Liberty
Financial Companies, Inc., which a majority owned subsidiary of LFC
Holdings, Inc., which is a wholly owned subsidiary of Liberty
Mutual Equity Corporation, which is a wholly owned subsidiary of
Liberty Mutual Insurance Company. The Adviser acts as investment
adviser to individuals, trustees, pension and profit-sharing plans,
charitable organizations, and other investors. In addition to
Registrant, it also acts as investment adviser to other investment
companies having different investment policies.
For a two-year business history of officers and directors of the
Adviser, please refer to the Form ADV of Stein Roe & Farnham
Incorporated and to the section of the statement of additional
information (part B) entitled "Investment Advisory Services."
Certain directors and officers of the Adviser also serve and have
during the past two years served in various capacities as
officers, directors, or trustees of SSI and of the Registrant,
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 Keyport Variable Investment Trust,
which are located at 600 Atlantic Avenue, 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
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President; Secretary
Kenneth J. Kozanda Vice President; Treasurer
Kenneth R. Leibler Director
C. Allen Merritt, Jr. Director; Vice President
Hans P. Ziegler Director, President, Vice Chairman
Chairman
SR&F BASE TRUST
Gary A. Anetsberger Sr. Vice-President; Treasurer
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary
Thomas W. Butch Executive Vice-President
Michael T. Kennedy Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE INCOME TRUST; STEIN ROE INSTITUTIONAL TRUST; AND
STEIN ROE TRUST
Gary A. Anetsberger Sr. Vice-President; Treasurer
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary
Thomas W. Butch Executive Vice-President Vice-President
Philip J. Crosley Vice-President
Michael T. Kennedy Vice-President
Stephen F .Lockman Vice-President
Steven P. Luetger Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE INVESTMENT TRUST; STEIN ROE ADVISOR TRUST
Gary A. Anetsberger Sr. Vice-President; Treasurer
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary
Bruno Bertocci Vice-President
David P. Brady Vice-President
Thomas W. Butch Executive Vice-President Vice-President
Daniel K. Cantor Vice-President
Philip J. Crosley Vice-President
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
David P. Harris Vice-President
Harvey B. Hirschhorn Vice-President
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Arthur J. McQueen Vice-President
Richard B. Peterson Vice-President
Marion Gerry Sandel Vice-President
Gloria J. Santella Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE MUNICIPAL TRUST
Gary A. Anetsberger Sr. Vice-President; Treasurer
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary
Thomas W. Butch Executive Vice-President Vice-President
Joanne T. Costopoulos Vice-President
Philip J. Crosley Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
M. Jane McCart Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEINROE VARIABLE INVESTMENT TRUST
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President
LFC UTILITIES TRUST
Gary A. Anetsberger Vice President
Ophelia L. Barsketis Vice President
Deborah A. Jansen Vice President
KEYPORT VARIABLE INVESTMENT TRUST
Ophelia L. Barsketis Vice President
Deborah A. Jansen Vice President
ITEM 29. PRINCIPAL UNDERWRITERS.
Registrant's principal underwriter, Liberty Securities
Corporation, is a wholly owned subsidiary of Liberty Investment
Services, Inc., a wholly owned subsidiary of Liberty Financial
Services, Inc. which, in turn, is a wholly owned subsidiary of
Liberty Financial Companies, Inc. Liberty Financial Companies,
Inc. is a public corporation whose majority shareholder is LFC
Holdings, Inc., a wholly owned subsidiary of Liberty Mutual Equity
Corporation. Liberty Mutual Equity Corporation is a wholly owned
subsidiary of Liberty Mutual Insurance Company.
Liberty Securities Corporation is principal underwriter for the
following investment companies:
Stein Roe Income Trust
Stein Roe Municipal Trust
Stein Roe Investment Trust
Stein Roe Institutional Trust
Stein Roe Trust
Set forth below is information concerning the directors and
officers of Liberty Securities Corporation:
Positions
Positions and Offices and Offices
Name with Underwriter with Registrant
- ------------------ -------------------- ---------------
Porter P. Morgan Chairman of the Board; Director None
Frank L. Tarantino President; Chief Operating
Officer; Director None
Robert L. Spadafora Executive Vice President -
Sales and Marketing None
John T. Treece, Jr. Senior Vice President - Operations None
John W. Reading Senior Vice President and
Assistant Secretary None
Valerie A. Arendell Senior Vice President - Sales None
Gerald H. Stanney, Vice President and Compliance
Jr. Officer (Boston) None
Jilaine Hummel Bauer Vice President and Compliance Exec. V-P &
Officer (Chicago) Secretary
Bruce F. Ripepi Vice President, General Counsel None
and Assistant Secretary
Timothy K. Armour Vice President President,
Trustee
Lindsay Cook Vice President Trustee
Ralph E. Nixon Vice President None
Joyce B. Riegel Vice President None
Heidi J. Walter Vice President V-P
Glenn E. Williams Assistant Vice President None
Philip J. Iudice Treasurer None
John A. Benning Secretary None
John A. Davenport Assistant Secretary None
Marjorie M. Pluskota Assistant Secretary None
C. Allen Merritt, Jr. Assistant Treasurer; Assistant
Secretary; Director None
The principal business address of Mr. Armour, Ms. Bauer, Ms.
Pluskota, Ms. Riegel and Ms. Walter is One South Wacker Drive,
Chicago, IL 60606; that of Mr. Williams is Two Righter Parkway,
Wilmington, DE 19803; that of Mr. Ripepi is 100 Manhattanville
Road, Purchase, NY 10577; and that of the other officers is 600
Atlantic Avenue, Boston, MA 02210-2214.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Jilaine Hummel Bauer
Executive Vice-President and Secretary
One South Wacker Drive
Chicago, Illinois 60606
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
Since the information called for by Item 5A for the Funds (other
than Stein Roe Municipal Money Market Fund, to which this item does
not relate) is contained in the latest annual report to
shareholders, Registrant undertakes to furnish each person to whom
a prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it
meets all of the requirements for effectiveness of this
registration statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago and State of Illinois on
the 31st day of October, 1997.
STEIN ROE MUNICIPAL TRUST
By TIMOTHY K. ARMOUR
Timothy K. Armour
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates
indicated:
Signature Title* Date
- ------------------------ --------------------- --------------
TIMOTHY K. ARMOUR President and Trustee October 31, 1997
Timothy K. Armour
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice-President October 31, 1997
Gary A. Anetsberger and Treasurer
Principal Financial Officer
SHARON R. ROBERTSON Controller October 31, 1997
Sharon R. Robertson
Principal Accounting Officer
KENNETH L. BLOCK Trustee October 31, 1997
Kenneth L. Block
WILLIAM W. BOYD Trustee October 31, 1997
William W. Boyd
LINDSAY COOK Trustee October 31, 1997
Lindsay Cook
DOUGLAS A. HACKER Trustee October 31, 1997
Douglas A. Hacker
JANET LANGFORD KELLY Trustee October 31, 1997
Janet Langford Kelly
FRANCIS W. MORLEY Trustee October 31, 1997
Francis W. Morley
CHARLES R. NELSON Trustee October 31, 1997
Charles R. Nelson
THOMAS C. THEOBALD Trustee October 31, 1997
Thomas C. Theobald
* This amendment to the Registration Statement has also been signed
by the above persons in their capacities as trustees and officers
of the SR&F Base Trust as it relates to the Stein Roe Municipal
Money Market Fund.
