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. 28 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 29 [X]
LIBERTY-STEIN ROE FUNDS MUNICIPAL TRUST
(Exact Name of Registrant as Specified in Charter)
One South Wacker Drive, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 1-800-338-2550
Kevin M. Carome Cameron S. Avery
Executive Vice President Bell, Boyd & Lloyd LLC
Liberty-Stein Roe Three First National Plaza
Funds Municipal Trust 70 W. Madison Street,, Suite 3300
One Financial Center Chicago, Illinois 60602
Boston, Massachusetts 02111
(Name and Address of Agents for Service)
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on July 28, 2000 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.
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 and Stein Roe
High-Yield Municipals Fund.
The prospectus and statement of additional information relating to the series of
Liberty-Stein Roe Funds Municipal Trust designated Stein Roe Municipal Money
Market Fund, Stein Roe Intermediate Municipals Fund and Stein Roe Managed
Municipals Fund are not affected by the filing of this Post-Effective Amendment
No. 28.
<PAGE>
<PAGE>
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LIBERTY HIGH INCOME MUNICIPALS FUND CLASS A PROSPECTUS, AUGUST 1, 2000
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STEIN ROE HIGH-YIELD MUNICIPALS FUND
Advised by Stein Roe & Farnham Incorporated
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is truthful or complete. Anyone
who tells you otherwise is committing a crime
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE FUND 2
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Investment Goal................................................................2
Principal Investment Strategies................................................2
Principal Investment Risks.....................................................3
Performance History............................................................4
Your Expenses..................................................................5
YOUR ACCOUNT 6
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How to Buy Shares..............................................................6
Sales Charges..................................................................7
How to Exchange Shares.........................................................9
How to Sell Shares.............................................................9
Fund Policy on Trading Fund Shares............................................
Distribution and Service Fees.................................................10
Other Information About Your Account..........................................11
MANAGING THE FUND 14
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Investment Advisor............................................................14
Portfolio Managers............................................................14
OTHER INVESTMENT
STRATEGIES AND RISKS 15
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FINANCIAL HIGHLIGHTS 17
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</TABLE>
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NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
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<PAGE>
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THE FUND
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INVESTMENT GOALS
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The Fund seeks a high level of total return consisting of current income exempt
from ordinary federal income tax and opportunities for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
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The Fund invests all of its assets in SR&F High-Yield Municipals Portfolio as
part of a master fund/feeder fund structure. It is a fundamental policy that the
Portfolio's assets will be invested so that at least 80% of the Portfolio's
gross income will be exempt from federal income tax. The Portfolio may invest up
to 20% of its total assets in high-quality taxable money market instruments. The
portfolio manager may purchase bonds of any maturity.
In selecting municipal securities for the Portfolio, the portfolio manager
invests at least 65% of its total assets in medium- or lower-rated tax-exempt
securities. These securities are at the time of purchase:
- rated A or below by Standard & Poor's Corporation (S&P),
- rated A or below by Moody's Investors Service, Inc. (Moody's),
- given a comparable rating by another nationally recognized rating
agency, or,
- unrated securities that Stein Roe believes to be of comparable quality
Lower-rated securities are sometimes referred to as "junk bonds."
The Portfolio may invest any or all of its assets in high-quality tax-exempt
securities under the following conditions:
- the portfolio manager believes that the difference in returns between
higher-quality and lower-quality securities is narrow, or
- the portfolio manager expects increased volatility in interest rates.
Investment in higher-quality securities may reduce the Fund's current income.
The Fund seeks to achieve capital appreciation through purchasing bonds that
increase in market value. In addition, to a limited extent, the Fund may seek
capital appreciation by using hedging techniques such as futures and options.
The Portfolio may also invest 25% or more of its assets in industrial
development bonds or participation interests in those bonds.
The Portfolio is permitted to invest all of its assets in bonds subject to the
alternative minimum tax.
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2
<PAGE>
THE FUND
PRINCIPAL INVESTMENT RISKS
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The principal risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described here) which
could prevent the Fund from achieving its investment goal. You may lose money by
investing in the Fund.
Management risk means that the advisor's stock selections and other investment
decisions might produce losses or cause the Fund to underperform when compared
to other funds with similar goals. Market risk means that security prices in a
market, sector or industry may move down. Downward movements will reduce the
value of your investment. Because of management and market risk, there is no
guarantee that the Fund will achieve its investment goal or perform favorably
compared with competing funds.
Interest rate risk is the risk of a change in the price of a bond when interest
rates increase or decline. In general, if interest rates rise, bond prices fall;
and if interest rates fall, bond prices rise. Changes in the values of bonds
usually will not affect the amount of income the Fund receives from them but
will affect the value of the Fund's shares. Interest rate risk is generally
greater for bonds having longer maturities.
Because the Portfolio may invest in debt securities issued by private entities,
including corporate bonds and privately issued mortgage-backed and asset-backed
securities, the Fund is subject to issuer risk. Issuer risk is the possibility
that changes in the financial condition of the issuer of a security, changes in
general economic conditions, or changes in economic conditions that affect the
issuer may impact its willingness or ability to make timely payments of interest
or principal. This could result in a decrease in the price of the security and
in some cases a decrease in income.
Lower-rated debt securities commonly referred to as "junk bonds", involve
greater risk of loss due to credit deterioration and are less liquid, especially
during periods of economic uncertainty or change, than higher quality debt
securities. Lower-rated debt securities have the added risk that the issuer of
the security may default and not make payment of interest or principal.
An economic downturn could severely disrupt the high-yield market and adversely
affect the value of outstanding bonds and the ability of the issuers to repay
principal and interest. In addition, lower-quality bonds are less sensitive to
interest rate changes than higher-quality instruments and generally are more
sensitive to adverse economic changes or individual corporate developments.
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.
Call risk is the chance that during periods of falling interest rates, a bond
issuer will "call"--or repay--its high-yielding bond before the bond's maturity
date. The Fund could experience a decline in income if the Portfolio has to
reinvest the unanticipated proceeds at a lower interest rate.
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3
<PAGE>
THE FUND
Tax-exempt bonds are subject to special risk. Changes in tax laws or adverse
determinations by the Internal Revenue Service may make the income from some of
these bonds taxable. Bonds that are backed by the issuer's taxing authority,
known as general obligations, may depend partially on legislative appropriation
and/or aid from other governments. These bonds may be vulnerable to legal limits
on a government's power to raise revenue or increase taxes. Other tax-exempt
bonds, known as special revenue obligations, are payable from revenues earned by
a particular project or other revenue source. These bonds are subject to greater
risk of default than general obligations because investors can look only to the
revenue generated by the project or private company, rather than to the credit
of the state or local government issuer of the bonds.
Because the Portfolio may invest more than 25% of its total assets in industrial
development bonds or participation interests therein, the Portfolio may be more
adversely affected than competing funds by an economic, business or political
development or change.
Alternative Minimum Tax. Because the Fund can invest in tax-exempt bonds subject
to the AMT, the interest income distributed by the Fund may be subject to the
federal AMT for some individuals and corporations.
Because the Fund seeks to achieve capital appreciation, you could receive
capital gains distributions. (See "Tax Consequences.")
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. It
is not a complete investment program and you can lose money by investing in the
Fund.
Information on other securities and risks appears under "Other Investment
Strategies and Risks."
---
4
<PAGE>
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR-YEAR TOTAL RETURNS show the Fund's Class S share performance for each
of the last ten complete calendar years. It includes the effects of Fund
expenses.
AVERAGE ANNUAL TOTAL RETURN is a measure of the Fund's Class S share performance
over the past one-year, five-year and ten-year periods. It includes the effects
of Fund expenses.
The Fund's return is compared to the Lehman Brothers Municipal Bond Index, an
unmanaged broad-based measure of market performance. Unlike the Fund, indices
are not investments, do not incur fees or expenses, and are not professionally
managed. It is not possible to invest directly in indices.
PERFORMANCE HISTORY
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The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class S shares. The
Fund did not have separate classes of shares prior to August 1, 2000; on that
date, the Fund's outstanding shares were reclassified as Class S shares. The
performance table following the bar chart shows how the Fund's average annual
total returns for Class S shares compare with those of a broad measure of market
performance for 1 year, 5 years and 10 years. The chart and table are intended
to illustrate some of the risks of investing in the Fund by showing the changes
in the Fund's performance. All returns include the reinvestment of dividends and
distributions. As with all mutual funds, past performance does not predict the
Fund's future performance.
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CALENDAR-YEAR TOTAL RETURNS (CLASS S)*
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[BAR GRAPH]
<TABLE>
<CAPTION>
<S> <C>
1990 7.63%
1991 9.84%
1992 5.35%
1993 10.64%
1994 (4.03)%
1995 17.72%
1996 4.48%
1997 9.53%
1998 5.28%
1999 (2.14)%
</TABLE>
The Fund's year-to-date total return through June 30, 2000 was 2.43%.
For period shown in bar chart:
Best quarter: 1st quarter 1995, +7.00%
Worst quarter: 1st quarter 1994, -5.11%
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AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999*
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<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
High-Yield Municipals Fund, Class S
(%) (2.14) 6.78 6.26
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Lehman Brothers Municipal Bond
Index(%) (2.06) 6.91 6.89
</TABLE>
* Because Class A shares have not commenced operations, the bar chart and
annual total returns are shown for Class S shares, the existing fund class.
---
5
<PAGE>
THE FUND
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees, and administrative costs including pricing and
custody services.
EXAMPLE EXPENSES helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. This example reflects expenses of both the
Fund and the Portfolio. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% return for each year
- Fund operating expenses remain the same
- Assumes reinvestment of all dividends and distributions
YOUR EXPENSES
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Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.
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SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
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<TABLE>
<CAPTION>
CLASS A
<S> <C>
Maximum sales charge (load) on purchases
(as a percentage of the offering price) 4.75
--------------------------------------------------------------
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price) 1.00(2)
--------------------------------------------------------------
Redemption fee(3) (as a percentage of amount None
redeemed, if applicable)
</TABLE>
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ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
<S> <C>
Management fee (%) 0.55
--------------------------------------------------------------
Distribution and service (12b-1) fees (%) (4) 0.35
--------------------------------------------------------------
Other expenses (%) (5) 0.22
--------------------------------------------------------------
Total annual fund operating expenses (%) 1.12
</TABLE>
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EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
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<TABLE>
<CAPTION>
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $584 $814 $1,063 $1,773
</TABLE>
(1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
(4) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class A shares. As a result, the actual 12b-1 fee for Class A
would be 0.25% and the total annual Fund operating expenses would be 1.02%.
(5) Other expenses are based on the Fund's Class S shares
---
6
<PAGE>
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YOUR ACCOUNT
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INVESTMENT MINIMUMS
<TABLE>
<CAPTION>
<S> <C>
Initial Investment................$1,000
Subsequent Investments............$ 50
Automatic Investment Plan*........$ 50
Retirement Plans*.................$ 25
</TABLE>
* The initial investment minimum of $1,000 is
waived on this plan.
The Fund reserves the right to change the investment minimums. The Fund also
reserves the right to refuse a purchase order for any reason, including if it
believes that doing so would be in the best interest of the Fund and its
shareholders.
HOW TO BUY SHARES
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Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated public offering price. "Good form" means that you placed your order
with your brokerage firm or your payment has been received and your application
is complete, including all necessary signatures. The Fund also offers Class S
shares through a separate prospectus.
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OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
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<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your Your financial advisor can help you establish your account and
financial advisor buy Fund shares on your behalf. Your financial advisor may
charge you fees for executing the purchase for you.
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By check For new accounts, send a completed application and check made
(new account) payable to the Fund to the transfer agent, SteinRoe Services
Inc., c/o Liberty Funds Services, Inc., P.O. Box 1722, Boston,
MA 02105-1722.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your quarterly statement, or send a
letter of instruction, including your Fund name and account
number with a check made payable to the Fund to SteinRoe
Services Inc., c/o Liberty Funds Services, Inc., P.O. Box 1722,
Boston, MA 02105-1722.
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By exchange You or your financial advisor may acquire shares by exchanging
shares you own in one fund for shares of the same class of the
Fund at no additional cost. To exchange by telephone, call
1-800-422-3737.
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By wire You may purchase shares by wiring money from your bank account
to your fund account. To wire funds to your fund account, call
1-800-422-3737 to obtain a control number and the wiring
instructions.
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By electronic funds You may purchase shares by electronically transferring money
transfer from your bank account to your fund account by calling
1-800-422-3737. Your money may take up to two business days to
be invested. You must set up this feature prior to your
telephone request. Be sure to complete the appropriate section
of the application.
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Automatic You can make monthly or quarterly investments automatically
investment plan from your bank account to your fund account. You can select a
pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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By dividend You may automatically invest dividends distributed by one fund
diversification into the same class of shares of another fund at no additional
sales charge. To invest your dividends in another fund, call
1-800-345-6611.
</TABLE>
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8
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
SALES CHARGES
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You may be subject to an initial sales charge when you purchase or a contingent
deferred sales charge (CDSC) when you sell shares of the Fund. These sales
charges are described below. In some circumstances these sales charges are
waived, as described below and in the Statement of Additional Information.
CLASS A SHARES Your purchases of Class A shares generally are at the public
offering price. This price includes a sales charge that is based on the amount
of your investment. The sales charge is the commission paid to the financial
advisor firm on the sale of Class A shares. The sales charge you pay on
additional investments is based on the total amount of your purchase and the
current value of your account. The amount of the sales charge differs depending
on the amount you invest as shown in the table below.
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CLASS A SALES CHARGES
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<TABLE>
<CAPTION>
% OF PUBLIC
OFFERING
AS A % OF AS A % PRICE
THE PUBLIC OF NET RETAINED BY
OFFERING AMOUNT FINANCIAL
AMOUNT OF PURCHASE PRICE INVESTED ADVISOR FIRM
<S> <C> <C> <C>
Less than $50,000 4.75 4.99 4.25
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$50,000 to less than $100,000 4.50 4.71 4.00
------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 3.00
------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
------------------------------------------------------------------------------------
$1,000,000 or more(1) 0.00 0.00 0.00
</TABLE>
For Class A share purchases of $1 million or more, financial advisors receive a
commission from Liberty Funds Distributor, Inc. (Distributor) as follows:
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PURCHASES OVER $1 MILLION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PURCHASED COMMISSION %
<S> <C>
First $3 million 1.00
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Next $2 million 0.50
--------------------------------------------------------------------------------
Over $5 million 0.25(2)
</TABLE>
(1) Class A shares bought without an initial sales charge in accounts
aggregating between $1 million and $5 million at the time of purchase may
be subject to a 1% CDSC if the shares are sold within 12 months of the time
of purchase. Subsequent Class A share purchases that bring your account
value above $1 million are subject to a 1% CDSC if redeemed within 18
months of their purchase date. Purchases in accounts aggregating over $5
million are subject to a 1.00% CDSC only to the extent that the sale of
shares within 12 months of purchase causes the value of the accounts to
fall below the $5 million level. The 12-month period begins on the first
day of the month.
(2) Paid over 12 months but only to the extent the shares remain outstanding.
---
8
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
REDUCED SALES CHARGES FOR LARGER INVESTMENTS There are two ways for you to pay a
lower sales charge when purchasing Class A shares. The first is through Rights
of Accumulation. If the combined value of the Fund accounts maintained by you,
your spouse or your minor children reaches a discount level (according to the
chart on the previous page), your next purchase will receive the lower sales
charge. The second is by signing a Statement of Intent within 90 days of your
purchase. By doing so, you would be able to pay the lower sales charge on all
purchases by agreeing to invest a total of at least $50,000 within 13 months. If
your Statement of Intent purchases are not completed within 13 months, you will
be charged the applicable sales charge on the amount you had invested to that
date. In addition, certain investors may purchase shares at a reduced sales
charge or net asset value, which is the value of a Fund share excluding any
sales charges. See the Statement of Additional Information for a description of
these situations.
HOW TO EXCHANGE SHARES
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You may exchange your shares for shares of the same share class of another fund
distributed by Liberty Funds Distributor, Inc. at the next-determined NAV. If
your shares are subject to a CDSC, you will not be charged a CDSC upon the
exchange. However, when you sell the shares acquired through the exchange, the
shares sold may be subject to a CDSC, depending upon when you originally
purchased the shares you exchanged. For purposes of computing the CDSC, the
length of time you have owned your shares will be computed from the date of your
original purchase and the applicable CDSC will be the CDSC of the original Fund.
Unless your account is part of a tax-deferred retirement plan, an exchange is a
taxable event. Therefore, you may realize a gain or a loss for tax purposes. The
Fund may terminate your exchange privilege if Stein Roe determines that your
exchange activity is likely to adversely impact its ability to manage the Fund.
To exchange by telephone, call 1-800-422-3737.
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9
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
HOW TO SELL SHARES
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Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. In "good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" means (i) your letter has complete instructions, the proper signatures and
signature guarantees, (ii) you have included any certificates for shares to be
sold, and (iii) any other required documents are attached. For additional
documentation required for sales by corporations, agents, fiduciaries and
surviving joint owners, please call 1-800-345-6611. Retirement Plan accounts
have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days
(usually on the next business day after your request is received in good form).
However, if you purchased your shares by check, the Fund may delay the sale of
your shares for up to 15 days after your purchase to protect against checks that
are returned. No interest will be paid on uncashed redemption checks. Redemption
proceeds may be paid in securities, rather than in cash, if the advisor
determines that it is in the best interest of the Fund.
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10
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
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OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your You may call your financial advisor to place your sell order.
financial advisor To receive the current trading day's price, your financial
advisor firm must receive your request prior to the close
of the NYSE, usually 4:00 p.m. Eastern time.
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By exchange You or your financial advisor may sell shares by exchanging from
the Fund into the same share class of another fund at no
additional cost. To exchange by telephone, call 1-800-422-3737.
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By telephone You or your financial advisor may sell shares by telephone and
request that a check be sent to your address of record by
calling 1-800-422-3737 unless you have notified the Fund of an
address change within the previous 30 days. The dollar limit
for telephone sales is $100,000 in a 30-day period. You do not
need to set up this feature in advance of your call. Certain
restrictions apply to retirement accounts. For details, call
1-800-345-6611.
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By mail You may send a signed letter of instruction or stock power form
along with any certificates to be sold to the address below.
In your letter of instruction, note your fund's name, share
class, account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter, and
signatures must be guaranteed by either a bank, a member firm
of a national stock exchange or another eligible guarantor
institution. Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and
individual retirement account (IRA) owners. For details, call
1-800-345-6611.
Mail your letter of instruction to SteinRoe Services Inc., c/o
Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
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By wire You may sell shares and request that the proceeds be wired to
your bank. You must set up this feature prior to your telephone
request. Be sure to complete the appropriate section of the
account application for this feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage on a monthly, quarterly or semi-annual basis if your
account balance is at least $5,000 and have the proceeds
sent to you. This feature is not available if you hold
your shares in certificate form. Be sure to complete the
appropriate section of the account application for this
feature.
-------------------------------------------------------------------------------------
By electronic You may sell shares and request that the proceeds be
funds transfer electronically transferred to your bank. Proceeds may take up to
two business days to be received by your bank. You must set up
this feature prior to your request. Be sure to complete the
appropriate section of the account application for this feature.
