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1940 Act File No. 811-7996
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. __ [ ]
Post-Effective Amendment No. __ [ ]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 3 [X]
(check appropriate box or boxes)
SR&F BASE TRUST
(Exact Name of Registrant as Specified in Declaration of Trust)
One South Wacker Drive, Chicago, Illinois 60606
(Address of Registrant's Principal Offices)
(312) 368-5612
(Registrant's Telephone Number, Including Area Code)
Jilaine Hummel Bauer Cameron S. Avery
Executive Vice-President Bell, Boyd & Lloyd
and Secretary Three First National Plaza
SR&F Base Trust 70 W. Madison Street
One South Wacker Drive Suite 3200
Chicago, Illinois 60606 Chicago, Illinois 60602
(Agents for Service)
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EXPLANATORY NOTE
This Registrant Statement has been filed by the Registrant
pursuant to Section 8(b) of the Investment Company Act of 1940.
However, beneficial interests in the Registrant are not being
registered under the Securities Act of 1933 (the "1933 Act")
because such interests will be issued solely in private placement
transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the
Registrant may only be made by investment companies, insurance
company separate accounts, common or commingled trust funds, or
similar organizations or entities that are "accredited investors"
within the meaning of Regulation D under the 1933 Act. This
Registration Statement does not constitute an offer to sell or the
solicitation of an offer to buy any beneficial interests in the
Registrant.
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PART A
Responses to Items 1 through 3 have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form
N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
INTRODUCTION
SR&F Base Trust (the "Trust") is a no-load, diversified, open-end
management investment company which was organized as a trust under
the laws of the Commonwealth of Massachusetts on August 23, 1993.
Beneficial interests in the Trust (the "Interest" or "Interests")
are issued solely in private placement transactions that do not
involve any "public offering" within the meaning of Section 4(2)
of the Securities Act of 1933, as amended (the "1933 Act").
Investments in the Trust may be made only by investment companies,
insurance company separate accounts, common or commingled trust
funds, or similar organizations or entities that are "accredited
investors" within the meaning of Regulation D under the 1933 Act.
The Trust has one series, designated SR&F Municipal Money Market
Portfolio ("Municipal Money Portfolio"). Colonial Municipal Money
Market Fund (a series of Colonial Trust IV) and Stein Roe Municipal
Money Market Fund (a series of Stein Roe Municipal Trust) are currently
the only investors in Municipal Money Portfolio. This registration
statement does not construe an offer to sell or the solicitation of
an offer to buy any "security" within the meaning of the 1933 Act.
INVESTMENT OBJECTIVE
Municipal Money Portfolio seeks maximum current income exempt from
Federal income tax by investing principally in a diversified
portfolio of "short-term" Municipal Securities.
BASIC INVESTMENT STRATEGY
In pursuing its objective, the Municipal Money Portfolio attempts
to maintain relative stability of principal and liquidity.
Municipal Money Portfolio invests principally in a diversified
portfolio of short-term Municipal Securities (as defined below).
"Short-term" means a remaining maturity of no more than thirteen
months (or comparable period) as defined in the Glossary.
It is a fundamental policy that normally at least 80% of Municipal
Money Portfolio's investments will produce income that is exempt
from Federal income tax, except for periods in which the Adviser
believes require a defensive position for the protection of
shareholders.
As a fundamental policy, Municipal Money Portfolio invests in
Municipal Securities that, at the time of purchase, are: (i)
variable rate demand securities (as defined in the Glossary) whose
demand feature is rated within the two highest ratings assigned by
Moody's Investors Service, Inc. ("Moody's"), VMIG 1 or VMIG 2 /1/
(ii) notes rated within
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/1/ The Board of Trustees of the Trust has determined that the
demand feature of a variable rate demand security rated SP-1+, A-
1+ or A-1 by S&P or MIG 1, MIG 2 or Prime 1 by Moody's is at least
equal in quality to the demand feature of a variable rate demand
security rated VMIG 2 by Moody's. As a non-fundamental policy,
the Portfolio will not invest in a variable rate security whose
demand feature is conditional unless the Board of Trustees
determines that the security is at least the economic equivalent
of a variable rate security with an unconditional demand feature
or (a) the demand feature is rated within the two highest ratings
assigned by Moody's or within the equivalent ratings assigned by
S&P and (b) the underlying security is rated within the two
highest ratings assigned by Moody's or S&P. The Board of Trustees
has determined that a variable rate security where the demand
feature is suspended only after a default followed by an
acceleration of maturity is the economic equivalent of a variable
rate security with an unconditional demand feature.