<PAGE>
STEIN ROE MUNICIPAL TRUST
INDEX TO EXHIBITS FILED WITH THIS AMENDMENT
Exhibit
Number Description
- ------- -----------
9(d) Sub-transfer agent agreement
11(c) Consent of Ernst & Young LLP
17(a) Financial Data Schedule--Intermediate Municipals Fund
17(b) Financial Data Schedule--High-Yield Municipals Fund
17(c) Financial Data Schedule--Municipal Money Market Fund
17(d) Financial Data Schedule--Managed Municipals Fund
19(a) Fund Application
<PAGE> 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.
<PAGE> 2
CISC agrees that it shall perform usual and ordinary
services as transfer agent, registrar and dividend disbursing
agent, which are necessary and appropriate for investment
companies registered with the Securities and Exchange
Commission, except as otherwise specifically excluded herein,
including but not limited to: receiving and processing
payments for purchases of Fund shares, opening shareholder
accounts, receiving and processing requests for liquidation
of Fund shares , transferring and canceling stock
certificates, maintaining all shareholder accounts, preparing
annual shareholder meetings lists, corresponding with
shareholders regarding transaction rejections, providing
order room services to brokers, withholding taxes on
accounts, disbursing income dividends and capital gains
distributions, preparing and filing U.S. Treasury Department
Form 1099 for shareholders, preparing and mailing
confirmation forms to shareholders for all purchases and
liquidations of Fund shares and other confirmable
transactions in shareholder accounts, recording reinvestment
of dividends and distributions in Fund shares, and causing
liquidation of shares and disbursements to be made to
withdrawal plan holders. The services to be performed by
CISC under this Agreement may be set forth in a procedures
manual and other documents as mutually agreed to by CISC and
SSI. Specifically excluded from the services to be provided
by CISC are the following: mailing proxy materials,
receiving and tabulating proxies, mailing shareholder reports
and prospectuses, account research, shareholder
correspondence and telephone services regarding general
inquiries, information requests and all other matters except
transaction rejections, all of which SRS agrees to continue
to perform directly on behalf of the Trust and the Fund.
2. Fees and Charges. SSI will pay CISC for the services
provided hereunder in accordance with and in the manner set
forth in Schedule B to this Agreement.
3. Representations and Warranties of CISC. CISC
represents and warrants to SSI that:
(a) It is a corporation duly organized and existing in
good standing under the laws of the Commonwealth of
Massachusetts;
(b) It is duly qualified to carry on its business in the
Commonwealth of Massachusetts;
(c) It is empowered under applicable state and federal
laws and by its Articles of Organization and By-Laws
to enter into and perform the services contemplated
by this Agreement and it is in compliance and shall
continue during the term of this Agreement to be in
compliance with all such applicable laws;
(d) All requisite corporate proceedings have been taken
to authorize it to enter into and perform this
Agreement;
(e) It has and shall continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement; and
<PAGE> 3
(f) It has filed a Registration Statement on SEC Form TA-
1 and will file timely an amendment to same
respecting this Sub-Transfer Agent Agreement with the
Securities and Exchange Commission, it is duly
registered as a transfer agent as provided in Section
17Ac of the Securities and Exchange Act of 1934, and
it will remain so registered and will comply with all
state and federal laws and regulations relating to
transfer agents throughout the term of this
Agreement.
4. Representations and Warranties of SSI. SSI
represents and warrants to CISC that:
(a) It is a corporation duly organized and existing in
good standing under the laws of the Commonwealth of
Massachusetts;
(b) It is duly qualified to carry on its business in the
State of Illinois;
(c) It is empowered under applicable state and federal
laws and by its Articles of Organization and By-Laws
to enter into and perform the services contemplated
in this Agreement and in the Transfer Agent Agreement
and it is in compliance and shall continue during the
term of this Agreement to be in compliance with the
Transfer Agent Agreement and all such applicable
laws;
(d) All requisite corporate proceedings have been taken
to authorize it to enter into and perform this
Agreement;
(e) It has and shall continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement and the Transfer Agent Agreement; and
(f) It has filed a Registration Statement on SEC Form TA-
1 and will file timely an amendment to same
respecting this Sub-Transfer Agent Agreement with the
Securities and Exchange Commission; it is duly
registered as a Transfer Agent as provided in Section
17Ac of the Securities Exchange Act of 1934; and it
will remain so registered and comply with all state
and federal laws and regulations relating to transfer
agents throughout the term of this Agreement.
5. Representations and Warranties of the Trust. The
Trust represents and warrants to CISC that:
(a) It is a business trust duly organized and existing
and in good standing under the laws of the State of
Massachusetts;
(b) The Fund is an open-end diversified management
investment company registered under the Investment
Company Act of 1940;
<PAGE> 4
(c) Registration statements under the Securities Act of
1933 and applicable state laws are currently
effective and will remain effective at all times with
respect to all shares of the Fund being offered for
sale;
(d) The Trust is empowered under applicable laws and
regulations and by its Agreement and Declaration of
Trust and By-Laws to enter into and perform this
Agreement; and
(e) All requisite proceedings and actions have been
taken to authorize it to enter into and perform this
Agreement.
6. Copies of Documents. SSI promptly from time to time
will furnish CISC with copies of the following Trust and Fund
documents and all amendments or supplements thereto: the
Agreement and Declaration of Trust ; the By-Laws; and the
Registration Statement under Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended,
together with any other information reasonably requested by
CISC. The Prospectus and Statement of Additional Information
contained in such Registration Statement, as from time to
time amended and supplemented, are herein collectively
referred to as the "Fund's Prospectus."
On or before the date of effectiveness of this
Agreement, or as soon thereafter as is reasonably
practicable, and from time-to-time thereafter, SSI will
furnish CISC with certified copies of the resolutions of the
Trustees of the Trust authorizing this Agreement and
designating authorized persons to give instructions to CISC;
if applicable, a specimen of the certificate for shares of
the Fund in the form approved by the Trustees of the Trust,
with a certificate of the Secretary of the Trust as to such
approval; and certificates as to any change in any officer,
director, or authorized person of the SSI and the Trust.
7. Share Certificates. The Fund has resolved that all
of the Fund's shares shall hereafter be issued in
uncertificated form. Thus, CISC shall not be responsible for
the issuance of certificates representing shares in the Fund.
However, CISC shall maintain a record of each certificate
previously issued and outstanding, the number of shares
represented thereby, and the holder of record of such shares.
8. Lost or Destroyed Certificates. In case of the
alleged loss or destruction of any share certificate, no new
certificate shall be issued in lieu thereof, unless there
shall first be furnished to CISC an affidavit of loss or non-
receipt by the holder of shares with respect to which a
certificate has been lost or destroyed, supported by an
appropriate bond paid for by the shareholder which is
satisfactory to CISC and issued by a surety company
satisfactory to CISC. CISC shall place and maintain stop
transfer instructions on all lost certificates as to which it
receives notice.
9. Receipt of Funds for Investment. CISC will maintain
one or more accounts with The First National Bank of Boston
("Bank"),in the name of SSI into which
<PAGE> 5
it will deposit funds payable to CISC or SSI as agent for, or
otherwise identified as being for the account of, the Trust
or the Fund.