</TABLE>
FUND POLICY ON TRADING OF FUND SHARES
--------------------------------------------------------------------------------
The Fund does not permit short-term or excessive trading. Excessive purchases,
redemption, or exchanges of Fund shares disrupt portfolio management and drive
Fund expenses higher. In order to promote the best interests of the Fund, the
Fund reserves the right to reject any purchase order or exchange request,
particularly from market timers or investors who, in the advisor's opinion, have
a pattern or short-term of excessive trading or whose trading has been or may be
disruptive to the Fund. The Fund into which you would like to exchange also may
reject your request.
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11
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
DISTRIBUTION AND SERVICE FEES
--------------------------------------------------------------------------------
The Fund has adopted a plan under Rule 12b-1 that permits it to pay marketing
and other fees to support the sale and distribution of Class A shares and the
services provided to you by your financial advisor. These annual distribution
and service fees may equal up to 0.35% for Class A shares and are paid out of
the assets of the class. Over time, these fees will increase the cost of your
shares and may cost you more than paying other types of sales charges.
---
12
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
OTHER INFORMATION ABOUT YOUR ACCOUNT
--------------------------------------------------------------------------------
HOW THE FUND'S SHARE PRICE IS DETERMINED The price of the Fund's shares is based
on its net asset value. The net asset value is determined at the close of
regular session trading on the NYSE, usually 4:00 p.m. Eastern time on each
business day that the NYSE is open (typically Monday through Friday).
When you request a transaction, it will be processed at the net asset value
(plus any applicable sales charge) next determined after your request is
received in good form by the Distributor. In most cases, in order to receive
that day's price, the Distributor must receive your order before that day's
transactions are processed. If you request a transaction through your financial
advisor's firm, the firm must receive your order by the close of trading on the
NYSE to receive that day's price.
The Fund determines its net asset value for Class A shares by dividing the
class's total net assets by the number of the class's shares outstanding. In
determining the net asset value, the Fund must determine the price of each
security in its portfolio at the close of each trading day. Securities for which
market quotations are available are valued each day at the current market value.
However, where market quotations are unavailable, or when the advisor believes
that subsequent events have made them unreliable, the Fund may use other data to
determine the fair value of the securities.
You can find the daily prices of some share classes for the Fund in most major
daily newspapers under the caption "Liberty." You can find daily prices for all
share classes by visiting the Fund's web site at www.libertyfunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of
depreciation in share value), you may be subject to an annual account fee of
$10. This fee is deducted from the account in June each year. Approximately 60
days prior to the fee date, the Fund's transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.
---
13
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
SHARE CERTIFICATES Certificates will be issued for Class A shares only if
requested. If you decide to hold share certificates, you will not be able to
sell your shares until you have endorsed your certificates and returned them to
the Distributor.
DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund has the potential to make the
following distributions:
--------------------------------------------------------------------------------
TYPES OF DISTRIBUTIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Dividend income Represents interest and dividends earned from securities held
by the Portfolio
-------------------------------------------------------------------------------------
Capital gains Represents long-term capital gains on sales of securities held
for more than 12 months and short-term capital gains, which are
gains on sales of securities held by the Portfolio for a
12-month period or less.
</TABLE>
DISTRIBUTION OPTIONS Income dividends are declared each business day and paid
monthly. Any capital gains are distributed at least annually. You can choose one
of the options listed in the table below for these distributions when you open
your account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application your preference for handling
distributions, the Fund will automatically reinvest all distributions in
additional shares of the Fund
--------------------------------------------------------------------------------
DISTRIBUTION OPTIONS
--------------------------------------------------------------------------------
Reinvest all distributions in additional shares of your current fund
-------------------------------------------------------------------------------
Reinvest all distributions in shares of another fund
-------------------------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest capital gains(1)
-------------------------------------------------------------------------------
Receive all distributions in cash (with one of the following options)(1):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds transfer
TAX CONSEQUENCES For federal income tax purposes, distributions of investment
income by the Fund, whether in cash or additional securities, will ordinarily
constitute tax-exempt income. Generally, gains realized by the Fund on the sale
or exchange of investments, the income from which is tax-exempt, will be taxable
to shareholders. In addition, an investment in the Fund may result in liability
for federal alternative minimum tax for both individuals and corporate
shareholders.
You will be provided with information each year regarding the amount of ordinary
income and capital gains distributed to you for the previous year and any
portion of your
(1) Distributions of $10 or less will automatically be reinvested in additional
Fund shares. If you elect to receive distributions by check and the check
is returned as undeliverable, or if you do not cash a distribution check
within six months of the check date, the distribution will be reinvested in
additional shares of the Fund.
---
14
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
distribution which is exempt from state and local taxes. Your investment in the
Fund may have additional personal tax implications. Please consult your tax
advisor on federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal, state and local income tax.
---
15
<PAGE>
--------------------------------------------------------------------------------
MANAGING THE FUND
--------------------------------------------------------------------------------
INVESTMENT ADVISOR
--------------------------------------------------------------------------------
Stein Roe & Farnham Incorporated (Stein Roe), located at One South Wacker Drive,
Suite 3500, Chicago, Illinois 60606, is the Fund's investment advisor. In its
duties as investment advisor, Stein Roe runs the Fund's day-to-day business,
including placing all orders for the purchase and sale of portfolio securities
for the Portfolio. Stein Roe has been an investment advisor since 1932. As of
June 30, 2000, Stein Roe managed over [$29.7] billion in assets.
Stein Roe's mutual funds and institutional investment advisory businesses are
part of a larger business unit known as Liberty Funds Group (LFG) that includes
several separate legal entities. LFG includes certain affiliates of Stein Roe,
including Colonial Management Associates, Inc. (Colonial). The LFG business unit
is managed by a single management team. Colonial and other LFG entities also
share personnel, facilities, and systems with Stein Roe that may be used in
providing administrative or operational services to the Fund. Colonial is a
registered investment adviser. Stein Roe also has a wealth management business
that is not part of LFG and is managed by a different team. Stein Roe and the
other entities that make up LFG are subsidiaries of Liberty Financial Companies,
Inc.
For the fiscal year ended September 30, 1999, the Fund paid 0.75% of average net
assets in fees to Stein Roe.
Stein Roe may use the services of AlphaTrade, Inc., an affiliated broker-dealer,
when buying or selling equity securities for the Portfolio, pursuant to
procedures adopted by the Board of Trustees.
PORTFOLIO MANAGER
--------------------------------------------------------------------------------
MAUREEN G. NEWMAN has been portfolio manager of High-Yield Municipals Portfolio
since November 1998, when she joined Stein Roe. In her role as portfolio
manager, she is jointly employed as a senior vice president by both Colonial and
Stein Roe. She has managed tax-exempt funds for Colonial since May 1996. Prior
to joining Colonial, Ms. Newman was a portfolio manager and bond analyst at
Fidelity Investments from May 1985 to May 1996. Ms. Newman has a bachelor's
degree in economics from Boston College and a master's degree from Babson
College. She is a chartered financial analyst.
---
16
<PAGE>
--------------------------------------------------------------------------------
OTHER INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------
UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and risks are described under "The
Fund - Principal Investment Strategies" and "The Fund - Principal Investment
Risks." In seeking to meet its investment goal[s], the Fund may also invest in
other securities and use certain other investment techniques. These securities
and investment techniques offer opportunities and carry various risks.
The advisor may elect not to buy any of these securities or use any of these
techniques unless it believes that doing so will help the Fund achieve its
investment goal. The Fund may not always achieve its investment goals.
Additional information about the Fund's securities and investment techniques, as
well as the Fund's fundamental and non-fundamental investment policies, is
contained in the Statement of Additional Information.
The Fund's principal investment strategies and their associated risks are
described above. This section describes other investments the Fund may make and
the risks associated with them. In seeking to achieve its goals, the Fund may
invest in various types of securities and engage in various investment
techniques which are not the principal focus of the Fund and therefore are not
described in this prospectus. These types of securities and investment practices
are identified and discussed in the Fund's Statement of Additional Information,
which you may obtain free of charge (see back cover). Approval by the Fund's
shareholders is not required to modify or change any of the Fund's investment
goals or investment strategies.
HEDGING STRATEGIES
--------------------------------------------------------------------------------
The Portfolio may enter into a number of hedging strategies, including those
that employ futures and options, to gain or reduce exposure to particular
securities or markets. These strategies, which are commonly referred to as
derivatives, involve the use of financial instruments whose values depend on, or
are derived from, the value of an underlying security or an index. The Fund and
the Portfolio may use these strategies to adjust their sensitivity to changes in
interest rates or for other hedging purposes (attempting to offset a potential
loss in one position by establishing an interest in an opposite position).
Derivative strategies involve the risk that they may exaggerate a loss,
potentially losing more money than the actual cost of the derivative, or limit a
potential gain. Also, with some derivative strategies there is the risk that the
other party to the transaction may fail to honor its contract terms, causing a
loss to the Fund or the Portfolio.
ASSET-BACKED SECURITIES
--------------------------------------------------------------------------------
The Fund may invest in asset-backed securities, which are interests in pools of
debt securities. These securities are subject to prepayment risk, which is the
possibility that the underlying debt may be refinanced or prepaid prior to
maturity during periods of declining interest rates. In an environment of
declining interest rates, asset-backed securities may offer less potential for
gain than other debt securities. During periods of rising interest rates,
asset-backed securities have a high risk of declining in price because the
declining prepayment rates effectively increase the maturity of the securities.
In addition, the potential impact of prepayment on the price of an asset-backed
security may be difficult to predict and result in greater volatility.
MUNICIPAL LEASE OBLIGATIONS
--------------------------------------------------------------------------------
Municipal lease obligations are revenue bonds backed by leases or installment
purchase contracts for property or equipment. Lease obligations may not be
backed by the issuing municipality, and the Fund or Portfolio may have limited
recourse in the event of a default or termination.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
--------------------------------------------------------------------------------
When-issued securities and forward commitments are securities that are
purchased prior to the date they are actually issued or delivered. These
securities involve the risk that they may fall in value by the time they are
actually issued or that the other party may fail to honor the contract terms.
---
17
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
ZERO COUPON SECURITIES
--------------------------------------------------------------------------------
The Portfolio may invest in zero coupon securities. These securities do not pay
interest in cash on a current basis, but instead accrue over the life of the
bond. As a result, these securities are issued at a deep discount. The value of
these securities may fluctuate more than similar securities that pay interest
periodically. Although these securities pay no interest to holders prior to
maturity, interest on these securities is reported as income to the Fund and
distributed to its shareholders.
INVERSE FLOATING RATE OBLIGATIONS
--------------------------------------------------------------------------------
The Portfolio may invest in inverse floating rate obligations representing
interests in tax-exempt bonds. These securities carry interest rates that vary
inversely to changes in market interest rates. Such securities have investment
characteristics similar to investment leverage. Their market values are subject
to greater risks of fluctuation than securities bearing a fixed rate of
interest, which may lead to greater fluctuation in the value of the Fund's
shares.
PORTFOLIO TURNOVER
--------------------------------------------------------------------------------
There are no limits on turnover. Turnover may vary significantly from year to
year. Stein Roe does not expect it to exceed 100% under normal conditions. The
Portfolio generally intends to purchase securities for long-term investment
although, to a limited extent, it may purchase securities in anticipation of
relatively short-term price gains. Portfolio turnover typically produces capital
gains or losses resulting in tax consequences for Fund investors. It also
increases transaction expenses, which reduce the Fund's return.
TEMPORARY DEFENSIVE POSITIONS
--------------------------------------------------------------------------------
At times, the advisor may determine that adverse market conditions make it
desirable to temporarily suspend the Fund's normal investment activities. During
such times, the Fund may, but is not required to, invest in cash or
high-quality, short-term debt securities, without limit. Taking a temporary
defensive position may prevent the Fund from achieving its investment goals.
INTERFUND LENDING PROGRAM
--------------------------------------------------------------------------------
The Fund and Portfolio may lend money to and borrow money from other funds
advised by Stein Roe. They will do so when Stein Roe believes such lending or
borrowing is necessary and appropriate. Borrowing costs will be the same as or
lower than the costs of a bank loan.
MASTER/FEEDER STRUCTURE
--------------------------------------------------------------------------------
Unlike mutual funds that directly acquire and manage their own portfolio of
securities, the Fund is a "feeder" fund in a "master/feeder" structure. This
means that the Fund invests its assets in a larger "master" portfolio of
securities, which has investment objectives and policies substantially identical
to those of the Fund. The investment performance of the Fund depends upon the
investment performance of the Portfolio. If
---
18
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
the investment policies of the Portfolio and the Fund became inconsistent, the
Board of Trustees of the Fund can decide what actions to take. Actions the Board
of Trustees may recommend include withdrawal of the Fund's assets from the
Portfolio. For more information on the master/feeder fund structure, see the
Statement of Additional Information.
---
19
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the financial
performance of the Fund. Because Class A shares have not commenced operations,
the Fund's Class S shares, the Fund's existing class is shown. Information is
shown for the Fund's last five fiscal years. The fiscal year runs from July 1 to
June 30. Certain information reflects financial results for a single Fund share.
The total returns in the table represent the rate that you would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). The information has been audited by Ernst & Young, independent
auditors, whose report, along with the Fund's financial statements, is included
in the annual report. Information for the period ending December 31, 1999 is
unaudited. You can request a free annual report by calling 1-800-426-3750.
--------------------------------------------------------------------------------
THE FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
December 31, For year ending June 30,
1999 1999 1998 1997 1996 1995
Class S Class S Class S Class S Class S
<S> <C> <C> <C> <C> <C> <C>
Net asset value--
Beginning of period ($) 11.71 11.97 11.67 11.40 11.31 11.06
------------------------------------------------------------------------------------------------------------------------------------
0.33 .63 .65 .72 .67 .66
INCOME FROM INVESTMENT OPERATIONS ($)
Net investment income
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on (0.62) (.25) .30 .27 .09 .25
investments and future transactions
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.29) .38 .95 .99 .76 .91
------------------------------------------------------------------------------------------------------------------------------------
(0.33) (.64) (.65) (.72) (.67) (.66)
DISTRIBUTIONS
Net investment income
------------------------------------------------------------------------------------------------------------------------------------
Net asset value-- 11.09 11.71 11.97 11.67 11.40 11.31
End of period ($)
------------------------------------------------------------------------------------------------------------------------------------
Total return (%) (2.53)(d) 3.18(e) 8.32 8.91 6.83 8.54
------------------------------------------------------------------------------------------------------------------------------------
0.81(a)(b) 0.77 0.75 0.77 0.85 0.86
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of net expenses to average net assets
------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average 5.64(a)(b) 5.26 5.48 6.20 5.86 5.98
net assets
------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) N/A N/A 8(a) 11(a) 34(a) 23(a)
------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000) ($) 268,916 297,874 341,780 306,070 282,956 281,155
</TABLE>
(a) Annualized.
(b) During the six months ended December 31, 1999, the Fund experienced a
none-time reduction in its expenses of five basis points as a result of
expenses accrued in a prior period. The Fund's ratios disclosed above
reflect the actual rate at which expenses were incurred for the six months
ended December 31, 1999 without the reduction.
(c) Prior to commencement of operations of the Portfolio.
(d) Not annualized.
(e) 0.50% of the return is attributable to a one-time revaluation of a
portfolio security reflecting the restructuring of this security. Absent
this revaluation, the total return would have been 2.68%.
---
20
<PAGE>
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NOTES
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---
21
<PAGE>
NOTES
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---
22
<PAGE>
FOR MORE INFORMATION
--------------------------------------------------------------------------------
You can get more information about the Fund's investments in the Fund's
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance over its last fiscal year.
You may wish to read the Statement of Additional Information for more
information on the Fund and the securities in which it invests. The Statement of
Additional Information is incorporated into this prospectus by reference, which
means that it is considered to be part of this prospectus.
You can get free copies of reports and the Statement of Additional Information,
request other information and discuss your questions about the Fund by writing
or calling the Fund's distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from
the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the following
location and you can obtain copies, upon payment of a duplicating fee, by
writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty-Stein Roe Funds Municipal Trust: 811-4367
- Stein Roe High Yield Municipals Fund
--------------------------------------------------------------------------------
[LIBERTY FUNDS LOGO]
ALL-STAR - COLONIAL - CRABBE HUSON - NEWPORT - STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (c)1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
<PAGE>
48
Statement of Additional Information Dated August 1, 2000
LIBERTY-STEIN ROE FUNDS MUNICIPAL TRUST
One Financial Center, Boston, MA 02111
800-338-2550
Stein Roe High-Yield Municipals Fund-
Liberty High Income Municipals Fund Class A
(the "Fund")
This Statement of Additional Information ("SAI") is not a prospectus,
but provides additional information that should be read in conjunction with the
Fund's Class A shares prospectus dated August 1, 2000, and any supplements
thereto ("Prospectus"). Financial statements, which are contained in the Fund's
June 30, 1999, Annual Report and December 31, 1999 Semi-annual Report, are
incorporated by reference into this SAI. The Prospectus, Annual Report and
Semi-annual Report may be obtained at no charge by telephoning 800-338-2550.
TABLE OF CONTENTS
Page
General Information and History........................................2
Investment Policies....................................................3
Portfolio Investments and Strategies...................................4
Investment Restrictions................................................16
Additional Investment Considerations...................................19
Management.............................................................20
Financial Statements...................................................25
Principal Shareholders.................................................25
Investment Advisory and Other Services.................................25
Distributor............................................................27
Transfer Agent.........................................................29
Purchases and Redemptions..............................................29
Custodian..............................................................39
Independent Auditors...................................................40
Portfolio Transactions.................................................40
Additional Income Tax Considerations...................................45
Investment Performance.................................................47
Master Fund/Feeder Fund: Structure and Risk Factors....................51
Appendix--Ratings......................................................54
<PAGE>
GENERAL INFORMATION AND HISTORY
.........Stein Roe High-Yield Municipals Fund (the "Fund") is a series of
Liberty-Stein Roe Funds Municipal Trust (the "Trust"). On February 1, 1996,
the name of the Trust was changed to separate "SteinRoe" into two words.
The name of the Trust was changed from "Stein Roe Municipal Trust" to
"Liberty-Stein Roe Funds Municipal Trust"
on October 18, 1999.
.........The Fund offers two classes of shares--Classes A and S. Prior to
August 1, 2000, the Fund had a single class of shares. On that date, the
outstanding shares of the Fund were converted into Class S, and The Fund
commenced offering Class A shares. The Fund did not have separate classes
prior to that date. This SAI describes Class A shares of the Fund. A separate
SAI relates to Class S.
.........The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
October 6, 1987, which provides that each shareholder shall be deemed
to have agreed to be bound by the terms thereof. The Declaration of Trust
may be amended by a vote of either the Trust's shareholders or its trustees.
The Trust may issue an unlimited number of shares, in one or more series,
each with one or more classes, as the Board may authorize. Currently,
4 series are authorized and outstanding. Each series invests in a separate
portfolio of securities and other assets, with its own objectives and policies.
.........Under Massachusetts law, shareholders of a Massachusetts business trust
such as the Trust could, in some circumstances, be held personally liable for
unsatisfied obligations of the trust. The Declaration of Trust provides that
persons extending credit to, contracting with, or having any claim against the
Trust or any particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or claim, and that
the shareholders, trustees and officers shall have no personal liability
therefor. The Declaration of Trust requires that notice of such disclaimer of
liability be given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for indemnification of
any shareholder against any loss and expense arising from personal liability
solely by reason of being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to circumstances in which the
disclaimer was inoperative and the Trust was unable to meet its obligations. The
risk of a particular series incurring financial loss on account of unsatisfied
liability of another series of the Trust also is believed to be remote, because
it would be limited to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its obligations.
