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. 22 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 23 [X]
STEIN ROE MUNICIPAL TRUST
One South Wacker Drive, Chicago, Illinois 60606
Telephone Number: 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
(Agents for Service)
It is proposed that this filing will become effective (check
appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on February 19, 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, 1996 was filed on August 14,
1996. 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.
Amending Parts A, B and C and filing exhibits.
<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; How the
Funds Invest; Portfolio Investments and Strategies;
Restrictions on the Funds' Investments; Investment
Considerations and Risks; Summary--Investment Risks
5 (a) Management of the Funds--Trustees and Investment Adviser
(b) Management of the Funds--Trustees and Investment Adviser, Fees
and Expenses
(c) Management of the Funds--Portfolio Managers
(d) Inapplicable
(e) Management of the Funds--Transfer Agent
(f) Management of the Funds--Fees and Expenses; Financial
Highlights
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see statement of
additional information: General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) Summary
(f) Shareholder Services; Distributions and Income Taxes
(g) Distributions and Income Taxes
(h) Organization and Description of Shares--Special Considerations
Regarding Master Fund/Feeder Fund Structure
7 How to Purchase Shares
(a) Management of the Funds--Distributor
(b) How to Purchase Shares--Purchase Price and Effective Date; Net
Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inapplicable
8 (a) How to Redeem Shares; Shareholder Services
(b) How to Purchase Shares--Purchases Through Third Parties
(c) How to Redeem Shares--General Redemption Policies
(d) How to Redeem Shares--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 of the Funds
(b) Investment Advisory Services
(c) Inapplicable
(d) Inapplicable
(e) Investment Advisory Services
(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 the 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>
The Prospectuses relating to Stein Roe Intermediate Municipals
Fund, Stein Roe High-Yield Municipals Fund, Stein Roe Municipal
Money Market Fund, and Stein Roe Managed Municipals Fund, each a
series of Stein Roe Municipal Trust, are not affected by the
filing of this post-effective amendment No. 22.
<PAGE>
Statement of Additional Information Dated November 1, 1996
as revised and supplemented through February 19, 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 November 1, 1996, 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............................5
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.................................29
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
<PAGE>
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").
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 was changed on August 1, 1991
from SteinRoe Tax-Exempt Income Trust to SteinRoe Municipal Trust
and was changed on November 1, 1995 to Stein Roe Municipal Trust.
Prior to November 1, 1995, Municipal Money Fund, Intermediate
Municipals, Managed Municipals, and High-Yield Municipals were
named SteinRoe Municipal Money Market Fund, SteinRoe Intermediate
Municipals, SteinRoe Managed Municipals, and SteinRoe High-Yield
Municipals, respectively. SteinRoe Municipal Money Market Fund
was named SteinRoe Tax-Exempt Money Fund prior to November 1,
1992.
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 Municipal
Trust's outstanding shares, Municipal Trust will call a special
meeting for the purpose of voting upon the question of removal of
a trustee or trustees and will assist in the communications with
other shareholders as required by Section 16(c) of the Investment
Company Act of 1940. All shares of Municipal Trust are voted
together in the election of trustees. On any other matter
submitted to a vote of shareholders, shares are voted in the
aggregate and not by individual series, except that shares are
voted by individual series when required by the Investment Company
Act of 1940 or other applicable law, or when the Board of Trustees
determines that the matter affects only the interests of
one or more series, in which case shareholders of the unaffected
series are not entitled to vote on such matters.
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 assets 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 to the master fund/feeder fund structure on September
28, 1995. For more information, please refer to the Prospectus
under the caption Organization and Description of Shares--Special
Considerations Regarding the Master Fund/Feeder Fund Structure.
INVESTMENT POLICIES
The following information supplements the discussion of the
Funds' respective investment objectives and policies described in
the Prospectus. In pursuing its objective, each Fund will invest
as described below and may employ investment techniques described
in the Prospectus and elsewhere in this Statement of Additional
Information. Investments and strategies that are common to two or
more Funds are described under Portfolio Investments and
Strategies. Each Fund's investment objective is not fundamental
and may be changed by the Board of Trustees without the approval
of a "majority of the outstanding voting securities" (see
definition in the Glossary) of that Fund.
MUNICIPAL MONEY FUND
This Fund seeks maximum current income exempt from federal
income tax. 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. 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.
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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. For purposes of discussion under Portfolio
Investments and Strategies, Investment Restrictions, and
Investment Risks, 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.
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/3/ In the case of Municipal Money Fund, Municipal Money
Portfolio, and Managed Municipals, the policies described in this
paragraph are fundamental.