10. Shareholder Accounts. Upon receipt of any funds
referred to in paragraph 9, CISC will compute the number of
shares purchased by the shareholder according to the net
asset value of Fund shares determined in accordance with
applicable federal laws and regulations and as described in
the Prospectus of the Fund and:
(a) In the case of a new shareholder, open and maintain
an open account for such shareholder in the name or
names set forth in the subscription application form;
(b) Send to the shareholder a confirmation indicating the
amount of full and fractional shares purchased (in
the case of fractional shares, rounded to three
decimal places) and the price per share;
(c) In the case of a request to establish a plan or
program being offered by the Fund's Prospectus, open
and maintain such plan or program for the shareholder
in accordance with the terms thereof; and
(d) Perform such other services and initiate and maintain
such other books and records as are customarily
undertaken by transfer agents in maintaining
shareholder accounts for registered investment
company investors;
all subject to requirements set forth in the Fund's
Prospectus with respect to rejection of orders.
For closed accounts, CISC will maintain account records
through June of the calendar year following the year in which
the account is closed, or such other period of time as CISC
and SSI shall mutually agree in writing from time to time.
11. Unpaid Checks; Accounts Assigned for Collection.
If any check or other order for payment of money on the
account of any shareholder or new investor is returned unpaid
for any reason, CISC will:
(a) Give prompt notification to SRS of such non-payment
by facsimile sent prior to 9 a.m. E.S.T.; and
(b) Upon SSI's written instruction, received by facsimile
delivery not later than 11 a.m. E.S.T., authorize
payment of such order notwithstanding insufficient
shareholder account funds, on the condition that SSI
shall indemnify CISC and payor bank in respect of
such payment.
12. Dividends and Distributions. SSI will promptly
notify CISC of the declaration of any dividend or
distribution with respect to Fund shares, the amount of
<PAGE> 6
such dividend or distribution, the date each such dividend or
distribution shall be paid, and the record date for
determination of shareholders entitled to receive such
dividend or distribution. As dividend disbursing agent, CISC
will, on or before the payment date of any such dividend or
distribution, notify the Trust's custodian of the estimated
amount of cash required to pay such dividend or distribution,
and the Trust agrees that on or before the mailing date of
such dividend or distribution it will instruct its custodian
to make available to CISC sufficient funds in the dividend
and distribution account maintained by CISC with the Bank.
As dividend disbursing agent, CISC will prepare and
distribute to shareholders any funds to which they are
entitled by reason of any dividend or distribution and, in
the case of shareholders entitled to receive additional
shares by reason of any such dividend or distribution, CISC
will make appropriate credits to their accounts and cause to
be prepared and mailed to shareholders confirmation
statements and, of such additional shares. CISC will maintain
all records necessary to reflect the crediting of dividends
and distributions which are reinvested in shares of the Fund.
13. Redemptions. CISC will receive and process for
redemption in accordance with the Fund's Prospectus, share
certificates and requests for redemption of shares as
follows:
(a) If such certificate or request complies with
standards for redemption, CISC will, in accordance
with the Fund's current Prospectus, pay to the
shareholder from funds deposited by the Fund from
time to time in the redemption account maintained by
CISC with the Bank, the appropriate redemption price
as set forth in the Fund's Prospectus; and
(b) If such certificate or request does not comply with
the standards for redemption, CISC will promptly
notify the shareholder and shall effect the
redemption at the price in effect at the time of
receipt of documents complying with the standard.
14. Transfer and Exchanges. CISC will review and
process transfers of shares of the Fund and to the extent, if
any, permitted in the Prospectus of the Fund, exchanges
between series of the Trust received by CISC. If shares to
be transferred are represented by outstanding certificates,
CISC will, upon surrender to it of the certificates in proper
form for transfer, credit the same to the transferee on its
books. If shares are to be exchanged for shares of another
Fund, CISC will process such exchange in the same manner as a
redemption and sale of shares, in accordance with the Fund's
Prospectus may in its.
15. Plans. CISC will process such plans or programs
for investing in shares, and such systematic withdrawal
plans, as are provided for in the Fund's Prospectus.
16. Tax Returns and Reports. CISC will prepare and
file tax returns and reports with the Internal Revenue
Service and any other federal, state or local governmental
agency which may require such filings, including state
abandoned
<PAGE> 7
property laws, and conduct appropriate communications
relating thereto, and, if required, mail to shareholders such
forms for reporting dividends and distributions paid by the
Fund as are required by applicable laws, rules and
regulations, and CISC will withhold such sums as are required
to be withheld under applicable Federal and state income tax
laws, rules and regulations. CISC will periodically provide
SSI with reports showing dividends and distributions paid and
any amounts withheld. CISC will also make reasonable attempt
to obtain such tax withholding information from shareholders
as is required to be obtained on behalf of the Trust under
applicable federal or state laws.
17. Record Keeping. CISC will maintain records, which
at all times will be the property of the Trust and available
for inspection by SSI, showing for each shareholder's account
the following information and such other information as CISC
and SSI shall mutually agree in writing from time to time:
(a) Name, address, and United States taxpayer
identification or Social Security number, if provided
(or amounts withheld with respect to dividends and
distributions on shares if a taxpayer identification
or Social Security number is not provided);
(b) Number of shares held for which certificates have not
been issued and for which certificates have been
issued;
(c) Historical information regarding the account of each
shareholder, including dividends and distributions
paid, if any, gross proceeds of sales transactions,
and the date and price for transactions on a
shareholder's account;
(d) Any stop or restraining order placed against a
shareholder's account of which SSI has notified CISI;
(e) Information with respect to withholdings of taxes as
required under applicable Federal and state laws and
regulations;
(f) Any capital gain or dividend reinvestment order and
plan application relating to the current maintenance
of a shareholder's account; and
(g) Any instructions as to record addresses and any
correspondence or instructions relating to the
current maintenance of a shareholder's account.
SSI hereby agrees that CISC shall have no liability or
obligation with respect to the accuracy or completeness of
shareholder account information received by CISC on or about
the Operational Date.
<PAGE> 8
By mutual agreement of CISC and SSI, CISC shall
administer a program whereby reasonable attempt is made to
identify current address information from shareholders whose
mail from the Trust is returned.
CISC shall maintain at its expense those records
necessary to carry out its duties under this Agreement. In
addition, CISC shall maintain at its expense for periods
prescribed by law all records which the Fund or CISC is
required to keep and maintain pursuant to any applicable
statute, rule or regulation, including without limitation
Rule 31(a)-1 under the Investment Company Act of 1940,
relating to the maintenance of records in connection with the
services to be provided hereunder. Upon mutual agreement of
CISC and SSI, CISC shall also maintain other records
requested from time to time by SSI, at SSI's expense.
At the end of the period in which records must be
retained by law, such records and documents will either be
provided to the Trust or destroyed in accordance with prior
written authorization from the Trust.
18. Retirement Plan Services. CISC shall provide sub-
accounting services for retirement plan shareholders
representing group relationships with special recordkeeping
needs.
19. Other Information Furnished. CISC will furnish to
SSI such other information, including shareholder lists and
statistical information as may be agreed upon from time to
time between CISC and SSI. CISC shall notify SSI and the
Trust of any request or demand to inspect the share records
of the Fund, and will not permit or refuse such inspection
until receipt of written instructions from the Trust as to
such permission or refusal unless required by law.