.........Each share of a series (or class thereof) is entitled to participate
pro rata in any dividends and other distributions declared by the Board on
shares of that series (or class thereof), and all shares of a series (or class
thereof) have equal rights in the event of liquidation of that series (or class
thereof). Each whole share (or fractional share) outstanding on the record date
established in accordance with the By-Laws shall be entitled to a number of
votes on any matter on which it is entitled to vote equal to the net asset value
of the share (or fractional share) in United States dollars determined at the
close of business on the record date (for example, a share having a net asset
value of $10.50 would be entitled to 10.5 votes). As a business trust, the Trust
is not required to hold annual shareholder meetings. However, special meetings
may be called for purposes such as electing or removing trustees, changing
fundamental policies, or approving an investment advisory contract. If requested
to do so by the holders of at least 10% of its outstanding shares, the Trust
will call a special meeting for the purpose of voting upon the question of
removal of a trustee or trustees and will assist in the communications with
other shareholders as if the Trust were subject to Section 16(c) of the
Investment Company Act of 1940. All shares of all series of the Trust are voted
together in the election of trustees. On any other matter submitted to a vote of
shareholders, shares are voted in the aggregate and not by individual series,
except that shares are voted by individual series when required by the
Investment Company Act of 1940 or other applicable law, or when the Board of
Trustees determines that the matter affects only the interests of one or more
series, in which case shareholders of the unaffected series are not entitled to
vote on such matters.
Special Considerations Regarding Master Fund/Feeder Fund Structure
.........Rather than invest in securities directly, the Fund may seek to
achieve its objective by pooling its assets with those of other investment
companies for investment in another mutual fund having the same investment
objective and substantially the same investment policies as its feeder fund.
The purpose of such an arrangement is to achieve greater operational
efficiencies and reduce costs. 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 Fund currently operates under the master
fund/feeder fund structure and invests all of its assets in a separate
master fund SR&F High-Yield Municipals Portfolio (the "Portfolio"), which
is a series of SR&F Base Trust. For more information, please refer to Master
Fund/Feeder Fund: Structure and Risk Factors.
.........Stein Roe & Farnham Incorporated ("Stein Roe") is responsible for the
business affairs of the Trust and serves as investment adviser to the
Portfolio. It also provides administrative and bookkeeping and accounting
services to the Fund and Portfolio.
.........Stein Roe & Farnham Incorporated ("Stein Roe") provides
administrative and accounting and recordkeeping
services to the Fund.
INVESTMENT POLICIES
.........The Trust is an open-end management investment company. The
Fund is diversified, as that term is defined in the Investment
Company Act of 1940.
.........The investment objectives and policies are described in the
Prospectus under The Fund. In pursuing its objective, the Fund may also
employ the investment techniques described under Portfolio Investments
and Strategies in this SAI. The investment objective is a nonfundamental
policy and may be changed by the Board of Trustees without the approval of a
"majority of the outstanding voting securities."1
PORTFOLIO INVESTMENTS AND STRATEGIES
Taxable Securities
Assets of the Fund that are not invested in Municipal Securities may be
held in cash or invested in short-term taxable investments 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) other money market
instruments, and (4) repurchase agreements with banks and securities dealers.
AMT Securities
Although the Fund currently limit their investments in Municipal
Securities to those the interest on which is exempt from the regular federal
income tax, the Fund may invest 100% of its total assets in Municipal Securities
the interest on which is subject to the federal alternative minimum tax ("AMT").
Private Placements
The Fund may invest in securities that are purchased in private
placements (including privately placed securities eligible for purchase and sale
under Rule 144A of the Securities Act of 1933 ["1933 Act"]) and, accordingly,
are subject to restrictions on resale as a matter of contract or under federal
securities laws. Because there may be relatively few potential purchasers for
such investments, especially under adverse market or economic conditions or in
the event of adverse changes in the financial condition of the issuer, the Fund
could find it more difficult to sell such securities when Stein Roe believes it
is advisable to do so or may be able to sell such securities only at prices
lower than if such securities were more widely held. At times, it may also be
more difficult to determine the fair value of such securities for purposes of
computing the Fund's net asset value.
Rule 144A Securities
Rule 144A permits certain qualified institutional buyers, such as the
Fund, to trade in privately placed securities that have not been registered for
sale under the 1933 Act. Stein Roe, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Fund's restriction of investing no more than
15% of its net assets in illiquid securities. A determination of whether a Rule
144A security is liquid or not is a question of fact. In making this
determination, Stein Roe will consider the trading markets for the specific
security, taking into account the unregistered nature of a Rule 144A security.
In addition, Stein Roe could consider the (1) frequency of trades and quotes,
(2) number of dealers and potential purchasers, (3) dealer undertakings to make
a market, and (4) nature of the security and of marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer). The liquidity of Rule 144A securities would be monitored
and if, as a result of changed conditions, it is determined that a Rule 144A
security is no longer liquid, the Fund's holdings of illiquid securities would
be reviewed to determine what, if any, steps are required to assure that the
Fund does not invest more than 10% of its assets in illiquid securities for all
Funds other than High-Yield Municipals Portfolio and no more than 15% for that
Fund. Investing in Rule 144A securities could have the effect of increasing the
amount of the Fund's assets invested in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities. The Fund does
not expect to invest more than 5% of its total assets in Rule 144A securities
that have not been deemed to be liquid by Stein Roe.
Standby Commitments
The 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. The 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 the Fund
should exceed the current value of the underlying securities, the 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. The Fund will enter into standby
commitments only with banks and securities dealers that, in the opinion of Stein
Roe, present minimal credit risks. However, if a securities dealer or bank is
unable to meet its obligation to repurchase the security when the 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 the Fund's net asset value.
The Trust has received an opinion of Bell, Boyd & Lloyd LLC, counsel to the
Trust, that interest earned by the Fund 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
The Fund may purchase participation interests in all or part of
specific holdings of Municipal Securities, but does not intend to do so unless
the tax-exempt status of those participation interests or certificates of
participation is confirmed to the satisfaction of the Board of Trustees, which
may include consideration of an opinion of counsel as to the tax-exempt status.
Each participation interest would meet the prescribed quality standards of the
Fund or be backed by an irrevocable letter of credit or guarantee of a bank that
meets the prescribed quality standards of the Fund. (See Investment Policies.)
Some participation interests are illiquid securities.
The 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.
The Board of Trustees has delegated to Stein Roe 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.
When-Issued and Delayed-Delivery Securities; Forward Commitments
The Fund may purchase securities on a when-issued or delayed-delivery
basis or purchase forward commitments, as described in the Prospectus. The 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 the Fund enters into a binding obligation to purchase
securities on a when-issued basis, liquid assets (cash, U.S. Government or other
"high grade" debt obligations) of the Fund having a value of at least as great
as the purchase price of the securities to be purchased will be segregated on
the books of the Fund and held by the custodian throughout the period of the
obligation.
Short Sales Against the Box
The 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. The Fund may make short sales of securities only if at all
times when a short position is open it owns at least an equal amount of such
securities or securities convertible into or exchangeable for securities of the
same issue as, and equal in amount to, the securities sold short, at no
additional cost.
In a short sale against the box, the Fund does not deliver from its
portfolio the securities sold. Instead, the Fund borrows the securities sold
short from a broker-dealer through which the short sale is executed, and the
broker-dealer delivers such securities, on behalf of the Fund, to the purchaser
of such securities. The Fund is required to pay to the broker-dealer the amount
of any dividends paid on shares sold short. Finally, to secure its obligation to
deliver to such broker-dealer the securities sold short, the Fund must deposit
and continuously maintain in a separate account with its custodian an equivalent
amount of the securities sold short or securities convertible into or
exchangeable for such securities at no additional cost. The Fund is said to have
a short position in the securities sold until it delivers to the broker-dealer
the securities sold. The 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 the 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
the 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
the Fund is able to enter into short sales. There is no limitation on the amount
of the 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. The Fund
currently does not expect that more than 5% of its total assets would be
involved in short sales against the box.
Repurchase Agreements
The 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 the 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, the Fund could experience both losses and delays in liquidating its
collateral.
Borrowings; Reverse Repurchase Agreements
Subject to restriction (iv) under Investment Restrictions, the 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.
The Fund may also enter into reverse repurchase agreements 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 Fund did not enter into reverse
repurchase agreements during the last year and have no present intention to do
so.
The 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 the
Fund include obligations given a rating conditionally by Moody's or
provisionally by S&P.
If the rating of a Municipal Security held by the Fund is lost or
reduced below the minimum level applicable to its original purchase by the Fund,
it is not required that obligation to be sold, but Stein Roe will consider such
fact in determining whether that Fund should continue to hold the obligation.
To the extent that the ratings accorded by Moody's, S&P, or Fitch IBCA
for Municipal Securities may change as a result of changes in such
organizations, or changes in their rating systems, the 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 Portfolio.
Zero Coupon Bonds
The Portfolio 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 the Fund accrues income
with respect to these securities prior to the receipt of such interest, it may
have to dispose of portfolio securities under disadvantageous circumstances in
order to obtain cash needed to pay income dividends in amounts necessary to
avoid unfavorable tax consequences.
Tender Option Bonds; Trust Receipts
The Fund may purchase tender option bonds and trust receipts. A tender
option bond is a Municipal Security (generally held pursuant to a custodial
arrangement) having a relatively long maturity and bearing interest at a fixed
rate substantially higher than prevailing short-term tax-exempt rates, that has
been coupled with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which such institution grants the
security holders the option, at periodic intervals, to tender their securities
to the institution and receive the face value thereof. As consideration for
providing the option, the financial institution receives periodic fees equal to
the difference between the Municipal Security's fixed coupon rate and the rate,
as determined by a remarketing or similar agent at or near the commencement of
such period, that would cause the securities, coupled with the tender option, to
trade at par on the date of such determination. Thus, after payment of this fee,
the security holder effectively holds a demand obligation that bears interest at
the prevailing short-term tax-exempt rate. Stein Roe 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. The Fund may invest up to
10% of net assets in tender option bonds and trust receipts.
Interfund Borrowing and Lending Program
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund may lend money to and borrow money from other mutual funds
advised by Stein Roe. The 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 Fund does not purchase securities with a view toward rapid
turnover, there are no limitations on the length of time that portfolio
securities must be held. As a result, the turnover rate may vary from year to
year. A high rate of portfolio turnover, 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.
Options
The Portfolio 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.)
The 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 the 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 the 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 the Fund desires.
The 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 the Fund is an asset of the Fund,
valued initially at the premium paid for the option. The premium received for an
option written by the 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 the Fund
seeks to close out an option position. If the 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 the 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, the 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 the
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
The Portfolio 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 which 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 of S&P.) (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. The 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.
The 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, the 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 accurate predictions of
changes in the level and direction of interest rates and other factors. Should
those predictions be incorrect, the return might have been better had the
transaction not been attempted; however, in the absence of the ability to use
futures contracts, Stein Roe might have taken portfolio actions in anticipation
of the same market movements with similar investment results but, presumably, at
greater transaction costs.
The 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 the 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. The Fund expects to earn interest income on its
initial margin deposits. A futures contract held by the 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 the 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, the Fund will mark to market its open futures positions.
The 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 the 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, the
Portfolio may also use those investment vehicles, provided the Board of Trustees
determines that their use is consistent with the Fund's investment objective.
The 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" would
exceed 5% of the Fund's total assets.
When purchasing a futures contract or writing a put on a futures
contract, the 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, the
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.
The 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 the 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," the 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 the 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 the 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 the 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 the 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 the 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 the 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 the Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities. For federal
income tax purposes, the 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 the 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 the Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies or other income (including but not limited to
gains from options, futures, or forward contracts). Any net gain realized from
futures (or futures options) contracts will be considered gain from the sale of
securities and therefore be qualifying income for purposes of the 90%
requirement.
The Fund distributes to shareholders annually any net capital gains
that have been recognized for federal income tax purposes (including year-end
mark-to-market gains) on options and futures transactions. Such distributions
are combined with distributions of capital gains realized on the Fund's other
investments and shareholders will be advised of the nature of the payments.
The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for federal income tax purposes on certain hedging strategies with
respect to appreciated securities. Under these rules, taxpayers will recognize
gain, but not loss, with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act) or futures or
"forward contracts" (as defined by the Act) with respect to the same or
substantially identical property, or if they enter into such transactions and
then acquire the same or substantially identical property. These changes
generally apply to constructive sales after June 8, 1997. Furthermore, the
Secretary of the Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have substantially the
same effect as short sales, offsetting notional principal contracts, and futures
or forward contracts to deliver the same or substantially similar property.
INVESTMENT RESTRICTIONS
The Fund and Portfolio operate 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". The Fund or Portfolio may not:
(i) invest in a security if, with respect to 75% of its 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 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 it and guaranteed by such guarantor (plus
any other investments in securities issued by the guarantor) does not exceed 10%
of its total assets];
(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), but it 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 the Portfolio provided that no
such loan may be made if, as a result, the aggregate of such loans would exceed
33 1/3% of the value of its total assets; (b) purchase money market instruments
and enter into repurchase agreements; and (c) acquire publicly distributed or
privately placed debt securities;
(iv) borrow except that it may (a) borrow for nonleveraging, temporary
or emergency purposes and (b) engage in reverse repurchase agreements and make
other borrowings, provided that the combination of (a) and (b) shall not exceed
33 1/3% of the value of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage permitted by law;
it may borrow from banks, other Stein Roe Funds and Portfolios, and other
persons to the extent permitted by applicable law;
(v) mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by it except (a) as may
be necessary in connection with borrowings mentioned in (iv) above, and (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, 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, except that it may enter into futures and options
transactions;
(ix) issue any senior security except to the extent permitted under the
Investment Company Act of 1940;
(x) 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); or
(xi) act as an underwriter of securities, except that it may
participate as part of a group in bidding, or bid alone, for the purchase of
Municipal Securities directly from an issuer for its own portfolio.
The above restrictions (other than material within brackets) are
fundamental policies of the Fund and Portfolio. The Fund and Portfolio 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 the 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.
The Fund or Portfolio 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) sell securities short unless (1) it owns or has the right to obtain
securities equivalent in kind and amount to those sold short at no added cost or
(2) the securities sold are "when issued" or "when distributed" securities which
it expects to receive in a recapitalization, reorganization, or other exchange
for securities it contemporaneously owns or has the right to obtain and provided
that it may purchase standby commitments and securities subject to a demand
feature entitling it to require sellers of securities to the Fund to repurchase
them upon demand by the Fund and that transactions in options, futures, and
options on futures are not treated as short sales;
(e) 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;
(f) purchase shares of other open-end investment companies,
except in connection with a merger, consolidation, acquisition, or
reorganization;
(g) 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;
(h) write an option on a security unless the option is issued by the
Options Clearing Corporation, an
exchange, or similar entity;
(i) 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.
<PAGE>
ADDITIONAL INVESTMENT CONSIDERATIONS
Stein Roe seeks to provide superior long-term investment results
through a disciplined, research-intensive approach to investment selection and
prudent risk management. In working to take sensible risks and make intelligent
investments 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 the 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.
<PAGE>
MANAGEMENT
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. The following table sets forth
certain information with respect to the trustees and officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held Principal occupation(s)
Name, Age; Address with the Trust during past five years
<S> <C> <C>
William D. Andrews, 52; Executive Vice-President Executive vice president of Stein Roe
One South Wacker Drive,
Chicago, IL 60606(4)
John A. Bacon Jr., 72; 4N640 Trustee Private investor
Honey Hill Road, Box 296, Wayne,
IL 60184 (3)(4)
Christine Balzano, 34; 245 Summer Vice-President Senior vice president of Liberty Funds Services, Inc.;
Street, Boston, MA 02210 formerly vice president and assistant vice president
William W. Boyd, 72; 2900 Golf Trustee Chairman and director of Sterling Plumbing (manufacturer
Road, Rolling Meadows, IL 60008 of plumbing products)
(2)(3)(4)
Kevin M. Carome, 43; One Executive Senior vice president, legal, Liberty Funds Group LLC
Financial Center, Boston, MA Vice-President; (an affiliate of Stein Roe) since Jan. 1999; general
02111 (4) Assistant Secretary counsel and secretary of Stein Roe since Jan. 1998;
associate general counsel and vice president of Liberty
Financial Companies, Inc. (the indirect parent of Stein
Roe) through Jan. 1999
Denise E. Chasmer, 31; Vice President Employee of Liberty Funds Services, Inc. and assistant
12100 East Iliff Avenue vice president of Stein Roe since November 1999; manager
Aurora, CO 80014 (4) with Scudder Kemper Investments from October 1995 to
November 1999; assistant manager with Scudder Kemper
prior thereto
J. Kevin Connaughton, 35; 245 Vice-President; Controller of the Stein Roe Funds since May 2000;
Summer Street, Boston, MA 02210 Controller Controller and Chief Accounting Officer of the Liberty
(4) Funds since February 1998, Vice president of Colonial
Management
Associates, Inc.
("CMA") since
February 1998;
senior tax manager,
Coopers & Lybrand,
LLP from April 1996
to January 1998;
vice president, 440
Financial
Group/First Data
Investor Services
Group prior thereto
Nancy L. Conlin, 46; One Senior Vice President Secretary of the Stein Roe Funds since May 2000;
Financial Center, Boston, MA and Secretary Secretary of the Liberty Funds since April 1998
02111 (4) (formerly Assistant Secretary from July 1994 to April
1998); Director,
Senior Vice
President General
Counsel, Clerk and
Secretary of
Colonial Management
Associates, Inc.
since April 1998
(formerly Vice
President, Counsel,
Assistant Secretary
and Assistant Clerk
from July 1994 to
April 1998); Vice
President, General
Counsel and
Secretary of Liberty
Funds Group since
December 1998
(formerly Vice
President, General
Counsel and Clerk of
The Colonial Group
from April 1998 to
December 1998
(formerly Assistant
Clerk from July 1994
to April 1998)
Lindsay Cook, 47; 600 Atlantic Trustee Executive vice president of Liberty Financial Companies,
Avenue, Boston, MA 02210 (1)(2)(4) Inc. since March 1997; senior vice president prior
thereto
Stephen E. Gibson, 46; One President Vice chairman of Stein Roe since Aug. 1998; chairman,
Financial Center, Boston, MA CEO, president and director of Liberty Funds Group since
02111 (4) Dec. 1998; chairman of the Colonial Group from July 1998
to Dec. 1998; president of the Colonial Group from Dec.
1996 to Dec. 1998; chairman of Colonial Management
Associates, Inc. since Dec. 1998; CEO, president and
director of Colonial Management Associates since July
1996; managing director of Putnam Financial Services
from June 1992 through June 1996
Douglas A. Hacker, 43; P.O. Box Trustee Senior vice president and chief financial officer of
66100, Chicago, IL 60666 (3) (4) UAL, Inc. (airline)
Loren A. Hansen, 51;
One South Wacker Drive, Chicago, IL 60606
Executive Vice-President Chief investment
officer/equity of CMA since 1997; executive vice
president of Stein Roe since Dec. 1995; (4) vice president of The
Northern Trust
(bank) prior thereto
Brian M. Hartford, 40; Vice President Employee of Stein Roe since November 1998; vice
One Financial Center president of CMA since 1993
Boston, MA 02111
Janet Langford Kelly, 41; One Trustee Executive vice president-corporate development, general
Kellogg Square, Battle Creek, MI counsel and secretary of Kellogg Company since Sept.