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AMT SECURITIES
Although the Funds currently limit their investments in
Municipal Securities to those the interest on which is exempt from
the regular federal income tax, each Fund may invest 100% of its
total assets in Municipal Securities the interest on which is
subject to the federal alternative minimum tax ("AMT").
STANDBY COMMITMENTS
Each Fund may obtain standby commitments when it purchases
Municipal Securities. A standby commitment gives the holder the
right to sell the underlying security to the seller at an agreed-
upon price on certain dates or within a specified period. A Fund
will acquire standby commitments solely to facilitate portfolio
liquidity and not with a view to exercising them at a time when
the exercise price may exceed the current value of the underlying
securities. If the exercise price of a standby commitment held by
a Fund should exceed the current value of the underlying
securities, a Fund may refrain from exercising the standby
commitment in order to avoid causing the issuer of the standby
commitment to sustain a loss and thereby jeopardizing the Fund's
business relationship with the issuer. A Fund will enter into
standby commitments only with banks and securities dealers that,
in the opinion of the Adviser, present minimal credit risks.
However, if a securities dealer or bank is unable to meet its
obligation to repurchase the security when a Fund exercises a
standby commitment, the Fund might be unable to recover all or a
portion of any loss sustained from having to sell the security
elsewhere. Standby commitments will be valued at zero in
determining each Fund's net asset value. Municipal Trust has
received an opinion of Bell, Boyd & Lloyd, counsel to the Trust,
that interest earned by the Funds on Municipal Securities will
continue to be exempt from the regular federal income tax
regardless of the fact that the Fund holds standby commitments
with respect to such Municipal Securities.
PARTICIPATION INTERESTS
Each Fund may purchase participation interests or
certificates of participation in all or part of specific holdings
of Municipal Securities, but does not intend to do so unless the
tax-exempt status of those participation interests or certificates
of participation is confirmed to the satisfaction of the Board of
Trustees, which may include consideration of an opinion of counsel
as to the tax-exempt status. Each participation interest would
meet the prescribed quality standards of the Fund or be backed by
an irrevocable letter of credit or guarantee of a bank that meets
the prescribed quality standards of the Fund. (See Investment
Policies.) Some participation interests are illiquid securities.
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
Each Fund may purchase securities on a when-issued or
delayed-delivery basis, as described in the Prospectus. A Fund
makes such commitments only with the intention of actually
acquiring the securities, but may sell the securities before
settlement date if it is deemed advisable for investment reasons.
Securities purchased in this manner involve a risk of loss if the
value of the security purchased declines before settlement date.
At the time a Fund enters into a binding obligation to
purchase securities on a when-issued basis, liquid assets (cash,
U.S. Government or other "high grade" debt obligations) of the
Fund having a value of at least as great as the purchase price of
the securities to be purchased will be segregated on the books of
the Fund and held by the custodian throughout the period of the
obligation.
SHORT SALES
Each Fund may 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 the Fund's 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% 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 or S&P for
Municipal Securities may change as a result of changes in such
organizations, or changes in their rating systems, each Fund will
attempt to use comparable ratings as standards for its investments
in Municipal Securities in accordance with its investment
policies. The Board of Trustees is required to review such
ratings with respect to Municipal Money Fund and 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
Each Fund may purchase tender option bonds. 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. Municipal Money Fund
and Municipal Money Portfolio may invest up to 10% of net assets
in tender option bonds.
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. Recent higher levels of
portfolio turnover for Intermediate Municipals and for High-Yield
Municipals were due, in part, to recognition of capital gains from
favorable investments and from the Adviser's refining of
techniques for reacting to changes in the markets to shift
exposures to certain sectors. A high rate of portfolio turnover
in a Fund, if it should occur, may result in the realization of
capital gains or losses, and, to the extent net short-term capital
gains are realized, any distributions resulting from such gains
will be considered ordinary income for federal income tax
purposes.
For further information on the portfolio turnover rate of
each Fund, see Financial Highlights and Risks and Investment
Considerations in the Prospectus and Additional Tax Considerations
herein.
OPTIONS
Each of Intermediate Municipals, Managed Municipals, and
High-Yield Municipals is permitted to purchase and to write both
call options and put options on debt or other securities or
indexes in standardized contracts traded on U.S. securities
exchanges, boards of trade, or similar entities, or quoted on
NASDAQ, and agreements, sometimes called cash puts, that may
accompany the purchase of a new issue of bonds from a dealer.
Currently there are no publicly-traded options on individual
tax-exempt securities. However, it is anticipated that such
instruments may become available in the future.
An option is a contract that gives the purchaser (holder) of
the option, in return for a premium, the right to buy from (call)
or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of an index) at a
specified exercise price at any time during the term of the option
(normally not exceeding nine months). The writer of the option
has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay
the exercise price upon delivery of the underlying security. Upon
exercise, the writer of an 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.