CISC shall provide to the Trust any results of studies
and evaluations of systems of internal accounting controls
performed for the purpose of meeting the requirements of
Regulation 240.17Ad-13(a) of the Securities Exchange Act of
1934.
20. Shareholder Inquiries. CISC will not respond to
written correspondence from fund shareholders or others
relating to the Fund other than those regarding transaction
rejections and clarification of transaction instructions, but
shall forward all such correspondence to SSI.
21. Communications to Shareholders and Meetings. CISC
will determine all shareholders entitled to receive, and will
cause to be addressed and mailed, all communications by the
Fund to its shareholders, including quarterly and annual
reports, proxy material for meetings, and periodic
communications. CISC will cause to be received, examined and
tabulated return proxy cards for meetings of shareholders and
certify the vote to the Trust Fund.
22. Other Services by CISC. CISC shall provide SSI,
with the following additional services:
<PAGE> 9
(a) All CTRAN, CIMAGE, Price Waterhouse Blue Sky 2, and
Pegashares functionality and enhancements (on a
remote basis) as they now exist and as they are
developed and made available to CISC clients;
(b) Initial programs and report enhancements to the CTRAN
System which are necessary to accommodate the Fund as
a no-load fund group;
(c) Development, systems training, technical support,
implementation, and maintenance of special programs
and systems to enhance overall shareholder servicing
capability;
(d) Product and system training for personnel of
institutional servicing agents.
23. Insurance. CISC will not reduce or allow to lapse
any of its insurance coverages from time to time in effect,
including but not limited to errors and omissions, fidelity
bond and electronic data processing coverage, without the
prior written consent of SSI. Attached as Schedule D to this
Agreement is a list of the insurance coverage which CISC has
in effect as of the date of execution of this Agreement and,
if different, will have in effect on the Operational Date.
24. Duty of Care and Indemnification. CISC will at all
times use reasonable care, due diligence and act in good
faith in performing its duties hereunder. CISC will not be
liable or responsible for delays or errors by reason of
circumstances beyond its control, including without
limitation acts of civil or military authority, national or
state emergencies, labor difficulties, fire, mechanical
breakdown, flood or catastrophe, acts of God, insurrection,
war, riots or failure of transportation, communication or
power supply.
CISC may rely on certifications of those individuals
designated as authorized persons to give instructions to CISC
as to proceedings or facts in connection with any action
taken by the shareholders of the Fund or Trustees of the
Trust, and upon instructions not inconsistent with this
Agreement from individuals who have been so authorized. Upon
receiving authorization from an individual designated as an
authorized person to give instructions to CISC, CISC may
apply to counsel for the Trust, or counsel for SSI or the
Fund's investment adviser, at the Fund's expense, for advice.
With respect to any action reasonably taken on the basis of
such certifications or instructions or in accordance with the
advice of counsel of the Trust, or counsel for SSI or the
Fund's investment adviser, the Fund will indemnify and hold
harmless CSC from any and all losses, claims, damages,
liabilities and expenses (including reasonable counsel fees
and expenses).
SSI will indemnify CISC against and hold CISC harmless
from any and all losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) in
respect of any claim, demand, action or suit not resulting
from CISC's bad faith, negligence, lack of due diligence or
willful misconduct and arising out of, or in connection with
its duties under this Agreement.
<PAGE> 10
CISC shall indemnify SSI against and hold SSI harmless
from any and all losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) in
respect to any claim, demand, action or suit resulting from
CISC's bad faith, negligence, lack of due diligence or
willful misconduct, and arising out of, or in connection
with, its duties under this Agreement. For purposes of this
Sub-Transfer Agent Agreement, "lack of due diligence" shall
mean the processing by CISC of a Fund share transaction in
accordance with a practice that is not substantially in
compliance with (1) a transaction processing practice of SSI
approved by Fund Trustees, (2) insurance coverages, or (3)
generally accepted industry practices of mutual fund agents.
CISC shall also be indemnified and held harmless by SSI
against any loss, claim, damage, liability and expenses
(including reasonable counsel fees and expenses) by reason of
any act done by it in good faith with due diligence and in
reasonable reliance upon any instrument or certificate for
shares reasonably believed by it (a) to be genuine and (b) to
be signed, countersigned or executed by any person or persons
authorized to sign, countersign, or execute such instrument
or certificate.
In addition, SSI will indemnify and hold CISC harmless
against any loss, claim, damage, liability and expense
(including reasonable counsel fees and expenses) in respect
of any claim, demand, action or suit as a result of the
negligence of the Fund, Trust SRF or SSI, or as a result of
CISC's acting upon any instructions reasonably believed by
CISC to have been executed or orally communicated by a duly
authorized officer or employee of the Fund, Trust SRF or SSI,
or as a result of acting in reliance upon written or oral
advice reasonably believed by CISC to have been given by
counsel for the Fund, Trust SRF or SSI.
In any case in which a party to this Agreement may be
asked to indemnify or hold harmless the other party hereto,
the party seeking indemnification shall advise the other
party of all pertinent facts concerning the situation giving
rise to the claim or potential claim for indemnification, and
each party shall use reasonable care to identify and notify
the other promptly concerning any situation which presents or
appears likely to present a claim for indemnification.
Prior to admitting to or agreeing to settle any claim subject
to this Section, each party shall give the other reasonable
opportunity to defend against said claim in either party's
name.
25. Employees. CISC and SSI are separately
responsible for the employment, control and conduct of their
respective agents and employees and for injury to such agents
or employees or to others caused by such agents or employees.
CISC and SSI severally assume full responsibility for their
respective agents and employees under applicable statues and
agree to pay all employer taxes thereunder. The conduct of
their respective agents and employees shall be included in
any reference to the conduct of CISC or SSI for all purposes
hereunder.
26. Termination and Amendment. This Agreement shall
continue in effect for eighteen (18) months from the
Operational Date, and will automatically be
<PAGE> 11
renewed for successive one year terms thereafter. After
eighteen (18) months from the Operational Date the Agreement
may be terminated at any time by not less than one hundred
eighty (180) days written notice. Upon termination hereof,
SSI shall pay CISC such compensation as may be due to CISC as
of the date of such termination for services rendered and
expenses incurred, as described in Schedule B. This
Agreement may be modified or amended from time to time by
mutual agreement between SSI and CISC.
27. Successors. In the event that in connection with
termination of this Agreement a successor to any of CISC's
duties or responsibilities hereunder is designated by SSI by
written notice to CISC, CISC shall promptly at the expense of
SSI, transfer to such successor, or if no successor is
designated, transfer to the Trust, a certificate list of the
shareholders of the Fund (with name, address and taxpayer
identification or Social Security number), a historical
record of the account of each shareholder and the status
thereof, all other relevant books, records, correspondence
and other data established or maintained by CISC under this
Agreement in machine readable form and will cooperate in the
transfer of such duties and responsibilities, and in the
establishment of books, records and other data by such
successor. CISC shall be entitled to reimbursement of its
reasonable out-of-pocket expenses in respect of assistance
provided in accordance with the preceding sentence.
28. Miscellaneous. This Agreement shall be construed
in accordance with and governed by the laws of The
Commonwealth of Massachusetts.