49016 (3)(4) 1999; senior vice president, secretary and general
counsel of Sara Lee Corporation (branded, packaged,
consumer-products manufacturer) from 1995 to Aug. 1999;
partner of Sidley & Austin (law firm) prior thereto
Gail D. Knudsen, 37; 245 Summer Vice President Vice president and assistant controller of CMA
Street, Boston, MA 02210 (4)
William C. Loring, Jr. 49; Vice President Vice president of Stein Roe since November 1998; vice
One Financial Center president of CMA
Boston, MA 02111
<PAGE>
Position(s) held Principal occupation(s)
Name, Age; Address with the Trust during past five years
Pamela A. McGrath, 46: One Senior Vice President Treasurer of the Stein Roe Funds since May 2000;
Financial Center, Boston, MA and Treasurer Treasurer and Chief Financial Officer of the Liberty
02111 (4) Funds and Liberty All-Star Funds since April 2000;
Treasurer, Chief
Financial Officer
and Vice President
of the Liberty Funds
Group since December
1999; Chief
Financial Officer,
Treasurer and Senior
Vice President of
Colonial Management
Associates since
December 1999;
Senior Vice
President and
Director of Offshore
Accounting for
Putnam Investments,
Inc., from May 1998
to October 1999;
Managing Director of
Scudder Kemper
Investments from
October, 1984 to
December 1997.
Mary D. McKenzie, 45; One Vice President President of Liberty Funds Services, Inc.
Financial Center, Boston, MA
02111 (4)
Charles R. Nelson, 57; Department Trustee Van Voorhis Professor of Political Economy, Department
of Economics, University of of Economics of the University of Washington
Washington, Seattle, WA 98195
(3)(4)
Maureen G. Newman, 40; Vice President Vice President of Stein Roe since November
1998; One Financial Center portfolio manager and vice president of CMA since May
Boston, MA 02111 (4) 1996; portfolio manager and bond analyst at Fidelity
Investments prior thereto
Nicholas S. Norton, 40; 12100 Vice President Senior vice president of Liberty Funds Services, Inc.
East Iliff Avenue, Aurora, CO since Aug. 1999; vice president of Scudder Kemper, Inc.
80014 (4) from May 1994 to Aug. 1999
Joseph R. Palombo, 47; Executive Vice President Executive Vice President of the Stein Roe Funds since
One Financial Center, Boston, MA May 2000; Vice President of the Liberty Funds since
02111 (4) April 1999; Executive Vice President and Director of
Colonial Management
Associates since
April 1999;
Executive Vice
President and Chief
Administrative
Officer of the
Liberty Funds Group
since April 1999;
Chief Operating
Officer, Putnam
Mutual Funds from
1994 to 1998.
Thomas C. Theobald, 62; Suite Trustee Managing director, William Blair Capital Partners
1300, 222 West Adams Street, (private equity fund)
Chicago, IL 60606 (3)(4)
Veronica M. Wallace, 53; Vice President Vice President of Stein Roe since March
1998; portfolio One South Wacker Drive manager for Stein Roe since September
1995; trader in Chicago, IL 60606 (4) taxable short-term instruments for Stein
Roe prior
thereto
</TABLE>
-------------------------
(1) Trustee who is an "interested person" of the Trust and of Stein Roe, as
defined in the Investment Company
Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees, which is
authorized to exercise all powers of the Board with certain statutory
exceptions.
(3) Member of the Audit Committee of the Board, which makes recommendations to
the Board regarding the selection of auditors and confers with the
auditors regarding the scope and results of the audit.
(4) This person holds the corresponding officer or trustee position with
SR&F Base Trust.
Certain of the trustees and officers of the Trust are trustees or
officers of other investment companies managed by Stein Roe; and some of the
officers are also officers of Liberty Funds Distributor, Inc., the Fund's
distributor.
Officers and trustees affiliated with Stein Roe serve without any
compensation from the Trust. In compensation for their services to the Trust,
trustees who are not "interested persons" of the Trust or Stein Roe are paid an
annual retainer plus an attendance fee for each meeting of the Board or standing
committee thereof attended. The Trust has no retirement or pension plan. The
following table sets forth compensation paid during the fiscal year ended June
30, 1999 to each of the trustees:
<PAGE>
Compensation from the Stein Roe
Fund Complex*
-----------------------------------
Aggregate Compensation Total Average Per
Name of Trustee from the Trust Compensation Series
------------------------------ ---------------------------------- -------------
Thomas W. Butch** -0- -0- -0-
Lindsay Cook -0- -0- -0-
John A. Bacon Jr.** $8,300 $101,150 $2,199
William W. Boyd 8,400 102,300 2,224
Douglas A. Hacker 7,300 87,700 1,907
Janet Langford Kelly 8,000 97,200 2,113
Charles R. Nelson 8,400 102,100 2,220
Thomas C. Theobald 8,000 97,200 2,113
--------------
* At June 30, 1999, the Stein Roe Fund Complex consisted of 12 series of
the Trust, one series of Liberty-Stein Roe Funds Trust, four series of
Liberty-Stein Roe Funds Municipal Trust, four series of Liberty-Stein
Roe Funds Income Trust, five series of Liberty-Stein Roe Advisor Trust,
five series of SteinRoe Variable Investment Trust, 12 portfolios of
SR&F Base Trust, Liberty-Stein Roe Advisor Floating Rate Fund,
Liberty-Stein Roe Institutional Floating Rate Income Fund, and Stein
Roe Floating Rate Limited Liability Company.
** Mr. Butch served as a trustee until Nov. 3, 1998; Mr. Bacon was
elected a trustee effective Nov. 3, 1998.
FINANCIAL STATEMENTS
Please refer to the June 30, 1999 Financial Statements for the Fund
(management discussion, statements of assets and liabilities and schedules of
investments as of June 30, 1999 and the statements of operations, changes in net
assets, financial highlights, and notes thereto) and the report of independent
accountants contained in the June 30, 1999 Annual Report and the unaudited
December 31, 1999 financial statements contained in the December 31, 1999
Semi-annual Report. Those Financial Statements and the report of independent
accountants are incorporated herein by reference. The Annual Report may be
obtained at no charge by telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of June 30, 2000, no persons known by the Trust owned of record or
"beneficially" 5% or more of the outstanding shares of the Fund within the
definition of that term as contained in Rule 13d-3 under the Securities Exchange
Act of 1934.
INVESTMENT ADVISORY AND OTHER SERVICES
Stein Roe & Farnham Incorporated provides investment management
services and administrative services to the Fund. Stein Roe is a wholly owned
subsidiary of SteinRoe Services Inc. ("SSI"), the Fund's transfer agent, which
is a wholly owned subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which is a majority owned subsidiary of LFC Management Corporation,
which is a wholly owned subsidiary of Liberty Corporate Holdings, Inc., which is
a wholly 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 director of Stein Roe are C. Allen Merritt, Jr. Mr. Merritt is
Chief Operating Officer of Liberty Financial. The business address of
Mr. Merritt is 600 Atlantic Avenue, Boston, MA 02210.
Stein Roe CounselorSM is a professional investment advisory service
offered by Stein Roe to Fund shareholders. Stein Roe CounselorSM 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, Stein Roe's investment professionals
create customized portfolio recommendations. Shareholders participating in Stein
Roe CounselorSM are free to self direct their investments while considering
Stein Roe's recommendations. In addition to reviewing shareholders' goals and
objectives periodically and updating portfolio recommendations to reflect any
changes, Stein Roe provides shareholders participating in these programs with
dedicated representatives. Other distinctive services include specially designed
account statements with portfolio performance and transaction data, asset
allocation planning tools, newsletters, customized website content, and regular
investment, economic and market updates. A $50,000 minimum investment is
required to participate in the program.
In return for its services, Stein Roe is entitled to receive a monthly
administrative fee and a monthly management fee from the Fund. The table below
shows the annual rates of such fees as a percentage of average net assets (shown
in millions), gross fees paid for the three most recent fiscal years, and any
expense reimbursements by Stein Roe:
<TABLE>
----------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
<CAPTION>
Current Rates (as % of 6/30/99 6/30/98 6/30/97
Fund/Portfolio Type average net assets)
--------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
High-Yield Municipals Management fee -- -- $803,747 $1,255,595
Fund
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Administrative fee .150% up to $100 million,
.125% next $100 million,
.100% thereafter $423,919 401,552 368,923
-------------------------------------------------------------------------------------------- -----------------
-----------------------------------------------------------------------------------------------------
High-Yield Municipals Management fee .450% up to $100
Portfolio million, .425% next
$100 million, .400% 1,399,418 579,690 --
thereafter
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Stein Roe provides office space and executive and other personnel to
the Fund, and bears any sales or promotional expenses. The Fund pays all
expenses other than those paid by Stein Roe, including but not limited to
printing and postage charges, securities registration and custodian fees, and
expenses incidental to its organization.
The administrative agreement provides that Stein Roe shall reimburse
the Fund to the extent that total annual expenses of the Fund (including fees
paid to Stein Roe, but excluding taxes, interest, commissions and other normal
charges incident to the purchase and sale of portfolio securities, and expenses
of litigation to the extent permitted under applicable state law) exceed the
applicable limits prescribed by any state in which shares of the Fund are being
offered for sale to the public; provided, however, Stein Roe is not required to
reimburse the Fund an amount in excess of fees paid by the Fund under that
agreement for such year. In addition, in the interest of further limiting
expenses of the Fund, Stein Roe may voluntarily waive its fees and/or absorb
certain expenses, as described under The Fund--Your Expenses in the Prospectus.
Any such reimbursement will enhance the yield of such Fund.
Each management agreement provides that neither Stein Roe, nor any of
its directors, officers, stockholders (or partners of stockholders), agents, or
employees shall have any liability to the Trust or any shareholder of the Trust
for any error of judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance by Stein Roe of
its duties under the agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
agreement.
Any expenses that are attributable solely to the organization,
operation, or business of a series of the Trust are paid solely out of the
assets of that series. Any expenses incurred by the Trust that are not solely
attributable to a particular series are apportioned in such manner as Stein Roe
determines is fair and appropriate, unless otherwise specified by the Board of
Trustees.
Bookkeeping and Accounting Agreement
Pursuant to a separate agreement with the Trust, Stein Roe receives a
fee for performing certain bookkeeping and accounting services. For such
services, Stein Roe receives an annual fee of $25,000 per series plus .0025 of
1% of average net assets over $50 million. During the fiscal years ended June
30, 1997, 1998 and 1999, Stein Roe received aggregate fees of $125,437, $125,832
and $125,858, respectively, from the Trust for services performed under this
Agreement.
DISTRIBUTOR
Shares of the Fund are distributed by Liberty Funds Distributor, Inc.
(the "Distributor"), One Financial Center, Boston, MA 02111, an indirect
subsidiary of Liberty Financial, under a Distribution Agreement. The
Distribution Agreement continues in effect from year to year, provided such
continuance is approved annually (i) by a majority of the trustees or by a
majority of the outstanding voting securities of the Trust, and (ii) by a
majority of the trustees who are not parties to the Agreement or interested
persons of any such party ("independent trustees"). The Distributor has no
obligation, as underwriter, to buy Fund shares, and purchases shares only upon
receipt of orders from authorized financial service firms or investors. The
Trust has agreed to pay all expenses in connection with registration of its
shares with the Securities and Exchange Commission and auditing and filing fees
in connection with registration of its shares under the various state blue sky
laws and assumes the cost of preparation of prospectuses and other expenses.
12b-1 Plan
The trustees of the Trust have adopted a plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "Plan"). The Plan provides that,
as compensation for personal service and/or the maintenance of shareholder
accounts, the Distributor receives a service fee at an annual rate not to exceed
0.25% of net assets attributed to Class A shares. The Plan also provides that as
compensation for the promotion and distribution of shares of the Fund including
its expenses related to sale and promotion of Fund shares, the Distributor
receives from the Fund a fee at an annual rate not exceeding 0.10% of the
average net assets attributed to Class A shares.
At this time, the Distributor has voluntarily agreed to limit the Class A
distribution fee to 0.25% annually. The Distributor may terminate this voluntary
limitation without shareholder approval. The Distributor generally pays this
amount to institutions that distribute Fund shares and provide services to the
Fund and its shareholders. Those institutions may use the payments for, among
other purposes, compensating employees engaged in sales and/or shareholder
servicing. The amount of fees paid by the Fund during any year may be more or
less than the cost of distribution or other services provided to the Fund. NASD
rules limit the amount of annual distribution fees that may be paid by a mutual
fund and impose a ceiling on the cumulative sales charges paid. The Trust's Plan
complies with those rules.
The trustees believe that the Plan could be a significant factor in the
growth and retention of Fund assets resulting in a more advantageous expense
ratio and increased investment flexibility which could benefit each class of
shareholders. The Plan will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
trustees, including the independent trustees. The Plan may not be amended to
increase the fee materially without approval by a vote of a majority of the
outstanding voting securities of the relevant class of shares and all material
amendments of the Plan must be approved by the trustees in the manner provided
in the foregoing sentence. The Plan may be terminated at any time by a vote of a
majority of the independent trustees or by a vote of a majority of the
outstanding voting securities of the relevant Class of shares.
The Fund offers two classes of shares (Class A and Class S). The Fund
may in the future offer other classes of shares. Class S shares are offered at
net asset value and are not subject to a Rule 12b-1 fee. Class A shares are
offered at net asset value plus a front-end sales charge to be imposed at the
time of purchase and are subject to a Rule 12b-1 fee.
TRANSFER AGENT
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago, IL
60606, is the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records. For performing
these services, SSI receives fees from the Fund based on an annual rate of 0.22%
of average net assets of Class S shares and [0.236%] of Class A shares. The
Trust believes the charges by SSI to the Fund are comparable to those of other
companies performing similar services. (See Investment Advisory and Other
Services.) Under a separate agreement, SSI also provides certain investor
accounting services to the Portfolio.
Some financial services firms ("FSF") or other intermediaries having
special selling arrangements with the Distributor, including certain bank trust
departments, wrap fee programs and retirement plan service providers
("Intermediaries") that maintain nominee accounts with the Fund for their
clients who are Fund shareholders, may be paid a fee from SSI for shareholder
servicing and accounting services they provide with respect to the underlying
Fund shares.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus under the
heading Your Account, and that information is incorporated herein by reference.
It is the responsibility of any investment dealers, banks, or other
institutions, including retirement plan service providers, through whom you
purchase or redeem shares to establish procedures insuring the prompt
transmission to the Trust of any order.
The Fund will accept unconditional orders for shares to be executed at
the public offering price based on the net asset value per share next determined
after the order is received in good order. The public offering price is the net
asset value plus the applicable sales charge, if any. In the case of orders for
purchase of shares placed through FSFs or Intermediaries, the public offering
price will be determined on the day the order is placed in good order, but only
if the FSF or Intermediary receives the order prior to the time at which shares
are valued and transmits it to the Fund before that day's transactions are
processed. If the FSF or Intermediary fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF or Intermediary.
If the FSF or Intermediary receives the order after the time at which the Fund
values its shares, the price will be based on the net asset value determined as
of the close of the NYSE on the next day it is open. If funds for the purchase
of shares are sent directly to the Transfer Agent, they will be invested at the
public offering price next determined after receipt in good order. Payment for
shares of the Fund must be in U.S. dollars; if made by check, the check must be
drawn on a U.S. bank.
The Fund receives the entire net asset value of shares sold. For Class
A shares, which are subject to an initial sales charge, the Distributor's
commission is the sales charge shown in the Prospectus less any applicable FSF
or Intermediary discount. The FSF or Intermediary discount is the same for all
FSFs or Intermediaries, except that the Distributor retains the entire sales
charge on any sales made to a shareholder who does not specify an FSF or
Intermediary on the application, and except that the Distributor may from time
to time reallow additional amounts to all or certain FSFs or Intermediaries. The
Distributor generally retains 100% of any asset-based sales charge (distribution
fee) or contingent deferred sales charge. Such charges generally reimburse the
Distributor for any up-front and/or ongoing commissions paid to FSFs or
Intermediaries.
Checks presented for the purchase of Fund shares which are returned by
the purchaser's bank will subject the purchaser to a $15 service fee for each
check returned.
The Transfer Agent acts as the shareholder's agent whenever it receives
instructions to carry out a transaction on the shareholder's account. Upon
receipt of instructions that shares are to be purchased for a shareholder's
account, the designated FSF or Intermediary will receive the applicable sales
commission. Shareholders may change FSFs or Intermediaries at any time by
written notice to the Transfer Agent, provided the new FSF or Intermediary has a
sales agreement with the Distributor.
Determination of Net Asset Value
The net asset value per share for each Class is determined as of the
close of business (normally 3:00 p.m., Central time, or 4:00 p.m., Eastern time)
on days on which the New York Stock Exchange (the "NYSE") is open for trading,
except that certain classes of assets, such as index futures for which the
market close occurs shortly after regular trading on the NYSE will be priced at
the closing time of the markets on which they trade but in no event later than
5:00 p.m. The NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in January, the third Monday in February, Good
Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or Sunday, the NYSE will
be closed on the preceding Friday or the following Monday, respectively. Net
asset value will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, net asset value of the Fund should be
determined on any such day, in which case the determination will be made at 3:00
p.m., Central time.
A Portfolio may invest in securities that are listed primarily on foreign
exchanges that are open and allow trading on days on which a Fund does not
determine net asset value. This may significantly affect the net asset value of
that Fund's redeemable securities on days when an investor cannot redeem such
securities. Debt securities generally are valued by a pricing service which
determines valuations based upon market transactions for normal,
institutional-size trading units of similar securities. However, in
circumstances where such prices are not available or where Stein Roe deems it
appropriate to do so, an over-the-counter or exchange bid quotation is used.
Securities listed on an exchange or on Nasdaq are valued at the last sale price.
Listed securities for which there were no sales during the day and unlisted
securities generally are valued at the last quoted bid price. Options are valued
at the last sale price or in the absence of a sale, the mean between the last
quoted bid and offering prices. Short-term obligations with a maturity of 60
days or less are valued at amortized cost pursuant to procedures adopted by the
Board of Trustees. The values of foreign securities quoted in foreign currencies
are translated into U.S. dollars at the exchange rate for that day. Positions
for which market quotations are not readily available and other assets are
valued at fair value as determined in good faith under the direction of the
Board of Trustees.
Generally, trading in certain securities (such as foreign securities)
is substantially completed each day at various times prior to the close of the
NYSE. Trading on certain foreign securities markets may not take place on all
NYSE business days, and trading on some foreign securities markets takes place
on days that are not NYSE business days and on which net asset value is not
calculated. The values of these securities used in determining net asset value
are computed as of such times. Also, because of the amount of time required to
collect and process trading information as to large numbers of securities
issues, the values of certain securities (such as convertible bonds, U.S.
government securities, and tax-exempt securities) are determined based on market
quotations collected earlier in the day at the latest practicable time prior to
the close of the NYSE. Occasionally, events affecting the value of such
securities may occur between such time and the close of the NYSE which will not
be reflected in the computation of the net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at their fair value following procedures approved by
the Board of Trustees.
The Trust intends to pay all redemptions in cash and is obligated to
redeem shares solely in cash up to the lesser of $250,000 or one percent of the
net assets of the Trust during any 90-day period for any one shareholder.
However, redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made in kind, the
redeeming shareholders might incur transaction costs in selling the securities
received in the redemptions.