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.
- -------------
/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 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). In addition,
gains realized on the sale or other disposition of securities held
for less than three months must be limited to less than 30% of the
Fund's annual gross income. Any net gain realized from futures
(or futures options) contracts will be considered gain from the
sale of securities and therefore be qualifying income for purposes
of the 90% requirement. In order to avoid realizing excessive
gains on securities held less than three months, the Fund may be
required to defer the closing out of certain positions beyond the
time when it would otherwise be advantageous to do so.
Each Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options and
futures transactions. Such distributions are combined with
distributions of capital gains realized on the Fund's other
investments and shareholders will be advised of the nature of the
payments.
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. 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/
- -----------
/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 non-leveraging,
temporary or emergency purposes and (b) engage in reverse
repurchase agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law; it may borrow from banks, other Stein Roe Funds
and 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 a
Fund 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
the Fund's 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 the Fund to
require sellers of securities to the Fund to repurchase them
upon demand by the Fund [Intermediate Municipals, Managed Municipals,
and High-Yield Municipals only] and that transactions in options,
futures, and options on futures are not treated as short sales;
(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; (2) buy or sell an option on a security, a futures
contract or an option on a futures contract unless the option, the
futures contract or the option on the futures contract is offered
through the facilities of a national securities association or
listed on a national exchange or similar entity; or (3) purchase a
put or call option if the aggregate premiums paid for all put and
call options exceed 20% of its net assets (less the amount by
which any such positions are in-the-money), excluding put and call
options purchased as closing transactions.
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). 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 Funds' 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. I
n 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 February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the judgment
of the Board of Trustees, net asset value of a Fund should be
determined on any such day, in which case the determination will
be made at 3:00 p.m., Chicago time.
Municipal Trust intends to pay all redemptions in cash and is
obligated to redeem shares of a Fund solely in cash up to the
lesser of $250,000 or one percent of the net assets of that Fund
during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or partly
by a distribution in kind of securities. If redemptions were made
in kind, the redeeming shareholders might incur transaction costs
in selling the securities received in the redemptions.
Although Municipal Money Fund does not currently charge a fee
to its shareholders for the use of the special Check-Writing
Redemption Privilege offered by that Fund, described under How to
Redeem Shares in the Prospectus, the Fund pays for the cost of
printing and mailing checks to its shareholders and pays charges
of the custodian for payment of each check. Municipal Trust
reserves the right to establish a direct charge to shareholders
for use of the Privilege and both the Trust and the custodian
reserve the right to terminate this service.
Municipal Trust reserves the right to suspend or postpone
redemptions of shares of any Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the Securities
and Exchange Commission, or the NYSE is closed for other than
customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c)
an emergency, as determined by the Securities and Exchange
Commission, exists, making disposal of portfolio securities or
valuation of net assets of such Fund not reasonably practicable.
Due to the relatively high cost of maintaining smaller
accounts, Municipal Trust reserves the right to redeem shares in
any account for their then-current value (which will be promptly
paid to the investor) if at any time the shares in the account
do not have a value of at least $1,000. An investor will be
notified that the value of his account is less than that minimum
and allowed at least 30 days to bring the value of the account up
to at least $1,000 before the redemption is processed. The
Agreement and Declaration of Trust also authorizes 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 (1)(2) 48 President; Trustee President of the Mutual Funds division of the
(4) Adviser and director of the Adviser since June,
1992; senior vice president and director of
marketing of Citibank Illinois prior thereto
Jilaine Hummel Bauer (4) 41 Executive Vice-President; General counsel and secretary of the Adviser
Secretary since November 1995; senior vice president of
the Adviser since April, 1992; vice president
of the Adviser prior thereto
Kenneth L. Block (3)(4) 76 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)
since 1992; chairman, president, and chief