The captions in this Agreement are included for
convenience of reference only and in no way define or limit
any of the provisions of this Agreement or otherwise affect
their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which
shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
CISC shall keep confidential all records and information
provided to CISC by the Trust, SSI, SRF, and prior, present
or prospective shareholders of the Fund, except, after notice
to SSI , to the extent disclosures are required by this
Agreement, by the Fund's registration statement, or by a
reasonable request or a valid subpoena or warrant issued by a
court, state or federal agency or other governmental
authority.
Neither CISC nor SSI may use each other's name in any
written material without written consent of such other party,
provided , however, that such consent shall not unreasonably
withheld. CISC and SSI hereby consent to all uses of their
respective names which refer in accurate terms to appointment
and duties under this Agreement or which are required by any
governmental or regulatory authority including required
filings. SSI, SRF, the Trust and the Fund consent to use of
their respective names and logos by CISC for shareholder
correspondence and statements
This Agreement shall be binding upon and shall inure to
the benefit of SSI and CISC and their respective successors
and assigns. Neither SSI nor CISC shall assign this
<PAGE> 12
Agreement nor its rights and obligations under this Agreement
without the express written consent of the other party.
This Agreement may be amended only in writing by mutual
agreement of the parties.
Any notice and other instrument in writing authorized or
required by this Agreement t be given to SSI or CISC shall
sufficiently be given if addressed to that party and mailed
or delivered to it as its office set for the below or at such
other place as it may from time to time designate in writing.
SSI, the Trust and the Fund:
SteinRoe Services Inc.
One South Wacker Drive
Suite 3300
Chicago, Illinois 60606
Attn: Jilaine Hummel Bauer, Esq.
CISC:
Colonial Investors Service Center, Inc.
One Financial Center
Boston, Massachusetts 02111
Attn: Mary McKenzie; with a separate copy to
Attn: Nancy L. Conlin, Esq., Legal Department
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and sealed as of the date first
above written.
STEINROE SERVICES INC.
By: TIMOTHY K. ARMOUR
Name:
Title: Vice President
COLONIAL INVESTORS SERVICE CENTER, INC.
By: D.S. SCOON
Name: Davey S. Scoon
Title: President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
STEIN ROE INCOME TRUST
STEIN ROE INVESTMENT TRUST
STEIN ROE MUNICIPAL TRUST
By: TIMOTHY K. ARMOUR
Name: Timothy K. Armour
Title: President
<PAGE>
SCHEDULE A
Stein Roe Mutual Funds (the "Fund"), consists of the
following series of portfolios:
Stein Roe Investment Trust
- --------------------------
Stein Roe Growth & Income Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Balanced Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Income Trust
- ----------------------
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Municipal Trust
- -------------------------
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Municipal Money Market Fund
Stein Roe Managed Municipals Fund
<PAGE>
SCHEDULE B
This Schedule B is attached to and is part of a certain
Sub-Transfer Agent Agreement ("Agreement") dated July 3, 1996
between SteinRoe Services Inc. ("SSI") and Colonial Investors
Center, Inc. ("CISC").
A. SSI will pay CISC for services rendered under the
Agreement and in accordance with a negotiated allocation of
revenues and reimbursement of costs as follows:
1. As of the Operational Date, CISC and SSI shall agree upon
a fixed monthly per account fee to be paid under the
Agreement, which shall be in an amount equal to 1/12 (a) the
estimated total, determined on an annualized basis, of (1)
all incremental costs incurred by CISC in connection with the
sub-transfer agency relationship, plus (2) 1/2 the net
economic benefit derived by Liberty Financial Companies, the
parent company of both CISC and SSI, as a result of the sub-
transfer agency relationship, (b) divided by the number of
shareholder accounts to be serviced by CISC pursuant to the
Agreement as of the Operational Date.
2. For the first eighteen (18) months of the Agreement, SSI
shall pay CISC, monthly in arrears, commencing with the first
day of August, 1996, and on the first day of each month
thereafter, the greater of (a) the product of the fixed per
account fee determined as provided in paragraph 1. above
multiplied by the number of shareholder accounts serviced by
CISC pursuant to the Agreement as of the end of the preceding
month, and (b) 1/12 the annualized estimated total costs and
benefit determined pursuant to (a) of paragraph 1. above.
All estimates under this paragraph shall be determined no
later than September 30, 1996. The annual fee for the first
eighteen months shall not be less than $1.4 million.
3. Commencing January 1, 1998, and during each calendar year
thereafter, SSI shall pay CISC a fee equal to CISC's budgeted
annual per account expense of providing services pursuant to
the Agreement. Said fee shall be paid monthly in arrears, on
the first day of each month, in an amount equal to the
product of 1/12 the budgeted annual per account fee
multiplied by the number of shareholder accounts serviced by
CISC pursuant to the Agreement as of the end of the preceding
month. All budgeted numbers under this paragraph shall be
determined no later than November 30 each year.
B. The Fund shall be credited each month with balance
credits earned on all Fund cash balances.
Upon thirty (30) days' notice to SSI, CISC may increase
the fees it charges to the extent the cost to CISC of
providing services increases (i) because of changes in the
Fund's Prospectus, or (ii) on account of any change after the
date hereof in law or regulations governing performance of
obligations hereunder.
Fees for any additional services not provided herein, ad
hoc reports or special programming requirements to be
provided by CISC shall be agreed upon by SSI and CISC at such
time as CISC agrees to provide any such services.
In addition to paying CISC fees as described herein, SSI
agrees to reimburse CISC for any and all out-of-pocket
expenses and charges in performing services under the
Agreement (other than charges for normal data processing
services and related software, equipment and facilities)
including, but not limited to, mailing service, postage,
printing of shareholder statements, the cost of any and all
forms of the Trust and other materials used in communicating
with shareholders of the Trust, the cost of any equipment or
service used for communicating with the Trust's custodian
bank or other agent of the Trust, and all costs of telephone
communication with or on behalf of shareholders allocated in
a manner mutually acceptable to CISC and SSI.
<PAGE>
SCHEDULE C
SRS and CSC hereby agree that the date on which the
complete services began ("Operational Date") under the Sub-
Transfer Agent Agreement between them dated July 3, 1996, is:
July , 1996
STEINROE SERVICES INC.
By:________________________________________
Name:
Title: Vice President
COLONIAL INVESTORS SERVICE CENTER, INC.
By:________________________________________
Name:
Title:
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of January 1, 1997, and
effective that date unless otherwise indicated below, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust and Stein Roe Investment Trust
(collectively the "Trust") and Colonial Investors Service
Center, Inc. ("CISC") to add Stein Roe Advisor Trust
(effective February 14, 1997), Stein Roe Institutional Trust
(effective January 2, 1997) and Stein Roe Trust (effective
February 14, 1997), comprised of the Series listed on
Schedule A, as amended, and assenting parties to the contract
and to add new series of the existing Trusts. The amended
Schedule A is as follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
STEIN ROE ADVISOR TRUST
Stein Roe Advisor Balanced Fund
Stein Roe Advisor Growth & Income Fund
Stein Roe Advisor Growth Stock Fund
Stein Roe Advisor International Fund
Stein Roe Advisor Special Fund
Stein Roe Advisor Special Venture Fund
Stein Roe Advisor Young Investor Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date first
above written.
SteinRoe Services Inc.
By: HEIDI J. WALTER
Name:: Heidi J. Walter
Title: Vice President
Colonial Investors Service Center, Inc.