Due to the relatively high cost of maintaining smaller accounts, the
Trust may deduct $10 (payable to the Transfer Agent) from accounts valued at
less than $1,000 unless the account value has dropped below $1,000 solely as a
result of share depreciation. An investor will be notified that the value of his
account is less than that minimum and allowed at least 60 days to bring the
value of the account up to at least $1,000 before the fee is deducted. The
Agreement and Declaration of Trust also authorizes the Trust to redeem shares
under certain other circumstances as may be specified by the Board of Trustees.
The Trust reserves the right to suspend or postpone redemptions of Fund
shares during any period when: (a) trading on the NYSE is restricted, as
determined by the Securities and Exchange Commission, or the NYSE is closed for
other than customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c) an emergency,
as determined by the Securities and Exchange Commission, exists, making disposal
of portfolio securities or valuation of net assets of a Fund not reasonably
practicable.
Special Purchase Programs/Investor Services
The following special purchase programs/investor services may be
changed or eliminated at any time.
Automatic Investment Plan. As a convenience to investors, shares of
most funds advised by Colonial, Newport Management, Inc., Crabbe Huson Group,
Inc. and Stein Roe may be purchased through the Automatic Investment Plan.
Preauthorized monthly bank drafts or electronic funds transfers for a fixed
amount at least $50 are used to purchase a fund's shares at the public offering
price next determined after the distributor receives the proceeds from the draft
(normally the 5th or the 20th of each month, or the next business day
thereafter). If your Automatic Investment Plan purchase is by electronic funds
transfer, you may request the Automatic Investment Plan purchase any day.
Further information and application forms are available from the distributor.
Automated Dollar Cost Averaging. The Automated Dollar Cost Averaging
program allows you to exchange $100 or more on a monthly basis from any mutual
fund advised by Colonial, Newport Fund Management, Inc., Crabbe Huson Group,
Inc., and Stein Roe in which you have a current balance of at least $5000 into
the same class of shares of up to four other funds. Complete the Automated
Dollar Cost Averaging section of the Application. The designated amount will be
exchanged on the third Tuesday of each month. There is no charge for exchanges
made pursuant to the Automated Dollar Cost Averaging program. Exchanges will
continue so long as your fund balance is sufficient to complete the transfers.
Your normal rights and privileges as a shareholder remain in full force and
effect. Thus you can buy any fund, exchange between the same class of shares of
funds written instruction or by telephone exchange if you have so elected and
withdraw amounts from any fund, subject to the imposition of any applicable
CDSC.
Any additional payments or exchanges into your fund will extend the time of the
Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal and income tax
purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum) or change your selection of funds, by telephone or in writing;
if in writing to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
You should consult your investment advisor to determine whether or not the
Automated Dollar Cost Averaging program is appropriate for you.
The Distributor offers several plans by which an investor may obtain reduced
initial or contingent deferred sales charges. These plans may be altered or
discontinued at any time. See "Programs for Reducing or Eliminating Sales
Charges" for more information.
Tax-Sheltered Retirement Plans. The Distributor offers prototype
tax-qualified plans, including Individual Retirement Accounts (IRAs) and pension
and profit-sharing plans for individuals, corporations, employees and the
self-employed. The minimum initial investment for a retirement account is $25.
Investor's Bank & Trust Company is the Trustee of the prototype plans and
charges an $18 annual fee. The annual fee will be waived if your aggregated IRA
(Traditional IRA, Roth IRA and Education IRA) assets total $25,000 or more. This
waiver will be based on the assets of record when the fees are assessed in
December. If you close your account during the year, the Distributor will not
aggregate the IRAs and you will be subject to that year's annual fee per IRA
regardless of total assets. Further Detailed information concerning these
retirement plans and copies of the retirement plans are available from the
Distributor.
Participants in other prototype retirement plans (other than IRAs) also
are charged a $10 annual fee unless the plan maintains an omnibus account with
the Transfer Agent. Participants in prototype plans offered by the Distributor
(other than IRAs) who liquidate the total value of their account will also be
charged a $15 close-out processing fee payable to the Transfer Agent. The fee is
in addition to any applicable CDSC. The fee will not apply if the participant
uses the proceeds to open an IRA Rollover account in any fund, or if the plan
maintains an omnibus account.
Consultation with a competent financial and tax advisor regarding these
plans and consideration of the suitability of Fund shares as an investment under
the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
Telephone Address Change Services. By calling the Transfer Agent,
shareholders, beneficiaries or their FSF or Intermediary of record may change an
address on a recorded telephone line. Confirmations of address change will be
sent to both the old and the new addresses. Telephone redemption privileges are
suspended for 30 days after an address change is effected.
Cash Connection. Dividends and any other distributions, including
Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
Automatic Dividend Diversification. The automatic dividend
diversification reinvestment program (ADD) generally allows shareholders to have
all distributions from a fund automatically invested in the same class of shares
of another fund. An ADD account must in the same name as the shareholder's
existing open account with the particular Fund. Call for more information at
1-800-422-3737.
Programs for Reducing or Eliminating Sales Charges
Right of Accumulation and Statement of Intent. Reduced sales charges on
Class A shares can be effected by combining a current purchase with prior
purchases of Class A, B, C, T, and Z shares of other funds managed by Colonial
Management Associates, Inc. or distributed by the Distributor (such funds
hereinafter referred to as "Colonial Funds"). The applicable sales charged is
based on the combined total of: (1) the current purchase and (2) the value at
the public offering price at the close of business on the previous day of all
Liberty Fund's Class A shares held by the shareholder (except shares of any
Liberty money market fund, unless such shares were acquired by exchange from
Class A shares of another Liberty Fund other than a money market fund and Class
B, C, T and Z shares).
The Distributor must be promptly notified of each purchase which
entitles a shareholder to a reduced sales charge. Such reduced sales charge will
be applied upon confirmation of the shareholder's holdings by the Transfer
Agent. A Liberty Fund may terminate or amend this right of Accumulation.
Any person may qualify for reduced sales charges on purchase of Class A
shares made within a 13-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C, T and Z shares
held by the shareholder on the date of the Statement in the Trust's Funds and
Liberty Funds (except shares of any Colonial money market fund, unless such
shares were acquired by exchange from Class A shares of another non-money market
Liberty Fund). The value is determined at the public offering price on the date
of the Statement. Purchases made through reinvestment of distributions do not
count toward satisfaction of the Statement.
During the term of a Statement, the Transfer Agent will hold shares in
escrow to secure payment of the higher sales charge applicable to Class A shares
actually purchased. Dividends and capital gains will be paid on all escrowed
shares and these shares will be released when the amount indicated has been
purchased. A Statement does not obligate the investor to buy or the Fund to sell
the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an
amount which would qualify for a further quantity discount, a retroactive price
adjustment will be made at the time of expiration of the Statement. The
resulting difference in offering price will purchase additional shares for the
shareholder's account at the then-current applicable offering price. As a part
of this adjustment, the FSF or Intermediary shall return to the Distributor the
excess commission previously paid during the 13-month period.
If the amount of the Statement is not purchased, the shareholder shall
remit to the Distributor an amount equal to the difference between the sales
charge paid and the sales charge that should have been paid. If the shareholder
fails within 20 days after a written request to pay such difference in sales
charge, the Transfer Agent will redeem that number of escrowed Class A shares
equal to such difference. The additional amount of FSF or Intermediary discount
from the applicable offering price shall be remitted to the shareholder's FSF or
Intermediary of record.
Additional information about and the terms of Statements of Intent are
available from your FSF or Intermediary or from the Transfer Agent at
1-800-345-6611.
Reinstatement Privilege. An investor who has redeemed Fund shares may,
upon request, reinstate within one year a portion or all of the proceeds of such
sale in shares of the same class of that Fund at the net asset value next
determined after the Transfer Agent receives a written reinstatement request and
payment. Any contingent deferred sales charge paid at the time of the redemption
will be credited to the shareholder upon reinstatement. The period between the
redemption and the reinstatement will not be counted in aging the reinstated
shares for purposes of calculating any contingent deferred sales charge or
conversion date. Investors who desire to exercise this privilege should contact
their FSF or Intermediary or the Distributor. Shareholders may exercise this
privilege an unlimited number of times. Exercise of this privilege does not
alter the federal income tax treatment of any capital gains realized on the
prior sale of Fund shares, but to the extent any such shares were sold at a
loss, some or all of the loss may be disallowed for tax purposes. Consult your
tax advisor.
Shareholders may reinvest all or a portion of a recent cash
distribution without a sales charge. A shareholder request must be received
within 30 calendar days of the distribution. A shareholder may exercise this
privilege only once. No charge is currently made for reinvestment.
Privileges of Adviser Employees, FSFs or Intermediaries. Class A shares
may be sold at net asset value to the following individuals whether currently
employed or retired: Trustees of funds advised or administered by Stein Roe or
an affiliate of Stein Roe; directors, officers and employees of Stein Roe or an
affiliate of Stein Roe, including the Transfer Agent and the Distributor;
registered representatives and employees of FSFs or Intermediaries (including
their affiliates) that are parties to dealer agreements or other sales
arrangements with the Distributor; and such persons' families and their
beneficial accounts.
Sponsored Arrangements. Class A shares may be purchased at reduced or
no sales charge pursuant to sponsored arrangements, which include programs under
which an organization makes recommendations to, or permits group solicitation
of, its employees, members or participants in connection with the purchase of
Fund shares on an individual basis. The amount of the sales charge reduction
will reflect the anticipated reduction in sales expense associated with
sponsored arrangements. The reduction in sales expense, and therefore the
reduction in sales charge, will vary depending on factors such as the size and
stability of the organization's group, the term of the organization's existence
and certain characteristics of the members of its group. The Fund reserves the
right to revise the terms of or to suspend or discontinue sales pursuant to
sponsored plans at any time.
Class A shares may also be purchased at reduced or no sales charge by
clients of dealers, brokers or registered investment advisers that have entered
into agreements with the Distributor pursuant to which the Fund is included as
an investment option in programs involving fee-based compensation arrangements.
Waiver of Contingent Deferred Sales Charges (Class A accounts in excess
of $1,000,000). Contingent deferred sales charges may be waived on redemptions
in the following situations with the proper documentation:
1. Death. Contingent deferred sales charges may be waived on redemptions within
one year following the death of (i) the sole shareholder on an individual
account, (ii) a joint tenant where the surviving joint tenant is the deceased's
spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act ("UGMA"),
Uniform Transfers to Minors Act ("UTMA") or other custodial account. If, upon
the occurrence of one of the foregoing, the account is transferred to an account
registered in the name of the deceased's estate, the contingent deferred sales
charge will be waived on any redemption from the estate account occurring within
one year after the death. If the shares are not redeemed within one year of the
death, they will remain subject to the applicable contingent deferred sales
charge, when redeemed from the transferee's account. If the account is
transferred to a new registration and then a redemption is requested, the
applicable contingent deferred sales charge will be charged.
2. Systematic Withdrawal Plan (SWP). Contingent deferred sales charges may be
waived on redemptions occurring pursuant to a monthly, quarterly or semiannual
SWP established with the Transfer Agent, to the extent the redemptions do not
exceed, on an annual basis, 12% of the account's value, so long as at the time
of the first SWP redemption the account had distributions reinvested for a
period at least equal to the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the three month period
prior to the first SWP redemption); otherwise contingent deferred sales charges
will be charged on SWP redemptions until this requirement is met. See below
under How to Sell Shares--Systematic Withdrawal Plan.
3. Disability. Contingent deferred sales charges may be waived on redemptions
occurring within one year after the sole shareholder on an individual account or
a joint tenant on a spousal joint tenant account becomes disabled (as defined in
Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver,
(i) the disability must arise after the purchase of shares and (ii) the disabled
shareholder must have been under age 65 at the time of the initial determination
of disability. If the account is transferred to a new registration and then a
redemption is requested, the applicable contingent deferred sales charge will be
charged.
4. Death of a trustee. Contingent deferred sales charges may be waived on
redemptions occurring upon dissolution of a revocable living or grantor trust
following the death of the sole trustee where (i) the grantor of the trust is
the sole trustee and the sole life beneficiary, (ii) death occurs following the
purchase and (iii) the trust document provides for dissolution of the trust upon
the trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable contingent deferred
sales charge will be charged upon any subsequent redemption.
5. Returns on excess contributions. Contingent deferred sales charges may be
waived on redemptions required to return excess contributions made to retirement
plans or IRAs, so long as the FSF or Intermediary agrees to return the
applicable portion of any commission paid by the Distributor.
6. Qualified Retirement Plans. Contingent deferred sales charges may be waived
on redemptions required to make distributions from qualified retirement plans
following (i) normal retirement (as stated in the plan document) or (ii)
separation from service. For shares purchased in a prototype 401K plan after
Sept. 1, 1997, contingent deferred sales charges will not be waived upon
separation from service except if such plan is held in an omnibus account.
Contingent deferred sales charges also will be waived on SWP redemptions made to
make required minimum distributions from qualified retirement plans that have
invested in the Fund for at least two years.
The contingent deferred sales charge also may be waived where the FSF
or Intermediary agrees to return all or an agreed upon portion of the commission
earned on the sale of the shares being redeemed.
How to Sell ("Redeem") Shares
Shares may be sold on any day the NYSE is open, either directly to the
Fund or through an FSF or Intermediary. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund will delay
sending proceeds for 15 days in order to protect the Fund against financial
losses and dilution in net asset value caused by dishonored purchase payment
checks. To avoid delays in payment, investors are advised to purchase shares
unconditionally, such as by certified check or other immediately available
funds.
To sell shares directly to the Fund, send a signed letter of
instruction to the Transfer Agent. The sale price is the net asset value next
determined (less any applicable contingent deferred sales charge) after the Fund
or an FSF or Intermediary receives the request in proper form. Signatures must
be guaranteed by a bank, a member firm of a national stock exchange or another
eligible guarantor institution. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners and IRA holders.
Call the Transfer Agent for more information at (800) 345-6611.
FSFs and Intermediaries must receive requests before the time at which
Fund shares are valued to receive that day's price, are responsible for
furnishing all necessary documentation to the Transfer Agent and may charge for
this service.
Systematic Withdrawal Plan. If a shareholder's account balance is at
least $5,000, the shareholder may establish a SWP. A specified dollar amount or
percentage of the then-current net asset value of the shareholder's investment
in the Fund designated by the shareholder will be paid monthly, quarterly or
semiannually to a designated payee. The amount or percentage the shareholder
specifies generally may not, on an annualized basis, exceed 12% of the value, as
of the time the shareholder makes the election of the shareholder's investment.
If a shareholder wishes to participate in a SWP, the shareholder must elect to
have all income dividends and other distributions payable in Fund shares rather
than in cash.
A shareholder or its FSF or Intermediary of record may establish a SWP
account by telephone on a recorded line. However, SWP checks will be payable
only to the shareholder and sent to the address of record. SWPs from retirement
accounts cannot be established by telephone.
Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the Fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a
gain or loss for tax purposes, may involve the use of principal and may
eventually use up all of the shares in a shareholder's account.
The Fund may terminate a shareholder's SWP if the shareholder's account
balance falls below $5,000 due to any transfer or liquidation of shares other
than pursuant to the SWP. SWP payments will be terminated on receiving
satisfactory evidence of the death or incapacity of a shareholder. Until this
evidence is received, the Transfer Agent will not be liable for any payment made
in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who
participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs
or Intermediaries may not be able to participate in a SWP. If a shareholder's
Fund shares are held in "street name," the shareholder should consult his or her
FSF or Intermediary to determine whether he or she may participate in a SWP.
Telephone Redemptions. Telephone redemption privileges are described
in the Prospectus.
Non-Cash Redemptions. For redemptions of any single shareholder within
any 90-day period exceeding the lesser of $250,000 or 1% of the Fund's net asset
value, the Fund may make the payment or a portion of the payment with portfolio
securities held by the Fund instead of cash, in which case the redeeming
shareholder may incur brokerage and other costs in selling the securities
received.
<PAGE>
How to Exchange Shares
Class A share exchanges at net asset value may be made among shares of
the same class of any other fund that is a series of the Trust or of most
Colonial Funds. For a period of 90 days following the purchase of shares,
exchanges at net asset value may be made among Class A shares of Colonial
Municipal Money Market Fund or Colonial Government Money Market Fund (or its
successor). Thereafter, exchanges at net asset value may be made among Class A
shares of any other fund that is a series of the Trust or of most Colonial
Funds. For more information on the Colonial Funds, see your FSF or Intermediary
or call (800) 345-6611.
By calling the Transfer Agent, shareholders or their FSF or
Intermediary of record may exchange among accounts with identical registrations,
provided that the shares are held on deposit. During periods of unusual market
changes and/or shareholder activity, shareholders may experience delays in
contacting the Transfer Agent by telephone to exercise the telephone exchange
privilege. Because an exchange involves a redemption and reinvestment in another
fund, completion of an exchange may be delayed under unusual circumstances, such
as if the Fund suspends repurchases or postpones payment for Fund shares being
exchanged in accordance with federal securities law. The Transfer Agent will
also make exchanges upon receipt of a written exchange request. If the
shareholder is a corporation, partnership, agent, or surviving joint owner, the
Transfer Agent will require customary additional documentation.
A loss to a shareholder may result from an unauthorized transaction
reasonably believed to have been authorized. No shareholder is obligated to use
the telephone to execute transactions.
In all cases, the shares to be exchanged must be registered on the
records of the Fund in the name of the shareholder desiring to exchange.
An exchange is a capital sale transaction for federal income tax
purposes. The exchange privilege may be revised, suspended or terminated at any
time.
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225 Franklin Street,
Boston, MA 02101, is the custodian for the Trust. It is responsible for holding
all securities and cash, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and collecting income from
investments, making all payments covering expenses, and performing other
administrative duties, all as directed by authorized persons. The Bank does not
exercise any supervisory function in such matters as purchase and sale of
portfolio securities, payment of dividends, or payment of expenses.
Portfolio securities purchased in the U.S. are maintained in the
custody of the Bank or of other domestic banks or depositories. Portfolio
securities purchased outside of the U.S. are maintained in the custody of
foreign banks and trust companies that are members of the Bank's Global Custody
Network and foreign depositories ("foreign sub-custodians"). Each of the
domestic and foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with regulations under the
Investment Company Act of 1940.
Each Board of Trustees reviews, at least annually, whether it is in the
best interests of the Fund and their shareholders to maintain assets in each of
the countries in which the Fund invests with particular foreign sub-custodians
in such countries, pursuant to contracts between such respective foreign
sub-custodians and the Bank. The review includes an assessment of the risks of
holding assets in any such country (including risks of expropriation or
imposition of exchange controls), the operational capability and reliability of
each such foreign sub-custodian, and the impact of local laws on each such
custody arrangement. Each Board of Trustees is aided in its review by the Bank,
which has assembled the network of foreign sub-custodians, as well as by Stein
Roe and counsel. However, with respect to foreign sub-custodians, there can be
no assurance that the Fund and the value of its shares will not be adversely
affected by acts of foreign governments, financial or operational difficulties
of the foreign sub-custodians, difficulties and costs of obtaining jurisdiction
over or enforcing judgments against the foreign sub-custodians, or application
of foreign law to the foreign sub-custodial arrangements. Accordingly, an
investor should recognize that the non-investment risks involved in holding
assets abroad are greater than those associated with investing in the United
States.
The Fund may invest in obligations of the Bank and may purchase or sell
securities from or to the Bank.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, 200
Clarendon St., Boston, MA 02116. The auditors audit and report on the annual
financial statements and provide tax return preparation services and assistance
and consultation in connection with the review of various SEC filings.