executive officer of Sterling Plumbing Group,
Inc. prior thereto
Thomas W. Butch (4) 40 ExecutiveVice-President Senior vice president of the Adviser since
September, 1994; first vice president,
corporate communications, of Mellon Bank
Corporation prior thereto
Lindsay Cook (1)(4) 45 Trustee Senior vice president of Liberty Financial
Companies, Inc. (the indirect parent of the
Adviser)
Joanne T. Costopoulos 49 Vice-President Senior portfolio manager of the Adviser; senior
vice president of the Adviser since November,
1995; vice president of the Adviser from
January, 1994 to November, 1995; associate of
the Adviser prior thereto
Philip J. Crosley 50 Vice-President Senior Vice President of the Adviser since
February, 1996; Vice President, Institutional
Sales - Advisor Sales, Invesco Funds Group prior
thereto
Douglas A. Hacker (3)(4) 41 Trustee Senior vice president and chief financial
officer, United Airlines, since July, 1994;
senior vice president--Finance, United
Airlines, February, 1993 to July, 1994; vice
president, American Airlines prior thereto
Janet Langford Kelly 39 Trustee Senior vice president, secretary
(3)(4) and general counsel, Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer),
since 1995; partner, Sidley &
Austin (law firm), 1991 through 1994
Lynn C. Maddox 56 Vice-President Senior vice president of the Adviser
Anne E. Marcel 39 Vice-President Vice president of the Adviser since April,
1996; manager, Mutual Fund Sales & Services of
the Adviser since October, 1994; supervisor of
the Counselor Department of the Adviser from
October, 1992 to October, 1994; vice president
of Selected Financial Services prior thereto
M. Jane McCart 41 Vice-President Senior vice president of the Adviser since
January, 1991; vice president of the Adviser
prior thereto
Francis W. Morley (2)(3) 76 Trustee Chairman of Employer Plan Administrators and
(4) Consultants Co. (designer, administrator, and
communicator of employee benefit plans)
Charles R. Nelson (3) 54 Trustee Van Voorhis Professor of Political Economy of
(4) the University of Washington
Nicolette D. Parrish (4) 47 Vice-President; Senior compliance administrator and assistant
Assistant Secretary secretary of the Adviser since November 1995;
senior legal assistant for the Adviser prior
thereto
Cynthia A. Prah (4) 34 Vice-President Manager of Shareholder Transaction Processing
for the Adviser
Sharon R. Robertson (4) 35 Controller Accounting manager for the Adviser's Mutual
Funds division
Janet B. Rysz (4) 41 Assistant Secretary Senior compliance administrator and assistant
secretary of the Adviser
Thomas P. Sorbo 36 Vice-President Senior vice president of the Adviser since
January, 1994; vice president of the Adviser
from September, 1992 to December, 1993;
associate of Travelers Insurance Company prior
thereto
Thomas C. Theobald(3)(4) 59 Trustee Managing director, William Blair Capital
Partners (private equity fund) since 1994;
chief executive officer and chairman of the
Board of Directors of Continental Bank
Corporation, 1987-1994
Heidi J. Walter (4) 29 Vice-President Legal counsel for the Adviser since March, 1995;
associate with Beeler Schad & Diamond, PC (law firm),
prior thereto
Veronica M. Wallace 50 Vice-President Portfolio manager for the Adviser since
September, 1995; trader in taxable short-term
instruments for the Adviser prior thereto
Stacy H. Winick (4) 32 Vice-President Senior legal counsel for the Adviser
since Octob er, 1996; associate of
Bell, Boyd & Lloyd (law firm), June,
1993 to September, 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) 30 Treasurer Compliance manager for the Adviser's Mutual
Funds division since August 1995; compliance
accountant, January 1995 to July 1995; section
manager, January 1994 to January 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 SR&F 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, IL 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 December 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 fee
is 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 by Municipal Trust during
the fiscal year ended June 30, 1996 to each of 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-
Douglas A. Hacker -0- -0-
Janet Langford Kelly -0- -0-
Thomas C. Theobald -0- -0-
Kenneth L. Block $21,250 $82,417
William W. Boyd 22,720 86,317
Francis W. Morley 21,250 82,017
Charles R. Nelson 22,750 86,317
Gordon R. Worley 21,250 82,817
_______________
* During this period, the Stein Roe Fund Complex consisted of the
six series of Stein Roe Income Trust, four series of Municipal
Trust, eight series of Stein Roe Investment Trust, and one series
of Base Trust. Messrs. Hacker and Theobald were elected trustees
on June 18, 1996, and, therefore, did not receive any compensation
for the year ended June 30, 1996. Mr. Worley retired from the Board
on December 31, 1996 and Ms. Kelly became a trustee on January 1, 1997.
FINANCIAL STATEMENTS
Please refer to the Funds' June 30, 1996 Financial Statements
(balance sheets and schedules of investments as of June 30, 1996
and the statements of operations, changes in net assets, and notes
thereto) and the report of independent auditors contained in the
June 30, 1996 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 January 31, 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, was Charles Schwab & Co., Inc., 101 Montgomery Street, San
Francisco, California 94104, which owned of record but not
beneficially approximately 10.1% of the outstanding shares of
Intermediate Municipals.