By: MARY DILLON MCKENZIE
Name: Mary Dillon McKenzie
Title: Senior Vice President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: JILAINE HUMMEL BAUER
Name: Jilaine Hummel Bauer
Title: Executive Vice President and Secretary
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of June 30, 1997, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust, Stein Roe Investment Trust,
Stein Roe Advisor Trust, Stein Roe Trust and Stein Roe
Institutional Trust (collectively the "Trust") and Colonial
Investors Service Center, Inc. ("CISC") to add additional
series of the existing Trusts. The amended Schedule A is as
follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Reserves Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe Municipal Money Market Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
Stein Roe Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
STEIN ROE ADVISOR TRUST
Stein Roe Advisor Balanced Fund
Stein Roe Advisor Growth & Income Fund
Stein Roe Advisor Growth Stock Fund
Stein Roe Advisor International Fund
Stein Roe Advisor Special Fund
Stein Roe Advisor Special Venture Fund
Stein Roe Advisor Young Investor Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date first
above written.
SteinRoe Services Inc.
By: HEIDI J. WALTER
Name:: Heidi J. Walter
Title: Vice President
Colonial Investors Service Center, Inc.
By: JOHN W. BYRNE
Name: John W. Byrne
Title: Vice President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: HEIDI J. WALTER
Name: Heidi J. Walter
Title: Vice President
Exhibit 11(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights" and "Independent Auditors" and to the
incorporation by reference of our report dated August 12,
1997 with respect to Stein Roe Municipal Money Market Fund,
Stein Roe Intermediate Municipals Fund, Stein Roe Managed
Municipals Fund, Stein Roe High-Yield Municipals Fund and
SR&F Municipal Money Market Portfolio in the Registration
Statement (Form N-1A) of Stein Roe Municipal Trust and
related Prospectus and Statement of Additional
Information, filed with the Securities and Exchange
Commission in this Post-Effective Amendment No. 23 to the
Registration Statement under the Securities Act of 1933
(Registration No. 2-99356) and in this Amendment No. 24 to
the Registration Statement under the Investment Company Act
of l940 (Registration No. 811-4367).
ERNST & YOUNG LLP
Chicago, Illinois
October 30, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STEIN ROE INTERMEDIATE MUNICIPALS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 184,135
<INVESTMENTS-AT-VALUE> 193,788
<RECEIVABLES> 3,566
<ASSETS-OTHER> 192
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 197,546
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 534
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 17,220
<SHARES-COMMON-PRIOR> 18,243
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,653
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 334
<NET-ASSETS> 197,546
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,091
<OTHER-INCOME> 0
<EXPENSES-NET> 1,401
<NET-INVESTMENT-INCOME> 9,690
<REALIZED-GAINS-CURRENT> 913
<APPREC-INCREASE-CURRENT> 3,038
<NET-CHANGE-FROM-OPS> 13,641
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,690)
<DISTRIBUTIONS-OF-GAINS> 1,149
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30,850
<NUMBER-OF-SHARES-REDEEMED> (48,377)
<SHARES-REINVESTED> 6,005
<NET-CHANGE-IN-ASSETS> (8,720)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 570
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 876
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,641
<AVERAGE-NET-ASSETS> 200,162
<PER-SHARE-NAV-BEGIN> 11.22
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .22
<PER-SHARE-DIVIDEND> (.55)
<PER-SHARE-DISTRIBUTIONS> (.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.38
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> STEIN ROE HIGH-YIELD MUNICIPALS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 291,318
<INVESTMENTS-AT-VALUE> 305,514
<RECEIVABLES> 7,124
<ASSETS-OTHER> 645
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 313,283
<PAYABLE-FOR-SECURITIES> 5,976
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,237
<TOTAL-LIABILITIES> 7,213
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 301,155
<SHARES-COMMON-STOCK> 26,222
<SHARES-COMMON-PRIOR> 24,814
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9,281)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 14,196
<NET-ASSETS> 306,070
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20,548
<OTHER-INCOME> 0
<EXPENSES-NET> 2,256
<NET-INVESTMENT-INCOME> 18,292
<REALIZED-GAINS-CURRENT> (4,451)
<APPREC-INCREASE-CURRENT> 11,315
<NET-CHANGE-FROM-OPS> 25,156
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18,292)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 58,262
<NUMBER-OF-SHARES-REDEEMED> (50,971)
<SHARES-REINVESTED> 8,959
<NET-CHANGE-IN-ASSETS> 23,114
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,830)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,255
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,256
<AVERAGE-NET-ASSETS> 294,904
<PER-SHARE-NAV-BEGIN> 11.40
<PER-SHARE-NII> .72
<PER-SHARE-GAIN-APPREC> .27
<PER-SHARE-DIVIDEND> (.72)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.67
<EXPENSE-RATIO> 0.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> STEIN ROE MUNICIPAL MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 144,151
<INVESTMENTS-AT-VALUE> 119,150
<RECEIVABLES> 300
<ASSETS-OTHER> 96
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 119,546
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,122
<TOTAL-LIABILITIES> 1,122
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 118,432
<SHARES-COMMON-STOCK> 118,359
<SHARES-COMMON-PRIOR> 120,365
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 118,424
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,426
<OTHER-INCOME> 0
<EXPENSES-NET> 841
<NET-INVESTMENT-INCOME> 3,585
<REALIZED-GAINS-CURRENT> (2)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,583
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,585)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 188,521
<NUMBER-OF-SHARES-REDEEMED> (193,325)
<SHARES-REINVESTED> 2,798
<NET-CHANGE-IN-ASSETS> (2,008)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (7)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,036
<AVERAGE-NET-ASSETS> 120,098
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.030)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> STEIN ROE MANAGED MUNICIPALS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 533,974
<INVESTMENTS-AT-VALUE> 579,837
<RECEIVABLES> 11,334
<ASSETS-OTHER> 649
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 591,820
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<NUMBER-OF-SHARES-SOLD> 42,898
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</TABLE>
EXHIBIT 19(a)
Please do not remove label For office use only ________
[Logo] Stein Roe Mutual Funds
Building Wealth for Generations [service mark]
MUTUAL FUND APPLICATION
Mail to:
STEIN ROE MUTUAL FUNDS
P.O. Box 8900
Boston, MA 02205-8900
This application is for:
[ ] New account
[ ] Change to current account (see Section 13)
_________________________
Account number
- -------------------------------------------------------------------------
If you have questions, please call us toll-free.
Monday - Friday--7 a.m. to 8 p.m. (CST)
Saturday & Sunday--8 a.m. to 2 p.m. (CST)
800-338-2550
http://www.steinroe.com
Liberty Securities Corporation, Distributor
Member SIPC
Stein Roe Mutual Funds, P.O. Box 8900, Boston, MA 02205-8900 800-338-2550
- -------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
Please check one of the boxes below to indicate the type of account
and complete the related information.
[ ] INDIVIDUAL OR [ ] JOINT* ACCOUNT
______________________________________________
Owner's name (First, middle initial, last)
_______________________________________________
Joint owner's name (First, middle initial, last)
____________________________________________________________________
Owner's Social Security number Joint owner's Social Security number
__________________________________________________________
Owner's citizenship Joint owner's citizenship
*Joint tenants with right of survivorship, unless indicated otherwise.