PORTFOLIO TRANSACTIONS
Stein Roe places the orders for the purchase and sale of portfolio
securities and options and futures contracts for its clients, including private
clients and mutual fund clients ("Clients"). Stein Roe's overriding objective in
selecting brokers and dealers to effect portfolio transactions is to seek the
best combination of net price and execution. The best net price, giving effect
to brokerage commissions, if any, is an important factor in this decision;
however, a number of other judgmental factors may also enter into the decision.
These factors include Stein Roe's knowledge of negotiated commission rates
currently available and other current transaction costs; the nature of the
security being purchased or sold; the size of the transaction; the desired
timing of the transaction; the activity existing and expected in the market for
the particular security; confidentiality; the execution, clearance and
settlement capabilities of the broker or dealer selected and others considered;
Stein Roe's knowledge of the financial condition of the broker or dealer
selected and such other brokers and dealers; and Stein Roe's knowledge of actual
or apparent operation problems of any broker or dealer.
Recognizing the value of these factors, Stein Roe may cause a Client to
pay a brokerage commission in excess of that which another broker may have
charged for effecting the same transaction. Stein Roe has established internal
policies for the guidance of its trading personnel, specifying minimum and
maximum commissions to be paid for various types and sizes of transactions and
effected for Clients in those cases where Stein Roe has discretion to select the
broker or dealer by which the transaction is to be executed. Stein Roe has
discretion for all trades of the Fund. Transactions which vary from the
guidelines are subject to periodic supervisory review. These guidelines are
reviewed and periodically adjusted, and the general level of brokerage
commissions paid is periodically reviewed by Stein Roe. Evaluations of the
reasonableness of brokerage commissions, based on the factors described in the
preceding paragraph, are made by Stein Roe's trading personnel while effecting
portfolio transactions. The general level of brokerage commissions paid is
reviewed by Stein Roe, and reports are made annually to the Board of Trustees.
Stein Roe maintains and periodically updates a list of approved brokers
and dealers which, in Stein Roe's judgment, are generally capable of providing
best price and execution and are financially stable. Stein Roe's traders are
directed to use only brokers and dealers on the approved list, except in the
case of Client designations of brokers or dealers to effect transactions for
such Clients' accounts. Stein Roe generally posts certain Client information on
the "Alert" broker database system as a means of facilitating the trade
affirmation and settlement process.
It is Stein Roe's practice, when feasible, to aggregate for execution
as a single transaction orders for the purchase or sale of a particular security
for the accounts of several Clients, in order to seek a lower commission or more
advantageous net price. The benefit, if any, obtained as a result of such
aggregation generally is allocated pro rata among the accounts of Clients which
participated in the aggregated transaction. In some instances, this may involve
the use of an "average price" execution wherein a broker or dealer to which the
aggregated order has been given will execute the order in several separate
transactions during the course of a day at differing prices and, in such case,
each Client participating in the aggregated order will pay or receive the same
price and commission, which will be an average of the prices and commissions for
the several separate transactions executed by the broker or dealer.
Stein Roe sometimes makes use of an indirect electronic access to the
New York Stock Exchange's "SuperDOT" automated execution system, provided
through a NYSE member floor broker, W&D Securities, Inc., a subsidiary of
Jeffries & Co., Inc., particularly for the efficient execution of smaller orders
in NYSE listed equities. Stein Roe sometimes uses similar arrangements through
Billings & Co., Inc. and Driscoll & Co., Inc., floor broker members of the
Chicago Stock Exchange, for transactions to be executed on that exchange. In
using these arrangements, Stein Roe must instruct the floor broker to refer the
executed transaction to another brokerage firm for clearance and settlement, as
the floor brokers do not deal with the public. Transactions of this type
sometimes are referred to as "step-in" or "step-out" transactions. The brokerage
firm to which the executed transaction is referred may include, in the case of
transactions effected through W&D Securities, brokerage firms which provide
Stein Roe investment research or related services.
Stein Roe places certain trades for the Fund through its affiliate
AlphaTrade, Inc. ("ATI"). ATI is a wholly owned subsidiary of Colonial
Management Associates, Inc. ATI is a fully disclosed introducing broker that
limits its activities to electronic execution of transactions in listed equity
securities. The Fund pay ATI a commission for these transactions. The Fund have
adopted procedures consistent with Investment Company Act Rule 17e-1 governing
such transactions. Certain of Stein Roe's officers also serve as officers,
directors and/or employees of ATI.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking best execution and such other
policies as the trustees of the Fund may determine, Stein Roe may consider sales
of shares of each of the Fund as a factor in the selection of broker-dealers to
execute such mutual fund securities transactions.
Investment Research Products and Services Furnished by Brokers and Dealers
Stein Roe engages in the long-standing practice in the money management
industry of acquiring research and brokerage products and services ("research
products") from broker-dealer firms in return directing trades for Client
accounts to those firms. In effect, Stein Roe is using the commission dollars
generated from these Client accounts to pay for these research products. The
money management industry uses the term "soft dollars" to refer to this industry
practice. Stein Roe may engage in soft dollar transactions on trades for those
Client accounts for which Stein Roe has the discretion to select the
broker-dealers.
The ability to direct brokerage for a Client account belongs to the
Client and not to Stein Roe. When a Client grants Stein Roe the discretion to
select broker-dealers for Client trades, Stein Roe has a duty to seek the best
combination of net price and execution. Stein Roe faces a potential conflict of
interest with this duty when it uses Client trades to obtain soft dollar
products. This conflict exists because Stein Roe is able to use the soft dollar
products in managing its Client accounts without paying cash ("hard dollars")
for the product. This reduces Stein Roe's expenses.
Moreover, under a provision of the federal securities laws applicable
to soft dollars, Stein Roe is not required to use the soft dollar product in
managing those accounts that generate the trade. Thus, the Client accounts that
generate the brokerage commission used to acquire the soft dollar product may
not benefit directly from that product. In effect, those accounts are cross
subsidizing Stein Roe's management of the other accounts that do benefit
directly from the product. This practice is explicitly sanctioned by a provision
of the Securities Exchange Act of 1934, which creates a "safe harbor" for soft
dollar transactions conducted in a specified manner. Although it is inherently
difficult, if not impossible, to document, Stein Roe believes that over time
most, if not all, Clients benefit from soft dollar products such that cross
subsidizations even out.
Stein Roe attempts to reduce or eliminate this conflict by directing
Client trades for soft dollar products only if Stein Roe concludes that the
broker-dealer supplying the product is capable of providing a combination of the
best net price and execution on the trade. As noted above, the best net price,
while significant, is one of a number of judgmental factors Stein Roe considers
in determining whether a particular broker is capable of providing the best net
price and execution. Stein Roe may cause a Client account to pay a brokerage
commission in a soft dollar trade in excess of that which another broker-dealer
might have charged for the same transaction.
Stein Roe acquires two types of soft dollar research products: (i)
proprietary research created by the broker-dealer firm executing the trade and
(ii) other products created by third parties that are supplied to Stein Roe
through the broker-dealer firm executing the trade.
Proprietary research consists primarily of traditional research
reports, recommendations and similar materials produced by the in house research
staffs of broker-dealer firms. This research includes evaluations and
recommendations of specific companies or industry groups, as well as analyses of
general economic and market conditions and trends, market data, contacts and
other related information and assistance. Stein Roe's research analysts
periodically rate the quality of proprietary research produced by various
broker-dealer firms. Based on these evaluations, Stein Roe develops target
levels of commission dollars on a firm-by-firm basis. Stein Roe attempts to
direct trades to each firm to meet these targets.
Stein Roe also uses soft dollars to acquire products created by third
parties that are supplied to Stein Roe through broker-dealers executing the
trade (or other broker-dealers who "step in" to a transaction and receive a
portion of the brokerage commission for the trade). These products include the
following:
o Database Services--comprehensive databases containing current and/or
historical information on companies and industries. Examples include
historical securities prices, earnings estimates, and SEC filings. These
services may include software tools that allow the user to search the
database or to prepare value-added analyses related to the investment
process (such as forecasts and models used in the portfolio management
process).
o Quotation/Trading/News Systems--products that provide real time market data
information, such as pricing of individual securities and information on
current trading, as well as a variety of news services.
o Economic Data/Forecasting Tools--various macro economic forecasting tools,
such as economic data and economic and political forecasts for various
countries or regions.
o Quantitative/Technical Analysis--software tools that assist in quantitative
and technical analysis of investment data.
o Fundamental Industry Analysis--industry-specific fundamental investment
research.
o Fixed Income Security Analysis--data and analytical tools that pertain
specifically to fixed income securities. These tools assist in creating
financial models, such as cash flow projections and interest rate
sensitivity analyses, that are relevant to fixed income securities.
o Other Specialized Tools--other specialized products, such as specialized
economic consulting analyses and attendance at investment oriented
conferences.
Many third-party products include computer software or on-line data
feeds. Certain products also include computer hardware necessary to use the
product.
Certain of these third party services may be available directly from
the vendor on a hard dollar basis. Others are available only through
broker-dealer firms for soft dollars. Stein Roe evaluates each product to
determine a cash ("hard dollars") value of the product to Stein Roe. Stein Roe
then on a product-by-product basis targets commission dollars in an amount equal
to a specified multiple of the hard dollar value to the broker-dealer that
supplies the product to Stein Roe. In general, these multiples range from 1.25
to 1.85 times the hard dollar value. Stein Roe attempts to direct trades to each
firm to meet these targets. (For example, if the multiple is 1.5:1.0, assuming a
hard dollar value of $10,000, Stein Roe will target to the broker-dealer
providing the product trades generating $15,000 in total commissions.)
The targets that Stein Roe establishes for both proprietary and for
third party research products typically will reflect discussions that Stein Roe
has with the broker-dealer providing the product regarding the level of
commissions it expects to receive for the product. However, these targets are
not binding commitments, and Stein Roe does not agree to direct a minimum amount
of commissions to any broker-dealer for soft dollar products. In setting these
targets, Stein Roe makes a determination that the value of the product is
reasonably commensurate with the cost of acquiring it. These targets are
established on a calendar year basis. Stein Roe will receive the product whether
or not commissions directed to the applicable broker-dealer are less than, equal
to or in excess of the target. Stein Roe generally will carry over target
shortages and excesses to the next year's target. Stein Roe believes that this
practice reduces the conflicts of interest associated with soft dollar
transactions, since Stein Roe can meet the non-binding expectations of
broker-dealers providing soft dollar products over flexible time periods. In the
case of third party products, the third party is paid by the broker-dealer and
not by Stein Roe. Stein Roe may enter into a contract with the third party
vendor to use the product. (For example, if the product includes software, Stein
Roe will enter into a license to use the software from the vendor.)
In certain cases, Stein Roe uses soft dollars to obtain products that
have both research and non-research purposes. Examples of non-research uses are
administrative and marketing functions. These are referred to as "mixed use"
products. As of the date of this SAI, Stein Roe acquires two mixed use products.
These are (i) a fixed income security data service and (ii) a mutual fund
performance ranking service. In each case, Stein Roe makes a good faith
evaluation of the research and non-research uses of these services. These
evaluations are based upon the time spent by Firm personnel for research and
non-research uses. Stein Roe pays the provider in cash ("hard dollars") for the
non-research portion of its use of these products.
Stein Roe may use research obtained from soft dollar trades in the
management of any of its discretionary accounts. Thus, consistent with industry
practice, Stein Roe does not require that the Client account that generates the
trade receive any benefit from the soft dollar product obtained through the
trade. As noted above, this may result in cross subsidization of soft dollar
products among Client accounts. As noted therein, this practice is explicitly
sanctioned by a provision of the Securities Exchange Act of 1934, which creates
a "safe harbor" for soft dollar transactions conducted in a specified manner.
In certain cases, Stein Roe will direct a trade to one broker-dealer
with the instruction that it execute the trade and pay over a portion of the
commission from the trade to another broker-dealer who provides Stein Roe with a
soft dollar research product. The broker-dealer executing the trade "steps out"
of a portion of the commission in favor of the other broker-dealer providing the
soft dollar product. Stein Roe may engage in step out transactions in order to
direct soft dollar commissions to a broker-dealer which provides research but
may not be able to provide best execution. Brokers who receive step out
commissions typically are brokers providing a third party soft dollar product
that is not available on a hard dollars basis. Stein Roe has not engaged in step
out transactions as a manner of compensating broker-dealers that sell shares of
investment companies managed by Stein Roe.
The Board of Trustees of the Trust has reviewed the legal aspects and
the practicability of attempting to recapture underwriting discounts or selling
concessions included in prices paid by the Fund for purchases of Municipal
Securities in underwritten offerings. The 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. The Board
periodically reviews efforts to recapture concessions and whether it is in the
best interests of the Fund to continue to attempt to recapture underwriting
discounts or selling concessions.
ADDITIONAL INCOME TAX CONSIDERATIONS
The Fund intends to qualify under Subchapter M of the Internal Revenue
Code and 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. Thoughout this section, the
term "Fund" also refers a the Portfolio.
The 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. The 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 Fund 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 the
Fund's total income during the year. Accordingly, income derived from each of
these sources by the 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. The Fund may, under certain circumstances, temporarily
invest its assets so that less than 80% of gross income during such temporary
period will be exempt from federal income taxes. (See Investment Policies.)
Because capital gains 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 the 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 the 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 the 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 Fund
unsuitable for tax reasons. Corporate investors may also wish to consult their
own tax advisors before purchasing shares. In addition, certain property and
casualty insurance companies, financial institutions, and United States branches
of foreign corporations may be adversely affected by the tax treatment of the
interest on Municipal Securities.
INVESTMENT PERFORMANCE
The Fund may quote yield figures from time to time. The "Yield" of the
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)6 - 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 Fund* for the 30-day period ended
May 31, 2000, were:
High-Yield Municipals Fund Yield = 5.58%
Tax-Equivalent Yield = 9.23% (assuming 39.6%
tax rate)
*Performance information is based on the Fund's Class S shares.
The Fund may quote certain total return figures from time to time. A
"Total Return" on a per share basis is the amount of dividends distributed per
share plus or minus the change in the net asset value per share for a period. A
"Total Return Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of the period and
subtracting one. For a given period, an "Average Annual Total Return" may be
computed by finding the average annual compounded rate that would equate a
hypothetical initial amount invested of $1,000 to the ending redeemable value.
Average Annual Total Return is computed as follows: ERV = P(1+T)n
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 at th
beginning of the period at the end of the period
(or fraction portion).
Ending Total Return Average Annual
Redeemable Percentage * Total Return
Value *
1 year $1,032 3.18% 3.18%
5 years 1,412 41.17 7.14
10 years 1,962 96.17 6.97
*Performance information is based on the Fund's Class S shares.
Investment performance figures assume reinvestment of all dividends and
distributions and do not take into account any federal, state, or local income
taxes which shareholders must pay on a current basis. They are not necessarily
indicative of future results. The performance of the Fund is a result of
conditions in the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful in reviewing the
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.
The Fund may note its mention or recognition in newspapers, magazines,
or other media from time to time. However, the Fund assume no responsibility for
the accuracy of such data. Newspapers and magazines which might mention the Fund
include, but are not limited to, the following:
<PAGE>
Architectural Digest
Arizona Republic
Atlanta Constitution
Atlantic Monthly
Associated Press
Barron's
Bloomberg
Boston Globe
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business Consumer Reports Consumer Digest Dow Jones Investment
Advisor Dow Jones Newswire Fee Advisor Financial Planning Financial World Forbes
Fortune Fund Action Fund Marketing Alert Gourmet Individual Investor Investment
Dealers' Digest Investment News Investor's Business Daily
Kiplinger's Personal Finance Magazine Knight-Ridder Lipper Analytical Services
Los Angeles Times Louis Rukeyser's Wall Street Money Money on Line Morningstar
Mutual Fund Market News Mutual Fund News Service Mutual Funds Magazine Newsday
Newsweek New York Daily News The New York Times No-Load Fund Investor Pension
World Pensions and Investment Personal Investor Physicians Financial News Jane
Bryant Quinn (syndicated column) Reuters The San Francisco Chronicle Securities
Industry Daily Smart Money Smithsonian Strategic Insight Street.com Time Travel
& Leisure USA Today U.S. News & World Report Value Line The Wall Street Journal
The Washington Post Working Women Worth
Your Money 1
<PAGE>
1
In advertising and sales literature, the Fund may compare its
performance with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data, and other competing
investment and deposit products available from or through other financial
institutions. The composition of these indexes or averages differs from that of
the Fund. Comparison of the Fund to an alternative investment should be made
with consideration of differences in features and expected performance. All of
the indexes and averages noted below will be obtained from the indicated sources
or reporting services, which the Fund believe to be generally accurate. All of
the Fund may compare their performance to the Consumer Price Index (All Urban),
a widely recognized measure of inflation. The Fund's performance may be compared
to the benchmarks indicated below:
Lehman Brothers Municipal Bond Index
Lipper High-Yield Municipal Bond Funds Average
Lipper Municipal Bond Fund Average
Morningstar Municipal Bond (High-Yield) Funds Average
Morningstar Municipal National Long-term Bond Funds Average
-----------------------------------------------------------------------------
Morningstar Long-Term Tax-Exempt Fund Average
-----------------------------------------------------------------------------
The Lipper and Morningstar averages are unweighted averages of total
return performance of mutual funds as classified, calculated, and published by
these independent services that monitor the performance of mutual funds. The
Fund may also use comparative performance as computed in a ranking by those
services or category averages and rankings provided by another independent
service. Should these services reclassify the Fund to a different category or
develop (and place the Fund into) a new category, the 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, the Fund may also cite its rating,
recognition, or other mention by Morningstar or any other entity. Morningstar's
rating system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is computed by
subtracting a fund's risk score (which is a function of 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 the Fund's performance to that of
various bank products. The 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(C), a North Palm Beach (Florida)
financial reporting service, in its BANK RATE MONITOR(C) 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. The
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.
The Fund 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:
<PAGE>
Common stocks
Small company stock
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
The Fund may also use hypothetical returns to be used as an example in a
mix of asset allocation strategies. One such example is reflected in the chart
below, which shows the effect of tax-exempt investing on a hypothetical
investment. Tax-exempt income, however, may be subject to state and local taxes
and the federal 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.
<TABLE>
Tax-Equivalent Yields
<CAPTION>
Taxable Income
(thousands) A taxable investment must yield the
following to equal a tax-exempt yield of:
Marginal ----------------------------------------
Tax
Joint Return Single Return Bracket 4% 5% 6% 7% 8%
-------
------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$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
</TABLE>
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, the 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 CounselorSM and asset allocation and other investment strategies.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS
The Fund (which is a series of the Trust, an open-end management
investment company) seeks to achieve its objective by investing all of its
assets in another mutual fund having an investment objective identical to that
of the Fund. The shareholders of the Fund approved this policy of permitting the
Fund to act as a feeder fund by investing in the Portfolio. Please refer to
Investment Policies, Portfolio Investments and Strategies, and Investment
Restrictions for a description of the investment objectives, policies, and
restrictions of the Fund and the Portfolio. The management fees and expenses of
the Fund and the Portfolio are described under Investment Advisory and Other
Services. The feeder Fund bears its proportionate share of the expenses of its
master Portfolio.
Stein Roe has provided investment management services in connection
with other mutual funds employing the master fund/feeder fund structure since
1991.