The following table shows shares of the Funds as of January
31, 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 29,481,223 25.39 339,190 **
Intermediate Municipals 6,742,565 38.72 58,738 **
Managed Municipals 17,767,180 26.59 58,453 **
High-Yield Municipals 7,290,094 28.48 23,102 **
_________________
*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. Prior to
September 28, 1995, the Adviser also served as investment adviser
to Municipal Money Fund. On that date, Municipal Money Fund began
investing in Municipal Money Portfolio and the Adviser no longer
provides investment advisory services directly to that Fund. 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 Senior 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 December 31, 1996, the Adviser
managed over $26.7 billion in assets: over $8 billion in
equities and over $18.7 billion in fixed income securities
(including $1.6 billion in municipal securities). The $26.7
billion in managed assets included over $7.5 billion held by
open-end mutual funds managed by the Adviser (approximately 16%
of the mutual fund assets were held by clients of the Adviser).
These mutual funds were owned by over 227,000 shareholders. The
$7.5 billion in mutual fund assets included over $743 million in
over 47,000 IRA accounts. In managing those assets, the Adviser
utilizes a proprietary computer-based information system that
maintains and regularly updates information for approximately
6,500 companies. The Adviser also monitors over 1,400 issues
via a proprietary credit analysis system. At December 31, 1996,
the Adviser employed 19 research analysts and 55 account
managers. The average investment-related experience of these
individuals was 22 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 description of the Adviser, each Fund's
administrative agreement, the management agreements, fees, expense
limitations, and transfer agency services under Management of the
Funds 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 advisory
fees paid by the Funds and any expense reimbursements by the
Adviser to them. The fees and expense reimbursements of the Funds
and Municipal Money Portfolio are described in the Prospectus.
YEAR YEAR YEAR
TYPE OF ENDED ENDED ENDED
FUND PAYMENT 6/30/96 6/30/96 6/30/94
- ----------------- ---------------- --------- --------- ----------
Municipal Money Advisory fee $ 169,982 $ 786,956 $ 998,500
Fund Reimbursement 194,035 120,433 -0-
Administrative fee 248,793 -- --
Municipal Money
Portfolio Management fee 289,880 -- --
Intermediate Advisory fee 1,220,311 1,248,808 1,415,654
Municipals Reimbursement 227,352 36,038 -0-
Managed Municipals Advisory fee 3,261,714 3,392,060 3,936,931
High-Yield
Municipals Advisory fee 1,549,376 1,587,995 1,846,679
The Adviser provides office space and executive and other
personnel to the Funds and Municipal Money Portfolio and bears any
sales or promotional expenses. Each Fund and Municipal Money
Portfolio pays all expenses other than those paid by the Adviser,
including but not limited to printing and postage charges and
securities registration and custodian fees and expenses incidental
to its organization.
Each Fund's 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 Funds' 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 (or Municipal Money
Portfolio) shall be paid solely out of that Fund's (or Municipal
Money Portfolio's) assets. Any expenses incurred by a Trust that
are not solely attributable to a particular Fund (or Municipal
Money Portfolio) are apportioned in such a manner as the Adviser
determines is fair and appropriate, unless otherwise specified by
the Board of Trustees.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with 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 and 1996, the Adviser received aggregate
fees of $74,069 and $147,330 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 of the Funds in the Prospectus, which is
incorporated herein by reference. The Distribution Agreement
continues in effect from year to year, provided such continuance
is approved annually (i) by a majority of the trustees or by a
majority of the outstanding voting securities of Municipal Trust,
and (ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. Municipal
Trust has agreed to pay all expenses in connection with
registration of its shares with the Securities and Exchange
Commission and auditing and filing fees in connection with
registration of its shares under the various state blue sky laws
and assumes the cost of preparation of prospectuses and other
expenses.
As agent, LSC offers shares of the Funds to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. No sales commission or "12b-1" payment is paid by any
Fund. LSC offers the Funds' shares only on a best-efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for Municipal
Trust, as described under Management of the Funds in the
Prospectus. For performing these services, SSI receives payments
from Municipal Money Fund of 0.150% of average daily net assets
and payments from Intermediate Municipals, Managed Municipals, and
High-Yield Municipals of 0.140% 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 of the Funds, receiving and paying for
securities purchased, delivering against payment securities sold,
receiving and collecting income from investments, making all
payments covering expenses of the Funds, and performing other
administrative duties, all as directed by authorized persons. The
custodian does not exercise any supervisory function in such
matters as purchase and sale of portfolio securities, payment of
dividends, or payment of expenses of the Funds. The Trusts have
authorized the custodian to deposit certain portfolio securities
in central depository systems as permitted under federal law. The
Funds may invest in obligations of the custodian and may purchase
or sell securities from or to the custodian.
INDEPENDENT AUDITORS
The independent auditors for 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 Funds' annual financial statements, review certain
regulatory reports and the Funds' federal income tax returns, and
perform other professional accounting, auditing, tax and advisory
services when engaged to do so by the Trusts.