[ ] UNIFORM GIFTS (TRANSFERS) TO MINORS ACCOUNT (UGMA/UTMA)
_________________________________________ as custodian for:
Name of one custodian only
_________________________________________ under the
Name of one minor only
__________________ Uniform Gifts (Transfers) to Minors Act.
State of residence
_____________________________________________________
Minor's Social Security number Minor's birthdate
[ ] ORGANIZATION OR OTHER ACCOUNT
Please complete and return the Certificate of Authorization on the
last page of the prospectus.
_______________________________________________
Name of corporation, partnership, estate, etc.
_________________________________________
Tax identification number
[ ] TRUST OR RETIREMENT ACCOUNT
For a Stein Roe IRA, please call us for a separate application.
_________________________________________
Name of trustee(s)
_________________________________________
_________________________________________
Name of trust
____________________________________________________
Date of trust Trust's tax identification number
_________________________________________
Trust beneficiary(ies)
_________________________________________
Trust beneficiary(ies)
2. ADDRESS
_________________________________________
Street Address or P.O. box
_________________________________________
_________________________________________
City State Zip code
_________________________________________
Daytime telephone Evening Telephone
[ ] CONSOLIDATED QUARTERLY STATEMENTS
Check the box above if you would like to link your new Stein Roe account
to an existing Stein Roe account--even if the existing account is
registered to another member in your household. Linking your accounts
allows us to consolidate your Stein Roe accounts on one quarterly
statement. Please provide the existing Stein Roe account number below.
Statements will be sent to the address on the existing account.
________________________________________________
Existing account number
3. FUND SELECTION
Fill in the amount you would like to invest in each of the funds below.
The initial minimum is $2,500; for custodial accounts (UGMAs), the
minimum is $1,000. When an Automatic Investment Plan in Section 6 is
established, Stein Roe reduces the minimum initial investment to $1,000
for each new account ($500 for UGMAs and $100 for Young Investor Fund).
If you do not specify a fund, your investment will be in Stein Roe Cash
Reserves Fund, a money market fund.
MONEY MARKET FUNDS
Cash Reserves Fund (036) $_____
TAX-EXEMPT FUNDS
Municipal Money Market Fund (030) _____
Intermediate Municipals Fund (008)_____
Managed Municipals Fund (037) _____
High-Yield Municipals Fund (028) _____
BOND FUNDS
Intermediate Bond Fund (035) _____
Income Fund (009) _____
High Yield Fund (015) _____
GROWTH AND INCOME FUNDS
Balanced Fund (031) _____
Growth & Income Fund (011) _____
GROWTH FUNDS
Growth Stock Fund (032) CLOSED*
Young Investor Fund (014) _____
Special Fund (034) _____
Growth Opportunities Fund (020) _____
Special Venture Fund (016) _____
Capital Opportunities (033) _____
International Fund (012) _____
Emerging Markets Fund (018)** _____
*This Fund is closed to new investors. You must be a current shareholder
in any Stein Roe Fund to open an additional account in your name. To
verify your status as a current shareholder, please provide account
number with new investment amount below.
______________________________________________________________________
Current Stein Roe Fund account number New Growth Stock Fund
investment amount
**To discourage short-term trading, there is a 1 percent redemption fee
imposed on the sale of shares held for less than 90 days.
4. INVESTMENT METHOD
Check one box below. (Money orders and cashier's checks not accepted.)
[ ] BY CHECK: Payable to Stein Roe Mutual Funds
[ ] BY EXCHANGE FROM:
Your account must be registered identically to invest by exchange.
______________________________
Fund name
___________________________ ____________________________
Account number Number of shares or $ amount
[ ] BY WIRE: Call us for instructions at 800-338-2550
5. TELEPHONE AND ONLINE REDEMPTION OPTIONS
A. Telephone/Online Redemption Options. You can redeem shares by
telephone or online two ways: with Telephone/Online Redemption, a check
is mailed to your address of record; with Telephone/Online Exchange,
redemption proceeds are used to purchase shares in another Stein Roe
Fund. Most shareholders prefer these conveniences. They apply unless
you check the boxes below.
I DO NOT WANT:
[ ] Telephone Redemption [ ] Online Redemption
[ ] Telephone Exchange [ ] Online Exchange
B. ACH Redemption Option. Check either or both boxes if you wish to be
able to redeem shares at any time by telephone or online and have the
proceeds sent to your bank account designated in Section 8. ($50
minimum; $100,000 maximum.)
[ ] ACH Telephone Redemption
[ ] ACH Online Redemption
C. Telephone Redemption by Wire. Check the box below if you wish to
redeem shares at any time and wire the proceeds to your bank account
designated in Section 8. ($1,000 minimum for all funds; $100,000 maximum
for all funds except money market funds.) [ ]
If you decide to add these options at a later date, you will be required
to obtain a signature guarantee.
6. AUTOMATIC INVESTMENT PLAN
Please allow 3 weeks to establish this option.
[ ] A. Regular Investments. This option allows you to make scheduled
investments into your accounts(s) directly from your bank account
by electronic transfer. When this option is established, Stein
Roe reduces the minimum initial investment to $1,000 for each new
account ($500 for UGMAs and $100 for Young Investor Fund).
Please remember to include a check for the appropriate minimum
and also complete Section 8.
_________________________________________________________________________
Fund name Account number or ("new") Amount (minimum $50 monthly)
_________________________________________________________________________
Fund name Account number or ("new") Amount (minimum $50 monthly)
I authorize Stein Roe Mutual Funds to draw on my bank account to purchase
shares for the account(s) listed above. Check one period below to
indicate the frequency of your automatic investments.
[ ] Monthly [ ] Quarterly [ ] Every 6 months [ ] Annually
Check one box below to indicate which day of the month your investment
should be made:
[ ] 5th or [ ] 20th day of the month
Please begin: [ ] Immediately or [ ] _______ (specify month)
[ ] B. Special Investments. You can also make subsequent purchases by
telephone or online and pay for them by electronic transfer from
your bank account on request. Check the box above for this
option, which saves you the trouble and expense of arranging for a
wire transfer or writing a check. Please also complete Section 8.
($50 minimum; $100,000 maximum).
7. DISTRIBUTION OPTIONS
We will automatically reinvest all distributions for you. If you want
this option, you do not need to fill out this section. Please check
below only if you prefer that your distributions be: invested in
shares of another Stein Roe Fund with the same account registration (a
$1,000 minimum applies to the account in which you are investing);
deposited into your bank account; or sent by check to your registered
address.
Dividends Capital Gains
(check one or both)
[ ] A. Distribution Purchase [ ] [ ]
Invest into _______________ __________________________
Fund name Account number (or "new")
from: _____________________ ___________________________
Fund name Account number (or "new")
[ ] B. Automatic deposit direct to your bank [ ] [ ]
account. Please also complete Section 8.
[ ] C. Send check to registered address [ ] [ ]
8. BANK INFORMATION
Complete this section if you have selected options from Sections 5B, 5C,
6A, 6B, or 7B. You must use the same bank account for these options.
[ ] checking [ ] savings
________________________________________________________________
Name of bank
________________________________________________________________
Street address of bank
________________________________________________________________
City State Zip code
________________________________________________________________
Name(s) on bank account
______________________________ ________________________________
Bank account number ACH Routing number (see diagram below)
Attach voided check here.