The Portfolio is a separate series of SR&F Base Trust ("Base Trust"), a
Massachusetts common law trust organized under an Agreement and Declaration of
Trust ("Declaration of Trust") dated Aug. 23, 1993. The Declaration of Trust of
Base Trust provides that the Fund and other investors in the Portfolio will be
liable for all obligations of the Portfolio that are not satisfied by the
Portfolio. However, the risk of a Fund incurring financial loss on account of
such liability is limited to circumstances in which liability was inadequately
insured and the Portfolio was unable to meet its obligations. Accordingly, the
trustees of the Trust believe that neither the Fund nor its shareholders will be
adversely affected by reason of the Fund's investing in the Portfolio.
The Declaration of Trust of Base Trust provides that the Portfolio will
terminate 120 days after the withdrawal of the Fund or any other investor in the
Portfolio, unless the remaining investors vote to agree to continue the business
of the Portfolio. The trustees of the Trust may vote the Fund's interests in the
Portfolio for such continuation without approval of the Fund's shareholders.
The common investment objectives of the Fund and the Portfolio are
nonfundamental and may be changed without shareholder approval, subject,
however, to at least 30 days' advance written notice to the Fund's shareholders.
The fundamental policies of the Fund and the corresponding fundamental
policies of its master Portfolio can be changed only with shareholder approval.
If the Fund, as the Portfolio investor, is requested to vote on a change in a
fundamental policy of the Portfolio or any other matter pertaining to the
Portfolio (other than continuation of the business of the Portfolio after
withdrawal of another investor), the Fund will solicit proxies from its
shareholders and vote its interest in the Portfolio for and against such matters
proportionately to the instructions to vote for and against such matters
received from Fund shareholders. The Fund will vote shares for which it receives
no voting instructions in the same proportion as the shares for which it
receives voting instructions. There can be no assurance that any matter
receiving a majority of votes cast by Fund shareholders will receive a majority
of votes cast by all investors in the Portfolio. If other investors hold a
majority interest in the Portfolio, they could have voting control over the
Portfolio.
In the event that the Portfolio's fundamental policies were changed so
as to be inconsistent with those of the corresponding Fund, the Board of
Trustees of the Trust would consider what action might be taken, including
changes to the Fund's fundamental policies, withdrawal of the Fund's assets from
the Portfolio and investment of such assets in another pooled investment entity,
or the retention of an investment adviser to invest those assets directly in the
portfolio of securities. The Fund's inability to find a substitute master fund
or comparable investment management could have a significant impact upon its
shareholders' investments. Any withdrawal of the Fund's assets could result in a
distribution in kind of portfolio securities (as opposed to a cash distribution)
to the Fund. Should such a distribution occur, the Fund would incur brokerage
fees or other transaction costs in converting such securities to cash. In
addition, a distribution in kind could result in a less diversified portfolio of
investments for the Fund and could affect the liquidity of the Fund.
Each investor in the Portfolio, including the Fund, may add to or
reduce its investment in the Portfolio on each day the NYSE is open for
business. The investor's percentage of the aggregate interests in the Portfolio
will be computed as the percentage equal to the fraction (i) the numerator of
which is the beginning of the day value of such investor's investment in the
Portfolio on such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the Portfolio
effected on such day; and (ii) the denominator of which is the aggregate
beginning of the day net asset value of the Portfolio on such day plus or minus,
as the case may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in the Portfolio, but members of the general
public may not invest directly in the Portfolio. Other investors in the
Portfolio are not required to sell their shares at the same public offering
price as the Fund, might incur different administrative fees and expenses than
the Fund, and might charge a sales commission. Therefore, Fund shareholders
might have different investment returns than shareholders in another investment
company that invests exclusively in the Portfolio. Investment by such other
investors in the Portfolio would provide funds for the purchase of additional
portfolio securities and would tend to reduce the operating expenses as a
percentage of the Portfolio's net assets. Conversely, large-scale redemptions by
any such other investors in the Portfolio could result in untimely liquidations
of the Portfolio's security holdings, loss of investment flexibility, and
increases in the operating expenses of the Portfolio as a percentage of its net
assets. As a result, the Portfolio's security holdings may become less diverse,
resulting in increased risk.
Information regarding other investors in the Portfolio may be obtained
by writing to SR&F Base Trust at Suite 3200, One South Wacker Drive, Chicago, IL
60606, or by calling 800-338-2550. Stein Roe may provide administrative or other
services to one or more of such investors.
APPENDIX--RATINGS
Ratings in General. A rating of a rating service represents the service's
opinion as to the credit quality of the security being rated. However, the
ratings are general and are not absolute standards of quality or guarantees as
to the creditworthiness of an issuer. Consequently, Stein Roe believes that the
quality of Municipal Securities should be continuously reviewed and that
individual analysts give different weightings to the various factors involved in
credit analysis. A rating is not a recommendation to purchase, sell or hold a
security, because it does not take into account market value or suitability for
a particular investor. When a security has received a rating from more than one
service, each rating should be evaluated independently. Ratings are based on
current information furnished by the issuer or obtained by the rating services
from other sources that they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability of such
information, or for other reasons. Stein Roe, through independent analysis,
attempts to discern variations in credit ratings of the published services, and
to anticipate changes in credit ratings. The following is a description of the
characteristics of certain ratings used by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's ("S&P"), and Fitch IBCA.
Ratings by Moody's
Municipal Bonds: Aaa. Bonds rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. Although the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such bonds.
Aa. Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa. Bonds rated Baa are considered medium grade obligations; i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present
elements of danger with respect to principal or interest.
Ca. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are
often in default or have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Conditional Ratings. Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers 1, 2, and 3 in the Aa through B
classifications of its municipal bond rating system and in the Aa through Caa
classifications of its corporate bond rating system. The modifier 1 indicates
that the security ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the
issue ranks in the lower end of its generic rating category.
Municipal Notes: MIG 1. This designation denotes best quality. There
is present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Demand Feature of Variable Rate Demand Securities: Moody's may assign a
separate rating to the demand feature of a variable rate demand security.
Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
Commercial Paper: Moody's employs the following three designations,
all judged to be investment grade, to indicate the relative repayment
capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are
supported by the credit of another entity or entities, Moody's, in assigning
ratings to such issuers, evaluates the financial strength of the indicated
affiliated corporations, commercial banks, insurance companies, foreign
governments, or other entities, but only as one factor in the total rating
assessment.
Corporate Bonds: The description of the applicable rating symbols and their
meanings is identical to that of its Municipal Bond ratings as set forth above.
Ratings by S&P:
Municipal Bonds: AAA. Bonds rated AAA have the highest rating. Capacity to
pay interest and repay principal is extremely strong.
AA. Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A. Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher-rated categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher-rated categories.
BB, B, CCC, CC, and C. Debt rated BB, B, CCC, CC, or C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
C1. The rating C1 is reserved for income bonds on which no interest is being
paid.
D. Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears. The D rating also is issued upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
NOTE: The ratings from AA to CCC may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within the major ratings categories.
Provisional Ratings. The letter "p" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
Municipal Notes: SP-1. Notes rated SP-1 have very strong or string capacity to
pay principal and interest. Those issues determined to possess overwhelming
safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have a satisfactory capacity to pay principal
and interest.
Notes due in three years or less normally receive a note rating. Notes maturing
beyond three years normally receive a bond rating, although the following
criteria are used in making that assessment:
o Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue will be rated as a note).
o Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be rated as a note).
Demand Feature of Variable Rate Demand Securities: S&P assigns dual ratings to
all long-term debt issues that have as part of their provisions a demand
feature. The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are usually used to denote the
put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note
rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
Commercial Paper: A. Issues assigned this highest rating are regarded as having
the greatest capacity for timely payment. Issues in this category are futher
refined with the designations 1,2, and 3 to indicate the relative degree to
safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues
determined to possess overwhelming safety characteristics are
designed A-1+.
Corporate Bonds: The description of the applicable rating symbols and their
meanings is substantially the same as its Municipal Bond
ratings set forth above.
RATINGS BY FITCH IBCA
Investment Grade Bond Ratings Fitch IBCA investment grade bond ratings provide a
guide to investors in determining the credit risk associated with a particular
security. The ratings represent Fitch IBCA's assessment of the issuer's ability
to meet the obligations of a specific debt or preferred issue in a timely
manner. The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
Fitch IBCA reflect any credit enhancement that may be provided by insurance
policies or financial guaranties unless otherwise indicated.
Fitch IBCA ratings are not recommendations tobuy, sell, or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt
nature or taxability of payments made in respect of any security.
Fitch IBCA ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch IBCA
believes to be reliable.
Fitch IBCA does not audit or verify the truth or accuracy of such information.
Ratings may be changed, suspended, or withdrawn as a result of changes
in, or the unavailability of, information or for other reasons.
AAA. Bonds and preferred stock considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and/or dividends and repay principal, which is
unlikely to be affected by reasonably foreseeable
events.
AA. Bonds and preferred stock considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and/or dividends and repay
principal is very strong, although not quite as strong as bonds rated AAA.
Because bond and preferred rated in the AAA and AA categories are not
significantly vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated F-1+.
A. Bonds and preferred stock considered to be investment grade and of high
quality. The obligor's ability to pay interest and/or dividends and repay
principal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than debt or preferred
securities with higher ratings.
BBB. Bonds and preferred stock considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay
interest or dividends and repay principal is considered to
be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on
these securities and, therefore, impair timely payment. The likelihood
that the ratings of these bonds or preferred will fall below
investment grade is higher than for securities with higher ratings.
BB. Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by
adverse economic changes. However, business and financial alternatives
can be identified which could assist the obligor in satisfying its
debt service requirements.
B. Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC. Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires
an advantageous business and economic environment.
CC. Bonds are minimally protected. Default in payment of interest
and/or principal seems probable
over time.
C. Bonds are in imminent default in payment of interest or
principal.
DDD, DD, and D. Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be valued on the
basis of their ultimate recovery value in liquidation or reorganization
of the obligor. DDD represents the highest potential for recovery on
these bonds, and D represents the lowest potential for recovery.
Plus (+) or Minus(-). Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the rating
category. Plus and minus signs, however, are not used in the
AAA, DDD, DD or D categories.
NR. Indicates that Fitch IBCA does not rate the
specific issue.
Conditional. A conditional rating is premised on the successful completion of
a project or the occurrence of a specific event.
Suspended. A suspended rating is when Fitch IBCA deems the amount of
information available from the issuer to be inadequate for rating
purposes.
Withdrawn. A withdrawn rating will be when an issue matures or is
called or refinanced, and, at Fitch IBCA's discretion, when an issuer
fails to furnish proper and timely
information.
FitchAlert. Ratings are placed on FitchAlert to notify investors of an
occurrence that is likely to result in a rating change and the likely direction
of such change. These are designated as "Positive," indicating a potential
upgrade, "Negative," for potential downgrade, or "Evolving," where ratings may
be raised or lowered. FitchAlert is relatively short-term and should be resolved
within 12 months.
Ratings Outlook. An outlook is used to describe the most likely direction
of any rating change over the intermediate term. It is described as
"Positive" or "Negative." The absence of designation indicates a
stable outlook.
Short-Term Ratings
F-1+. Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for
timely payment.
F-1. Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than
issues rated F-1+.
F-2. Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned F-1+ and F-1
ratings.
F-3. Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-S. Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D. Default. Issues assigned this rating are in actual or imminent
payment default.
--------------------
S28-16/148C-0700
--------
1 A "majority of the outstanding voting securities" means the approval of the
lesser of (i) 67% or more of the shares at a meeting if the holders of more than
50% of the outstanding shares are present or represented by proxy or (ii) more
than 50% of the outstanding shares.
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
[Note: As used herein, the term "PEA" refers to a post- effective
amendment to the Registration Statement of the Registrant under the
Securities Act of 1933, No.
2-99356..]
(a)(1) Form of Agreement and Declaration of Trust as amended and restated
dated [ ].
(b)(1) By-Laws of Registrant as amended through 2/3/93.
(Exhibit 2 to PEA #21.)*
(2) Amendment to By-Laws dated 2/4/98. (Exhibit 2(b) to
PEA #26.)*
(c) None.
(d)(1) Management agreement between Registrant and Stein Roe & Farnham
Incorporated ("Stein Roe") relating to the series designated Stein Roe
Intermediate Municipals Fund and Stein Roe Managed Municipals Fund dated
7/1/96 as amended through 2/2/98. (Exhibit 5 to PEA #26.)*
(2) Management Agreement between SR&F Base Trust and Stein Roe dated 8/15/95,
as amended through 6/28/99.
(e) Underwriting agreement between Registrant and Liberty Funds
Distributor, Inc. dated 8/4/99.
(f) None.
(g) Custodian contract between Registrant and State Street Bank and Trust
Company ("Bank") dated 12/31/87 as amended through 5/8/95. (Exhibit 8 to
PEA #18.)*
(h)(1) Administrative agreement between Registrant and Stein Roe as amended
through 7/1/96. (Exhibit 9(c) to PEA #21.)*
(2) Accounting and Bookkeeping Agreement between the Registrant
and Stein Roe dated 8/3/99. (Exhibit to PEA #27)*
(3) Restated transfer agency agreement between Registrant and
SteinRoe Services Inc. dated 8/1/95 as amended through
3/31/99. (Exhibit to PEA #27)*
(4) Sub-transfer agent agreement between SteinRoe Services
Inc. and Liberty Funds Services, Inc. (formerly named
Colonial Investors Service Center, Inc.) dated 7/3/96 as
amended through 3/31/99. (Exhibit to PEA #27)*
(i)(1) 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), SteinRoe Intermediate
Municipals
(now named Stein Roe Intermediate Municipals Fund,
SteinRoe Managed Municipals (now named Stein Roe Managed Municipals
Fund) And SteinRoe High-Yield Municipals (now named Stein Roe
High-Yield Municipals Fund. (Exhibit 10 to PEA 21.)*
(2) Consent of Bell Boyd & Lloyd LLC.
(j)(1) Opinion and consent of Bell, Boyd & Lloyd to SteinRoe Intermediate
Municipals (now named Stein Roe Intermediate Municipals Fund)
regarding tax-exempt status of standby commitments. (Exhibit 11(b)
to PEA #21)*
(2) Consent of Morningstar, Inc. (Exhibit 11(b) to PEA #21.)*
(3) Consent of Ernst & Young LLP.
(k) None.
(l) Inapplicable.
(m) Rule 12b-1 Plan. (Exhibit (m) to PEA #27)*
(n) Rule 18f-3 Plan. (Exhibit (n) to PEA #27)*
(o) Mutual Funds Application. (Exhibit (o) to PEA #27)*
-------------------------------
*Incorporated by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
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 and Other Services," "Management," "Distributor," and
"Transfer Agent" in the statement of additional information, each of which is
incorporated herein by reference.
ITEM 25. INDEMNIFICATION.
Article Tenth of the Agreement and Declaration of Trust of Registrant (Exhibit
a), 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 ("Stein
Roe"), the other investment companies advised by Stein Roe, 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 Stein Roe 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 Stein Roe, Registrant, its trustees, officers
and employees, its transfer agent and the transfer agent's directors, officers
and employees are indemnified by Stein Roe 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
Stein Roe 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 Stein Roe.
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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Stein Roe & Farnham Incorporated ("Stein Roe"), the investment adviser, is a
wholly owned subsidiary of SteinRoe Services Inc. ("SSI"), which in turn is a
wholly owned subsidiary of Liberty Financial Companies, Inc., which is a
majority owned subsidiary of Liberty Corporation Holdings, Inc., which is a
wholly owned subsidiary of LFC Holdings, Inc., which in turn is a subsidiary of
Liberty Mutual Equity Corporation, which in turn is a subsidiary of Liberty
Mutual Insurance Company. Stein Roe 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 Stein Roe, 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
and Other Services."
Certain directors and officers of Stein Roe also serve and have during the past
two years served in various capacities as officers, directors, or trustees of
SSI, of Colonial Management Associates, Inc. (which is a subsidiary of Liberty
Financial Companies, Inc.), and of the Registrant and other investment companies
managed by SteinRoe. (The listed entities are located at One South Wacker Drive,
Chicago, Illinois 60606, except for Colonial Management Associates, Inc., which
is located at One Financial Center, Boston, MA 02111, and SteinRoe Variable
Investment Trust and Liberty Variable Investment Trust, which are located at
Federal Reserve Plaza, Boston, MA 02210.) A list of such capacities is given
below.
POSITION FORMERLY
HELD WITHIN
CURRENT POSITION PAST TWO YEARS
------------------- --------------
STEINROE SERVICES INC.
Kevin M. Carome Assistant Clerk
Kenneth J. Kozanda VP; Treasurer
C. Allen Merritt, Jr. Director; Vice President
COLONIAL MANAGEMENT ASSOCIATES, INC.
Ophelia L. Barsketis Senior Vice President
Kevin M. Carome Senior Vice President
William M. Garrison Vice President
Stephen E. Gibson Chairman, President and
Chief Executive Officer
Loren A. Hansen Senior Vice President
Clare M. Hounsell Vice President
Deborah A. Jansen Senior Vice President
North T. Jersild Vice President
Joseph R. Palombo Executive Vice President
Yvonne T. Shields Vice President
SR&F BASE TRUST
William D. Andrews Executive Vice-President
Christine Balzano Vice President
David P. Brady Vice-President
Daniel K. Cantor Vice-President
Kevin M. Carome Executive VP VP; Secretary
Denise Chasmer Vice President
Nancy L. Conlin Senior VP;Secy. VP; Asst. Secy.
J. Kevin Connaughton VP and Controller
Stephen E. Gibson President
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
Harvey B. Hirschhorn Vice-President
Michael T. Kennedy Vice-President
Gail Knudsen Vice President
Stephen F. Lockman Vice-President
Pamela A. McGrath Senior VP;Treasurer
Mary D. McKenzie Vice President
Jane M. Naeseth Vice-President
Maureen G. Newman Vice-President
Joseph R. Palumbo Executive Vice President
Veronica M. Wallace Vice-President
LIBERTY-STEIN ROE FUNDS INCOME TRUST; LIBERTY-STEIN ROE FUNDS
INSTITUTIONAL TRUST; AND LIBERTY-STEIN ROE FUNDS TRUST
William D. Andrews Executive Vice-President
Christine Balzano Vice President
Kevin M. Carome Executive VP VP;Secy.
Stephen E. Gibson President
Loren A. Hansen Executive Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Jane M. Naeseth Vice-President
LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST
William D. Andrews Executive Vice-President
David P. Brady Vice-President
Daniel K. Cantor Vice-President
Kevin M. Carome Executive VP VP; Asst. Secy.
William M. Garrison Vice-President
Stephen E. Gibson President
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
Harvey B. Hirschhorn Vice-President
LIBERTY-STEIN ROE ADVISOR TRUST
William D. Andrews Executive Vice-President
David P. Brady Vice-President
Daniel K. Cantor Vice-President
Kevin M. Carome Executive VP; Secy. VP; Asst. Secy.
Stephen E. Gibson President
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
Harvey B. Hirschhorn Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Maureen G. Newman Vice-President
LIBERTY-STEIN ROE FUNDS MUNICIPAL TRUST
William D. Andrews Executive Vice-President
Kevin M. Carome Executive VP; Secy. VP; Asst. Secy.
Stephen E. Gibson President
Loren A. Hansen Executive Vice-President
Brian M. Hartford Vice-President
William C. Loring Vice-President
Maureen G. Newman Vice-President
Veronica M. Wallace Vice-President
STEINROE VARIABLE INVESTMENT TRUST
William D. Andrews Executive Vice-President
Kevin M. Carome Executive VP; Secy. VP; Asst. Secy.