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the two highest short-term municipal ratings assigned by
Moody's, MIG 1 or MIG 2, or within the highest rating assigned by
Standard & Poor's Corporation ("S&P") /2/, SP-l+; (iii) municipal
commercial paper (short-term promissory notes) rated Prime-1 by
Moody's, or A-l by S&P; (iv) municipal bonds, including industrial
development bonds, rated within the two highest ratings assigned
to municipal bonds by S&P, AAA or AA, or by Moody's, Aaa or Aa;
(v) securities not rated as described in (i) through (iv) but
determined by the Board of Trustees to be at least equal in
quality to one or more of the foregoing ratings, although other
types of obligations of the same issuer might not be within the
foregoing ratings; (vi) securities backed by the full faith and
credit of the U.S. Government; or (vii) securities as to which the
payment of principal and interest is collateralized by securities
issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities ["U.S. Government Securities"] deposited in an
escrow for the benefit of holders of the securities. In
accordance with SEC Rule 2a-7 under the Investment Company Act,
each security in which Municipal Money Portfolio invests will be
U.S. dollar denominated and (i) rated (or be issued by an issuer
that is rated with respect to its short-term debt) within the two
highest rating categories for short-term debt by at least two
nationally recognized statistical rating organizations ("NRSRO")
or, if rated by only one NRSRO, rated within the two highest
rating categories by that NRSRO, or, if unrated, determined by or
under the direction of the Board of Trustees to be of comparable
quality, and (ii) determined by or under the direction of the
Board of Trustees to present minimal credit risks.
MUNICIPAL SECURITIES
Municipal Securities are debt obligations issued by or on behalf
of the governments of states, territories or possessions of the
United States, the District of Columbia and their political
subdivisions, agencies and instrumentalities, the interest on
which is generally exempt from the regular Federal income tax.
The two principal classifications of Municipal Securities are
"general obligation" and "revenue" bonds. "General obligation"
bonds are secured by the issuer's pledge of its faith, credit, and
taxing power for the payment of principal and interest. "Revenue"
bonds are usually payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from
the proceeds of a special excise tax or other specific revenue
source. Industrial development bonds are usually revenue bonds,
the credit quality of which is normally directly related to the
credit standing of the industrial user involved. Municipal
Securities may bear either fixed or variable rates of interest.
Variable rate securities bear rates of interest that are adjusted
periodically according to formulae intended to minimize
fluctuation in values of the instruments.
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/2/ For a description of Moody's and S&P quality ratings, see the
Appendix. All references to ratings apply to ratings adopted in
the future by Moody's or S&P that are determined by the Board of
Trustees to be equivalent to current ratings.
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Within the principal classifications of Municipal Securities,
there are various types of instruments, including municipal bonds,
municipal notes, municipal leases, custodial receipts, and
participation certificates. Municipal notes include tax, revenue,
and bond anticipation notes of short maturity, generally less than
three years, which are issued to obtain temporary funds for
various public purposes. Municipal lease securities, and
participation certificates therein, evidence certain types of
interests in lease or installment purchases contract obligations
of a municipal authority or other entity. Custodial receipts
represent ownership in future interest or principal payments (or
both) on certain Municipal Securities and are underwritten by
securities dealers or banks. Some Municipal Securities may not be
backed by the faith, credit, and taxing power of the issuer and
may involve "non-appropriation" clauses which provide that the
municipal authority is not obligated to make lease or other
contractual payments, unless specific annual appropriations are
made by the municipality. Municipal Money Portfolio may invest
more than 5% of its net assets in municipal bonds and notes, but
does not expect to invest more than 5% of its net assets in the
other Municipal Securities described in this paragraph. The Board
is responsible for determining the credit quality of unrated
municipal leases on an ongoing basis, including an assessment of
the likelihood that such leases will not be cancelled.
Municipal Money Portfolio may also purchase Municipal Securities
that are insured as to the timely payment of interest and
principal. Such insured Municipal Securities may already be
insured when purchased by the Portfolio, or the Portfolio may
purchase insurance in order to turn an uninsured Municipal
Security into an insured Municipal Security.
Some Municipal Securities are backed by (i) the full faith and
credit of the U.S. Government, (ii) agencies or instrumentalities
of the U.S. Government, or (iii) U.S. Government Securities.