PORTFOLIO TRANSACTIONS
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
6/30/96 -0- -0- -0-
Number of futures contracts -0- -0- -0-
Total brokerage commissions
paid during year ended
6/30/95 $58,366 $58,366 $14,023
Total brokerage commissions
paid during year ended
6/30/94 $110,292 $38,028 -0-
Included in the price paid to an underwriter of a portfolio
security is the spread between the price paid by the underwriter
to the issuer and the price paid by the purchaser. Purchases and
sales of portfolio securities in the over-the-counter market
usually are transacted with a broker or dealer on a net basis,
without any brokerage commission being paid by a Fund, 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 above and How the
Funds Invest in the Prospectus.)
Because capital gain distributions reduce net asset value, if
a shareholder purchases shares shortly before a record date he
will, in effect, receive a return of a portion of his investment
in such distribution. The distribution would nonetheless be
taxable to him, even if the net asset value of shares were reduced
below his cost. However, for federal income tax purposes the
shareholder's original cost would continue as his tax basis.
Because the taxable portion of each Fund's investment income
consists primarily of interest, none of its dividends, whether or
not treated as "exempt-interest dividends," will qualify under the
Internal Revenue Code for the dividends received deduction
available to corporations.
Interest on indebtedness incurred or continued by
shareholders to purchase or carry shares of a Fund is not
deductible for federal income tax purposes. Under rules applied
by the Internal Revenue Service to determine whether borrowed
funds are used for the purpose of purchasing or carrying
particular assets, the purchase of shares may, depending upon the
circumstances, be considered to have been made with borrowed funds
even though the borrowed funds are not directly traceable to the
purchase of shares.
If you redeem at a loss shares of a Fund held for six months
or less, that loss will not be recognized for federal income tax
purposes to the extent of exempt-interest dividends you have
received with respect to those shares. If any such loss exceeds
the amount of the exempt-interest dividends you received, that
excess loss will be treated as a long-term capital loss to the
extent you receive any long-term capital gain distribution with
respect to those shares.
Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds
should consult their own tax advisors before purchasing shares.
Such persons may find investment in the Funds unsuitable for tax
reasons. Corporate investors may also wish to consult their own
tax advisers before purchasing shares. In addition, certain
property and casualty insurance companies,
financial institutions, and United States branches of foreign
corporations may be adversely affected by the tax treatment of the
interest on Municipal Securities.
INVESTMENT PERFORMANCE
MUNICIPAL MONEY FUND
Municipal Money Fund may quote a "Current Yield" or
"Effective Yield" or both from time to time. The Current Yield is
an annualized yield based on the actual total return for a seven-
day period. The Effective Yield is an annualized yield based on a
daily compounding of the Current Yield. These yields are each
computed by first determining the "Net Change in Account Value"
for a hypothetical account having a share balance of one share at
the beginning of a seven-day period ("Beginning Account Value"),
excluding capital changes. The Net Change in Account Value will
always equal the total dividends declared with respect to the
account, assuming a constant net asset value of $1.00. A "Tax-
Equivalent Yield" is computed by dividing the portion of the
"Yield" that is tax-exempt by one minus a stated income tax rate
and adding the product to that portion, if any, of the yield that
is not tax-exempt.
The yields are then computed as follows:
Net Change in Account Value 365
--------------------------- ----
Current Yield = Beginning Account Value x 7
[1 + Net Change in Account Value]365/7
--------------------------------------
Effective Yield = Beginning Account Value - 1
For example, the yields of Municipal Money Fund for the seven-day
period ended June 30, 1996 were:
$0.0.000551637 365
-------------- ---
Current Yield = $1.00 x 7 = 2.88%
[1+$0.0.000551637]365/7
---------------------
Effective Yield = $1.00 - 1 = 2.92%
Tax-Equivalent Current Yield = 4.76% (assuming 39.6% tax rate)
Tax-Equivalent Effective Yield = 4.83% (assuming 39.6% tax rate)
The average dollar-weighted portfolio maturity for the seven
days ended June 30, 1996 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.