William M. Garrison Vice President
Stephen E. Gibson President
Erik P. Gustafson Vice President
Loren A. Hansen Executive Vice-President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
William M. Wadden IV Vice President
LIBERTY-STEIN ROE ADVISOR FLOATING RATE FUND; LIBERTY-STEIN ROE
INSTITUTIONAL FLOATING RATE INCOME FUND, STEIN ROE FLOATING RATE
LIMITED LIABILITY COMPANY
William D. Andrews Executive Vice-President
Kevin M. Carome Executive VP; Secy. VP; Asst. Secy.
Stephen E. Gibson President
Brian W. Good Vice-President
James R. Fellows Vice-President
Loren A. Hansen Executive Vice-President
LIBERTY VARIABLE INVESTMENT TRUST
Ophelia L. Barsketis Vice President
Deborah A. Jansen Vice President
Kevin M. Carome Vice President
ITEM 27. PRINCIPAL UNDERWRITERS.
Registrant's principal underwriter, Liberty Funds Distributor, Inc., a
subsidiary of Colonial Management Associates, Inc., acts as underwriter to
Liberty Funds Trust I, Liberty Funds Trust II, Liberty Funds Trust III, Liberty
Funds Trust IV, Liberty Funds Trust V, Liberty Funds Trust VI, Liberty Funds
Trust VII, Liberty Funds Trust IX, Liberty-Stein Roe Funds Investment Trust,
Liberty-Stein Roe Funds Income Trust, Liberty-Stein Roe Funds Municipal Trust,
Liberty-Stein Roe Advisor Trust, Liberty-Stein Roe Funds Institutional Trust,
Liberty-Stein Roe Funds Trust, Liberty-Stein Roe Advisor Floating Rate Fund,
Liberty-Stein Roe Institutional Floating Rate Income Fund, and SteinRoe Variable
Investment Trust. The table below lists the directors and officers of Liberty
Funds Distributor, Inc.
<PAGE>
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
-------------------- --------------------- -------------
Anderson, Judith Vice President None
Babbitt, Debra VP & Compliance Officer None
Bartlett, John Managing Director None
Bertrand, Thomas Vice President None
Blakeslee, James Senior Vice President None
Bozek, James Senior Vice President None
Brown, Beth Vice President None
Burtman, Tracy Vice President None
Campbell, Patrick Vice President None
Carroll, Sean Vice President None
Claiborne, Doug Vice President None
Chrzanowski, Daniel Vice President None
Conley, Brook Vice President None
Clapp, Elizabeth A. Managing Director None
Conlin, Nancy L. Director; Clerk None
Costello, Matthew Vice President None
Couto, Scott Vice President None
Davey, Cynthia Senior Vice President None
Desilets, Marian H. Vice President None
Devaney, James Senior Vice President None
DiMaio, Steve Vice President None
Downey, Christopher Vice President None
Dupree, Robert Vice President None
Emerson, Kim P. Senior Vice President None
Evans, C. Frazier Managing Director None
Evitts, Stephen Vice President None
Feldman, David Managing Director None
Feloney, Joseph Vice President None
Fifield, Robert Vice President None
Fisher, James Vice President None
Fragasso, Philip Managing Director None
Gariepy, Tom Vice President None
Gauger, Richard Vice President None
Gerokoulis, Stephen A. Senior Vice President None
Gibson, Stephen E. Director; Chairman of Board None
Goldberg, Matthew Senior Vice President None
Gupta, Neeti Vice President None
Geunard, Brian Vice President None
Grace, Anthony Vice President None
Gubala, Jeffrey Vice President None
Harrington, Tom Senior Vice President None
Hodgkins, Joseph Senior Vice President None
Huennekens, James Vice President None
Hussey, Robert Senior Vice President None
Iudice, Jr., Philip Treasurer and CFO None
Ives, Curt Vice President None
Jones, Cynthia Vice President None
Jones, Jonathan Vice President None
Kelley, Terry M. Vice President None
Kelson, David W. Senior Vice President None
Lewis, Blair Vice President None
Libutti, Chris Vice President None
Lynch, Andrew Managing Director None
Lynn, Jerry Vice President None
Martin, John Senior Vice President None
Martin, Peter Vice President None
McCombs, Gregory Senior Vice President None
McKenzie, Mary Vice President None
Menchin, Catherine Senior Vice President None
Miller, Anthony Vice President None
Moberly, Ann R. Senior Vice President None
Morse, Jonathan Vice President None
Nickodemus, Paul Vice President None
O'Shea, Kevin Managing Director None
Piken, Keith Vice President None
Place, Jeffrey Managing Director None
Powell, Douglas Vice President None
Predmore, Tracy Vice President None
Quirk, Frank Vice President None
Raftery-Arpino, Linda Senior Vice President None
Ratto, Gregory Vice President None
Reed, Christopher B. Senior Vice President None
Riegel, Joyce B. Vice President None
Robb, Douglas Vice President None
Sandberg, Travis Vice President None
Santosuosso, Louise Senior Vice President None
Schulman, David Senior Vice President None
Scully-Power, Adam Vice President None
Shea, Terence Vice President None
Sideropoulos, Lou Vice President None
Sinatra, Peter Vice President None
Smith, Darren Vice President None
Soester, Trisha Vice President None
Studer, Eric Vice President None
Sweeney, Maureen Vice President None
Tambone, James Chief Executive Officer None
Tasiopoulos, Lou President None
Torrisi, Susan Vice President None
Vail, Norman Vice President None
VanEtten, Keith H. Senior Vice President None
Warfield, James Vice President None
Wess, Valerie Senior Vice President None
Young, Deborah Vice President None
Zarker, Cynthia E. Senior Vice President None
---------
* The address of Ms. Riegel is One South Wacker Drive, Chicago, IL 60606. The
address of each other director and officer is One Financial Center, Boston, MA
02111.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
Registrant maintains the records required to be maintained by it under Rules
31a-1(a), 31a-1(b), and 31a-2(a) under the Investment Company Act of 1940 at its
principal executive offices at One Financial Center, Boston, MA 02111. Certain
records, including records relating to Registrant's shareholders and the
physical possession of its securities, may be maintained pursuant to Rule 31a-3
at the main office of Registrant's transfer agent or custodian.
Item 28. Location of Accounts and Records.
Registrant maintains the records required to be maintained by it under Rules
31a-1(a), 31a-1(b), and 31a-2(a) under the Investment Company Act of 1940 at its
principal executive offices at One South Wacker Drive, Chicago, Illinois 60606.
Certain records, including records relating to Registrant's shareholders and the
physical possession of its securities, may be maintained pursuant to Rule 31a-3
at the main office of Registrant's transfer agent or custodian.
ITEM 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
None.
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin, Suzan M. Barron, William J.
Ballou, Russell L. Kane, Vincent P. Pietropaolo, Ellen Harrington, Tracy S.
DiRienzo, Pamela A. McGrath, Cameron S. Avery and Stacy H. Winick
individually, as my true and lawful attorney, with full power to each of
them to sign for me and in my name, any and all registration statements and
any and all amendments to the registration statements filed under the
Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of
Liberty-Stein Roe Funds Investment Trust, Liberty-Stein Roe Funds Income
Trust, Liberty-Stein Roe Funds Institutional Trust, Liberty-Stein Roe Funds
Trust, Liberty-Stein Roe Funds Municipal Trust, Liberty-Stein Roe Funds
Advisor Trust, SR&F Base Trust, Stein Roe Variable Investment Trust,
Liberty-Stein Roe Advisor Floating Rate Fund, Liberty-Stein Roe
Institutional Floating Rate Income Fund, and Stein Roe Floating Rate
Limited Liability Company (together "Liberty-Stein Roe Funds"). This Power
of Attorney authorizes the above individuals to sign my name and will
remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Liberty-Stein Roe Funds with the Securities and Exchange Commission and I
request that this Power of Attorney then constitutes authority to sign
additional amendments and registration statements by virtue of its incorporation
by reference into the registration statements and amendments for the
Liberty-Stein Roe Funds.
In witness, I have signed this Power of Attorney on this 22nd day of May, 2000.
/s/ John A. Bacon, Jr.
John A. Bacon, Jr.
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin, Suzan M. Barron, William J.
Ballou, Russell L. Kane, Vincent P. Pietropaolo, Ellen Harrington, Tracy S.
DiRienzo, Pamela A. McGrath, Cameron S. Avery and Stacy H. Winick
individually, as my true and lawful attorney, with full power to each of
them to sign for me and in my name, any and all registration statements and
any and all amendments to the registration statements filed under the
Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of
Liberty-Stein Roe Funds Investment Trust, Liberty-Stein Roe Funds Income
Trust, Liberty-Stein Roe Funds Institutional Trust, Liberty-Stein Roe Funds
Trust, Liberty-Stein Roe Funds Municipal Trust, Liberty-Stein Roe Funds
Advisor Trust, SR&F Base Trust, Stein Roe Variable Investment Trust,
Liberty-Stein Roe Advisor Floating Rate Fund, Liberty-Stein Roe
Institutional Floating Rate Income Fund, and Stein Roe Floating Rate
Limited Liability Company (together "Liberty-Stein Roe Funds"). This Power
of Attorney authorizes the above individuals to sign my name and will
remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Liberty-Stein Roe Funds with the Securities and Exchange Commission and I
request that this Power of Attorney then constitutes authority to sign
additional amendments and registration statements by virtue of its incorporation
by reference into the registration statements and amendments for the
Liberty-Stein Roe Funds.
In witness, I have signed this Power of Attorney on this 22nd day of May, 2000.
/s/ William W. Boyd
William W. Boyd
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin, Suzan M. Barron, William J.
Ballou, Russell L. Kane, Vincent P. Pietropaolo, Ellen Harrington, Tracy S.
DiRienzo, Pamela A. McGrath, Cameron S. Avery and Stacy H. Winick
individually, as my true and lawful attorney, with full power to each of
them to sign for me and in my name, any and all registration statements and
any and all amendments to the registration statements filed under the
Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of
Liberty-Stein Roe Funds Investment Trust, Liberty-Stein Roe Funds Income
Trust, Liberty-Stein Roe Funds Institutional Trust, Liberty-Stein Roe Funds
Trust, Liberty-Stein Roe Funds Municipal Trust, Liberty-Stein Roe Funds
Advisor Trust, SR&F Base Trust, Stein Roe Variable Investment Trust,
Liberty-Stein Roe Advisor Floating Rate Fund, Liberty-Stein Roe
Institutional Floating Rate Income Fund, and Stein Roe Floating Rate
Limited Liability Company (together "Liberty-Stein Roe Funds"). This Power
of Attorney authorizes the above individuals to sign my name and will
remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Liberty-Stein Roe Funds with the Securities and Exchange Commission and I
request that this Power of Attorney then constitutes authority to sign
additional amendments and registration statements by virtue of its incorporation
by reference into the registration statements and amendments for the
Liberty-Stein Roe Funds.
In witness, I have signed this Power of Attorney on this 22nd day of May, 2000.
/s/ Lindsey Cook
Lindsay Cook
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin, Suzan M. Barron, William J.
Ballou, Russell L. Kane, Vincent P. Pietropaolo, Ellen Harrington, Tracy S.
DiRienzo, Pamela A. McGrath, Cameron S. Avery and Stacy H. Winick
individually, as my true and lawful attorney, with full power to each of
them to sign for me and in my name, any and all registration statements and
any and all amendments to the registration statements filed under the
Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of
Liberty-Stein Roe Funds Investment Trust, Liberty-Stein Roe Funds Income
Trust, Liberty-Stein Roe Funds Institutional Trust, Liberty-Stein Roe Funds
Trust, Liberty-Stein Roe Funds Municipal Trust, Liberty-Stein Roe Funds
Advisor Trust, SR&F Base Trust, Stein Roe Variable Investment Trust,
Liberty-Stein Roe Advisor Floating Rate Fund, Liberty-Stein Roe
Institutional Floating Rate Income Fund, and Stein Roe Floating Rate
Limited Liability Company (together "Liberty-Stein Roe Funds"). This Power
of Attorney authorizes the above individuals to sign my name and will
remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Liberty-Stein Roe Funds with the Securities and Exchange Commission and I
request that this Power of Attorney then constitutes authority to sign
additional amendments and registration statements by virtue of its incorporation
by reference into the registration statements and amendments for the
Liberty-Stein Roe Funds.
In witness, I have signed this Power of Attorney on this 22nd day of May, 2000.
/s/ Douglas A. Hacker
Douglas A. Hacker
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin, Suzan M. Barron, William J.
Ballou, Russell L. Kane, Vincent P. Pietropaolo, Ellen Harrington, Tracy S.
DiRienzo, Pamela A. McGrath, Cameron S. Avery and Stacy H. Winick
individually, as my true and lawful attorney, with full power to each of
them to sign for me and in my name, any and all registration statements and
any and all amendments to the registration statements filed under the
Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of
Liberty-Stein Roe Funds Investment Trust, Liberty-Stein Roe Funds Income
Trust, Liberty-Stein Roe Funds Institutional Trust, Liberty-Stein Roe Funds
Trust, Liberty-Stein Roe Funds Municipal Trust, Liberty-Stein Roe Funds
Advisor Trust, SR&F Base Trust, Stein Roe Variable Investment Trust,
Liberty-Stein Roe Advisor Floating Rate Fund, Liberty-Stein Roe
Institutional Floating Rate Income Fund, and Stein Roe Floating Rate
Limited Liability Company (together "Liberty-Stein Roe Funds"). This Power
of Attorney authorizes the above individuals to sign my name and will
remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Liberty-Stein Roe Funds with the Securities and Exchange Commission and I
request that this Power of Attorney then constitutes authority to sign
additional amendments and registration statements by virtue of its incorporation
by reference into the registration statements and amendments for the
Liberty-Stein Roe Funds.
In witness, I have signed this Power of Attorney on this 22nd day of May, 2000.
/s/ Janet Langford Kelly
Janet Langford Kelly
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin, Suzan M. Barron, William J.
Ballou, Russell L. Kane, Vincent P. Pietropaolo, Ellen Harrington, Tracy S.
DiRienzo, Pamela A. McGrath, Cameron S. Avery and Stacy H. Winick
individually, as my true and lawful attorney, with full power to each of
them to sign for me and in my name, any and all registration statements and
any and all amendments to the registration statements filed under the
Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of
Liberty-Stein Roe Funds Investment Trust, Liberty-Stein Roe Funds Income
Trust, Liberty-Stein Roe Funds Institutional Trust, Liberty-Stein Roe Funds
Trust, Liberty-Stein Roe Funds Municipal Trust, Liberty-Stein Roe Funds
Advisor Trust, SR&F Base Trust, Stein Roe Variable Investment Trust,
Liberty-Stein Roe Advisor Floating Rate Fund, Liberty-Stein Roe
Institutional Floating Rate Income Fund, and Stein Roe Floating Rate
Limited Liability Company (together "Liberty-Stein Roe Funds"). This Power
of Attorney authorizes the above individuals to sign my name and will
remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Liberty-Stein Roe Funds with the Securities and Exchange Commission and I
request that this Power of Attorney then constitutes authority to sign
additional amendments and registration statements by virtue of its incorporation
by reference into the registration statements and amendments for the
Liberty-Stein Roe Funds.
In witness, I have signed this Power of Attorney on this 22nd day of May, 2000.
/s/ Charles R. Nelson
Charles R. Nelson
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin, Suzan M. Barron, William J.
Ballou, Russell L. Kane, Vincent P. Pietropaolo, Ellen Harrington, Tracy S.
DiRienzo, Pamela A. McGrath, Cameron S. Avery and Stacy H. Winick
individually, as my true and lawful attorney, with full power to each of
them to sign for me and in my name, any and all registration statements and
any and all amendments to the registration statements filed under the
Securities Act of 1933 or the Investment Company Act of 1940 with the
Securities and Exchange Commission for the purpose of complying with such
registration requirements in my capacity as a trustee or officer of
Liberty-Stein Roe Funds Investment Trust, Liberty-Stein Roe Funds Income
Trust, Liberty-Stein Roe Funds Institutional Trust, Liberty-Stein Roe Funds
Trust, Liberty-Stein Roe Funds Municipal Trust, Liberty-Stein Roe Funds
Advisor Trust, SR&F Base Trust, Stein Roe Variable Investment Trust,
Liberty-Stein Roe Advisor Floating Rate Fund, Liberty-Stein Roe
Institutional Floating Rate Income Fund, and Stein Roe Floating Rate
Limited Liability Company (together "Liberty-Stein Roe Funds"). This Power
of Attorney authorizes the above individuals to sign my name and will
remain in full force and effect until specifically rescinded by me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Liberty-Stein Roe Funds with the Securities and Exchange Commission and I
request that this Power of Attorney then constitutes authority to sign
additional amendments and registration statements by virtue of its incorporation
by reference into the registration statements and amendments for the
Liberty-Stein Roe Funds.
In witness, I have signed this Power of Attorney on this 22nd day of May, 2000.
/s/ Thomas C. Theobald
Thomas C. Theobald
<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
14th day of July, 2000.
LIBERTY-STEIN ROE FUNDS
MUNICIPAL TRUST
By STEPHEN E. GIBSON
Stephen E. Gibson
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
------------------------ ------------------- --------------
STEPHEN E. GIBSON President July 14, 2000
Stephen E. Gibson
Principal Executive Officer
J.KEVIN CONNAUGHTON Controller July 14, 2000
J. Kevin Connaughton
Principal Accounting Officer
JOHN A. BACON JR. Trustee July 14, 2000
John A. Bacon Jr.
WILLIAM W. BOYD Trustee July 14, 2000
William W. Boyd
LINDSAY COOK Trustee July 14, 2000
Lindsay Cook
DOUGLAS A. HACKER Trustee July 14, 2000
Douglas A. Hacker
JANET LANGFORD KELLY Trustee July 14, 2000
Janet Langford Kelly
CHARLES R. NELSON Trustee July 14, 2000
Charles R. Nelson
THOMAS C. THEOBALD Trustee July 14, 2000
Thomas C. Theobald
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the undersigned 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
14th day of July, 2000.
SR&F BASE TRUST
By STEPHEN E. GIBSON
Stephen E. Gibson
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
------------------------ ------------------- --------------
STEPHEN E. GIBSON President July 14, 2000
Stephen E. Gibson
Principal Executive Officer
J. KEVIN CONNAUGHTON Controller July 14, 2000
J. Kevin Connaughton
Principal Accounting Officer
JOHN A. BACON JR. Trustee July 14, 2000
John A. Bacon Jr.
WILLIAM W. BOYD Trustee July 14, 2000
William W. Boyd
LINDSAY COOK Trustee July 14, 2000
Lindsay Cook
DOUGLAS A. HACKER Trustee July 14, 2000
Douglas A. Hacker
JANET LANGFORD KELLY Trustee July 14, 2000
Janet Langford Kelly
CHARLES R. NELSON Trustee July 14, 2000
Charles R. Nelson
THOMAS C. THEOBALD Trustee July 14, 2000
Thomas C. Theobald
VINCENT P. Pietropaolo
Vincent P. Pietropaolo
Attorney-in-Fact for the Trustees
<PAGE>
EXHIBIT INDEX
(a)(1) Form of Agreement and Declaration of Trust as amended and restated
dated [ ].
(i)(2) Consent of Bell, Boyd & Lloyd LLC.
(j)(3) Consent of Ernst & Young LLP.