- ------------------------------------------------------
Joe Investor 0000
123 Main Street ______ 19__
Anytown, USA 12345
Pay to the
order of ________________________________ $_________
______________________________________________ Dollars
Anytown Bank USA
Memo ____________ ______________________________
1 000 000000 00 0000000000
- ------------------------------------------------------
ACH ROUTING NUMBER YOUR ACCOUNT NUMBER
A unique nine-digit number Unique to your account at
that allows for the electronic your financial institution
transfer of funds and identi-
fies your financial institution
within the Automatic Clearing
House Network.
9. AUTOMATIC EXCHANGE PLAN
With this option you can authorize Stein Roe to regularly exchange shares
from one existing Stein Roe Fund account to another with the same account
registration. A $1,000 minimum applies to each new account.
________________________________________________________________
Redeem shares from (Fund name) Account number
________________________________________________________________
Amount ($50 minimum)
________________________________________________________________
Purchase shares from (Fund name) Account number
Check one box below to indicate frequency of exchange and fill in
dates between the 1st and 28th of the month:
[ ] Twice monthly on the ___ and ___ beginning ______ (Specify month)
[ ] Monthly on the ______ beginning __________ (Specify month)
[ ] Quarterly on the ______ of _______________ (List four months)
[ ] Twice yearly on the _____ of _____________ (List two months)
[ ] Annually on the _____ of _________________ (Specify month)
10. MONEY MARKET FUND OPTIONS
[ ] FREE CHECK WRITING
Available for Cash Reserves Fund and Municipal Money Market Fund only.
Check the above box and complete the signature card below if you wish
to write checks ($50 minimum) on your money market fund account
Please also complete Section 12.
PLEASE DO NOT DETACH
- ---------------------------------------------------------------------
Bank of Boston Check Writing Signature Card (for money market funds only)
Select Fund:[ ] Cash Reserves Fund [ ] Municipal Money Market Fund
Account name(s) as registered: ____________________________
By signing this card, I authorize Bank of Boston to honor any check drawn
by me on an account with the bank and to redeem and pay to bank shares in
my Fund account having a redemption price equal to the amount of such
check. I agree to be subject to the rules governing the Check Writing
Redemption option as in effect from time to time.
Signature (sign as you will on checks) Signature guarantee*
_____________________________________ ________________________________
_____________________________________ ________________________________
Number of signatures on each check*: __________
*Required if you are adding these options to an existing account; or if
you are requesting check writing for a Trust, Corporation or other
Organization account, guarantee required for any person signing these
cards who has not signed in Section 12. Otherwise a signature guarantee
is not required.
If left blank, only one signature is required for joint tenant accounts,
but all signatures are required for all other types of accounts.
For office use only: Account no. _________________ Date: ______________
You are subject to Fund and bank rules pertaining to checking
accounts under the privilege as in effect from time to time. For a
joint tenancy account with rights of survivorship, each owner appoints
each other owner as attorney-in-fact with power to authorize redemptions
on his behalf by signing checks under the privilege unless the reverse
side indicates all owners must sign checks.
You agree to hold Fund and its transfer agent free from any liability
resulting from payment of any forged, altered, lost or stolen check
unless you notify Fund and bank of such misappropriation no later than 14
days after the earliest of the date on which you (a) discover the
misappropriation or (b) receive a copy of the check cancelled by bank. A
copy of a cancelled check paid during a calendar month is deemed
received 6 days after posting in the U.S. mail to your registered address
with Fund unless you notify Fund of non-receipt by certified mail within
20 days after the close of such month.
You agree to hold Fund and its transfer agent free from any liability for
any other check misappropriated by the same wrongdoer and paid from
proceeds of a redemption made in good faith on or after the date you
notify Fund of the first misappropriated check.
- -----------------------------------------------------------------------
11. TERMS AND CONDITIONS OF SERVICES
Please read carefully before signing in Section 12. By electing an
automatic service, you agree to the following terms and conditions and
those stated in the Fund prospectus as in effect from time to time.
*By signing this application, you agree that any privilege you elect may
be restricted or terminated at any time without notice to you. Your
termination of a privilege will be effective no later than five business
days after the Fund(s) or its transfer agent receives 1) your request;
2) notice and proof of your death, or if a trust, termination thereof;
or 3) the closing of an affected Fund or bank account.
*All privileges except Automatic Dividend Deposit, Dividend Purchase
Option, Automatic Investment Plan, Money Market Fund Check Writing,
Automatic Exchange, Automatic Redemption Plan and Telephone Redemption
by Wire will be transferred automatically to any new account you open in
any other Fund offering the privileges into which a telephone or written
exchange is made.
*You authorize the Fund(s) and its transfer agent to initiate any and
all credit or debit entries (and reversals thereof) to effect electronic
transfers under any privilege and redeem shares of any Fund(s) you own
equal to the amount of any loss incurred by any of them in effecting any
electronic transfer and retain the proceeds.
*To discourage short-term trading, there is a 1 percent redemption fee
imposed on the sale of Emerging Markets Fund shares held for less than
90 days.
12. SIGNATURE(S)
By signing this form, I certify that:
*I have received the current Fund prospectus and have read the Terms and
Conditions of Services in Section 11 and agree to be bound by their
terms as governed by Illinois law. I have full authority and legal
capacity to purchase Fund shares and establish and use any related
privileges.
*By signing below, I certify under penalties or perjury that:
-All information and certifications on this application are true and
correct, including the Social Security or other tax identification
number (TIN) in Section 1.
-If I have not provided a TIN, I have not been issued a number but have
applied (or will apply) for one and understand that if I do not
provide the Fund(s) a TIN within 60 days, the Fund(s) will withhold
31 percent from all my dividend, capital gain and redemption payments
until I provide one.
-Check one of the following only if applicable:
[ ] The IRS has informed me I am subject to backup withholding as a
result of a failure to report all interest or dividend income.
[ ] I am a trust or organization that qualifies for the IRS backup
withholding exemption.
*Unless I have declined the Telephone Redemption, Telephone Exchange,
Online Redemption and Online Exchange privileges in Section 5A, I have
authorized the Fund and its agents to act upon instructions received by
telephone to redeem my shares of the Fund or to exchange them for shares
of another Stein Roe Fund, and I agree that, subject to the Funds
employing reasonable procedures to confirm that such telephone or online
instructions are genuine, neither the Fund, nor any of its agents will
be liable for any loss, injury, damage, or expense as a result of acting
upon, and will not be responsible for the authenticity of, any telephone
instructions, and will hold the Fund and its agents harmless from any
loss, claims or liability arising from its or their compliance with
these instructions. Accordingly, I understand that I will bear any
risk of loss resulting from unauthorized instructions.
*THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
Sign below exactly as your name(s) appears in Section 1.
x________________________________________________________________
Signature Date
________________________________________________________________
Title (if owner is an organization)
x________________________________________________________________
joint owner's signature Date
________________________________________________________________
Title (if owner is an organization)
13. SIGNATURE GUARANTEE (IF REQUIRED)
A signature guarantee is not required if you are establishing a new
account. For existing accounts, a signature guarantee is required if
you are adding or making changes to options listed in Sections 5, 6, 7B,
8 or 10. We are unable to accept notarizations.
Signature(s) guaranteed by:
________________________________________________________________
Name of institution
________________________________________________________________
Name of authorized officer
________________________________________________________________
Signature of authorized officer
Guarantor's stamp:
APP10/97