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, 1996 were:
Intermediate Municipals
Yield = 4.68%
Tax-Equivalent Yield = 7.74%
(assuming 39.6% tax rate)
Managed Municipals
Yield = 5.24%
Tax-Equivalent Yield = 8.68%
(assuming 39.6% tax rate)
High-Yield Municipals
Yield = 5.77%
Tax-Equivalent Yield = 9.56%
(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, 1996 were:
TOTAL RETURN AVERAGE ANNUAL
FUND TOTAL RETURN PERCENTAGE TOTAL RETURN
- --------------------- ------------ ------------ -------------
Municipal Money Fund
1 year $1,031 3.13% 3.13%
5 years 1,140 13.98 2.65
10 years 1,443 44.26 3.73
Intermediate Municipals
1 year 1,055 5.47 5.47
5 years 1,392 39.15 6.83
10 years 1,932 93.20 6.81
Managed Municipals
1 year 1,062 6.24 6.24
5 years 1,408 40.75 7.08
10 years 2,123 112.31 7.82
High-Yield Municipals
1 year 1,068 6.83 6.83
5 years 1,377 37.69 6.61
10 years 2,133 113.32 7.87
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
Restrictions on the Funds' Investments in the Prospectus and
restriction number (i) under Investment Restrictions. If, in any
case, the creating municipal government or another entity
guarantees an obligation or issues a letter of credit to secure
the obligation, the guarantee (or letter of credit) would be
considered a separate security issued by such government or entity
and would be separately valued and included in the issuer
limitation. In the case of Municipal Money Fund, 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:
Financial statements (investments as of 6/30/96, balance
sheets as of 6/30/96, statements of operations for the
year ended 6/30/96, statements of changes in net assets
for each of the two years in the period ended 6/30/96,
and notes thereto) are incorporated by reference to
Registrant's 6/30/96 annual report. Schedule I has been
omitted as the required information is presented in the
portfolio of investments. Schedules II, III, IV, and V have
been omitted as the required information is not present.
(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. (a) 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.)*
(b) Expense undertaking dated 10/31/95 relating to the
series Stein Roe Municipal Money Market Fund and expense
waiver dated 5/1/95 relating to the series Stein Roe
Intermediate Municipals Fund. (Exhibit 5(d) to PEA #20.)*
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. (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.)*
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 Stein-
Roe 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--Intermediate Municipals Fund
(b) Financial Data Schedule--High-Yield Municipals Fund.
(c) Financial Data Schedule--Municipal Money Market Fund.
(d) Financial Data Schedule--Managed Municipals Fund.
18. Inapplicable.
19. (Miscellaneous.)
(a) Funds Application. (Exhibit 19(a) to PEA #20.)*
(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 January 31, 1997
- ----------------- -----------------------------
Stein Roe Intermediate Municipals Fund 2,952
Stein Roe High-Yield Municipals Fund 5,979
Stein Roe Municipal Money Market Fund 3,373
Stein Roe Managed Municipals Fund 9,107
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,
Stein Roe Income Trust, Stein Roe Investment Trust, SR&F Base
Trust, Stein Roe Institutional Trust, Stein Roe Adviser Trust,
Stein Roe Trust, SteinRoe Variable Investment Trust and LFC Utilities
Trust, 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, which is
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 Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Ann H. Benjamin Vice-President
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
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary
Ann H. Benjamin Vice-President
Thomas W. Butch Executive Vice-President Vice-President
Philip J. Crosley Vice-President
Michael T. Kennedy 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
Gary A. Anetsberger Senior Vice-President Controller
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
Richard B. Peterson 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 Senior Vice-President Controller
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
STEIN ROE ADVISER TRUST
Gary A. Anetsberger Senior Vice-President
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
Richard B. Peterson Vice-President
Gloria J. Santella Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE INSTITUTIONAL TRUST and STEIN ROE TRUST
Gary A. Anetsberger Senior Vice-President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary
Ann H. Benjamin Vice-President
Thomas W. Butch Executive Vice-President Vice-President
Philip J. Crosley Vice-President
Michael T. Kennedy 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
STEINROE VARIABLE INVESTMENT TRUST
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin 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
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 Advisor 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; 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 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 18th day of February, 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 February 18, 1997
Timothy K. Armour
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice-President February 18, 1997
Gary A. Anetsberger
Principal Financial Officer
SHARON R. ROBERTSON Controller February 18, 1997
Sharon R. Robertson
Principal Accounting Officer
KENNETH L. BLOCK Trustee February 18, 1997
Kenneth L. Block
WILLIAM W. BOYD Trustee February 18, 1997
William W. Boyd
LINDSAY COOK Trustee February 18, 1997
Lindsay Cook
___________________ Trustee _________________
Douglas A. Hacker
JANET LANGFORD KELLY Trustee February 18, 1997
Janet Langford Kelly
FRANCIS W. MORLEY Trustee February 18, 1997
Francis W. Morley
CHARLES R. NELSON Trustee February 18, 1997
Charles R. Nelson
THOMAS C. THEOBALD Trustee February 18, 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
- ------- -----------
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
Exhibit 11(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Independent Auditors" and to the incorporation by reference
of our report dated August 8, 1996 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) and
related Statement of Additional Information of Stein Roe
Municipal Trust, filed with the Securities and Exchange
Commission in this Post-Effective Amendment No. 22 to the
Registration Statement under the Securities Act of 1933
(Registration No. 2-99356) and in this Amendment No. 23 to
the Registration Statement under the Investment Company Act
of l940 (Registration No. 811-4367).
ERNST & YOUNG LLP
Chicago, Illinois
February 13, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STEIN ROE INTERMEDIATE MUNICIPALS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 200,636
<INVESTMENTS-AT-VALUE> 207,251
<RECEIVABLES> 5,061
<ASSETS-OTHER> 251
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 212,563
<PAYABLE-FOR-SECURITIES> 7,297
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 540
<TOTAL-LIABILITIES> 7,837
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 197,541
<SHARES-COMMON-STOCK> 18,243
<SHARES-COMMON-PRIOR> 18,970
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 570
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,615
<NET-ASSETS> 204,726
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,825
<OTHER-INCOME> 0
<EXPENSES-NET> 1,498
<NET-INVESTMENT-INCOME> 10,327
<REALIZED-GAINS-CURRENT> 1,659
<APPREC-INCREASE-CURRENT> (459)
<NET-CHANGE-FROM-OPS> 11,527
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,327)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37,532
<NUMBER-OF-SHARES-REDEEMED> (52,872)
<SHARES-REINVESTED> 6,377
<NET-CHANGE-IN-ASSETS> (7,763)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 454
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,220
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,725
<AVERAGE-NET-ASSETS> 214,078
<PER-SHARE-NAV-BEGIN> 11.16
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> (.55)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.22
<EXPENSE-RATIO> .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-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 274,221
<INVESTMENTS-AT-VALUE> 277,102
<RECEIVABLES> 6,295
<ASSETS-OTHER> 588
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 283,985
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,029
<TOTAL-LIABILITIES> 1,029
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 284,905
<SHARES-COMMON-STOCK> 24,814
<SHARES-COMMON-PRIOR> 24,030
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,830)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,881
<NET-ASSETS> 282,956
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18,755
<OTHER-INCOME> 0
<EXPENSES-NET> 2,366
<NET-INVESTMENT-INCOME> 16,389
<REALIZED-GAINS-CURRENT> 180
<APPREC-INCREASE-CURRENT> 2,229
<NET-CHANGE-FROM-OPS> 18,798
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16,389)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 48,888
<NUMBER-OF-SHARES-REDEEMED> (58,868)
<SHARES-REINVESTED> 9,372
<NET-CHANGE-IN-ASSETS> 1,801
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (4,791)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,549
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,366
<AVERAGE-NET-ASSETS> 279,518
<PER-SHARE-NAV-BEGIN> 11.31
<PER-SHARE-NII> .67
<PER-SHARE-GAIN-APPREC> .09
<PER-SHARE-DIVIDEND> (.67)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.40
<EXPENSE-RATIO> 0.85
<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-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 121,462
<RECEIVABLES> 358
<ASSETS-OTHER> 311
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122,131
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,699
<TOTAL-LIABILITIES> 1,699
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 120,439
<SHARES-COMMON-STOCK> 120,365
<SHARES-COMMON-PRIOR> 146,631
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 120,432
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,081
<OTHER-INCOME> 0
<EXPENSES-NET> 934
<NET-INVESTMENT-INCOME> 4,147
<REALIZED-GAINS-CURRENT> (5)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,142
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,147)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 178,387
<NUMBER-OF-SHARES-REDEEMED> (208,317)
<SHARES-REINVESTED> 3,663
<NET-CHANGE-IN-ASSETS> (26,272)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 419
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,128
<AVERAGE-NET-ASSETS> 133,515
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.031
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.031)
<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-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 576,318
<INVESTMENTS-AT-VALUE> 606,048
<RECEIVABLES> 14,258
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 531
<TOTAL-ASSETS> 620,837
<PAYABLE-FOR-SECURITIES> 12,998
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,480
<TOTAL-LIABILITIES> 14,478
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 580,713
<SHARES-COMMON-STOCK> 68,507
<SHARES-COMMON-PRIOR> 71,653
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,084)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29,730
<NET-ASSETS> 606,359
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 38,182
<OTHER-INCOME> 0
<EXPENSES-NET> 4,483
<NET-INVESTMENT-INCOME> 33,699
<REALIZED-GAINS-CURRENT> 3,828
<APPREC-INCREASE-CURRENT> 864
<NET-CHANGE-FROM-OPS> 38,391
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (33,699)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 43,018
<NUMBER-OF-SHARES-REDEEMED> (89,922)
<SHARES-REINVESTED> 18,841
<NET-CHANGE-IN-ASSETS> (23,371)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (7,912)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,262
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,483
<AVERAGE-NET-ASSETS> 622,342
<PER-SHARE-NAV-BEGIN> 8.79
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> (.48)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.85
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