Except with respect to Municipal Securities with a demand feature
acquired by Municipal Money Portfolio (see the definition of
"short-term" in the Glossary to Part B), if, after purchase by the
Portfolio, an issue of Municipal Securities ceases to meet the
required rating standards, if any, the Portfolio is not required
to sell such security, but the Adviser would consider such an
event in deciding whether the Portfolio should retain the security
in its portfolio. In the case of Municipal Securities with a
demand feature acquired by Municipal Money Portfolio, if the
quality of such a security falls below the minimum level
applicable at the time of acquisition, the Portfolio must dispose
of the security, unless the Board of Trustees determines that it
is in the best interests of the Portfolio and its shareholders to
retain the security.
OTHER INVESTMENT PRACTICES
Municipal Money Portfolio may also engage to a limited extent in
the following investment practices each of which may involve
certain special risks.
When-Issued and Delayed-Delivery Securities. Municipal Money
Portfolio's assets may include securities purchased on a when-
issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time the
purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. Municipal Money
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Portfolio makes such commitments only with the intention of actually
acquiring the securities, but may sell the securities before
settlement date if the Adviser deems it 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.
Standby Commitments. To facilitate portfolio liquidity, Municipal
Money Portfolio may obtain standby commitments when it purchases
Municipal Securities. A standby commitment gives the holder the
right to sell the underlying security to the seller at an agreed-
upon price on certain dates or within a specified period.
Participation Interests. Municipal Money Portfolio may also
purchase participation interests or certificates of participation
in all or part of specific holdings of Municipal Securities,
including municipal obligations. Some participation interests,
certificates of participation, and municipal lease obligations are
illiquid and, as such, will be subject to the Portfolio's 10%
limit on investments in illiquid securities.
RISK FACTORS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although Municipal
Money Portfolio seeks to reduce risk by investing in a diversified
portfolio, this does not eliminate all risk. The risks inherent
in the Portfolio depend primarily upon the maturity and quality of
the obligations in which it invests, as well as on market
conditions. A decline in prevailing levels of interest rates
generally increases the value of securities in which the Portfolio
invests, while an increase in rates usually reduces the value of
those securities. There can be no assurance that it will achieve
its objective, nor can it assure that payments of interest and
principal on portfolio obligations will be made when due.
Generally, high-quality short-term obligations offer lower yields
and less fluctuation in value than long-term low-quality
obligations. Consequently, Municipal Money Portfolio is designed
for investors who seek little or no fluctuation in portfolio
value.
Although Municipal Money Portfolio currently limits its
investments in Municipal Securities to those the interest on which
is exempt from the regular Federal income tax, it may invest up to
100% of its total assets in Municipal Securities the interest on
which is subject to the Federal alternative minimum tax.
Municipal Money Portfolio may invest 25% or more of its assets in
Municipal Securities that are related in such a way that an
economic, business, or political development affecting one such
security could also affect the other securities. For example,
Municipal Securities the interest upon which is paid from revenues
of similar-type projects, such as hospitals, utilities, or
housing, would be so related. Municipal Money Portfolio may
invest 25% or more of its assets in industrial development bonds
(subject to the concentration restrictions described in this Part
A under Investment Restrictions and in Part B). Assets of
Municipal Money Portfolio that are not invested in Municipal
Securities may be held in cash or invested in short-term taxable
investments. /3/
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/3/ The policy expressed in this sentence is a fundamental policy
of Municipal Money Portfolio.
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PORTFOLIO TURNOVER
In seeking to attain its objective, Municipal Money Portfolio may
sell portfolio securities without regard to the period of time
they have been held. As a result, the turnover rate
of Municipal Money Portfolio may vary from year to year. A high
rate of portfolio turnover may result in increased transaction
expenses and the realization of capital gains or losses.
INVESTMENT RESTRICTIONS
Municipal Money Portfolio may not (1) with respect to 75% of its
assets, invest more than 5% of its total assets in the securities
of any one issuer, except for except for obligations issued or
guaranteed by the U.S. Government or by its agencies or
instrumentalities or repurchase agreements for such securities
(guarantees or letters of credit of a single guarantor may exceed
this limit); (2) invest 25% or more of its total assets in the
securities of non-governmental issuers whose principal business
activities are in the same industry; or (3) borrow money or pledge
or mortgage its assets, except as a temporary measure for
extraordinary or emergency purposes and then the aggregate
borrowings at any one time (including reverse repurchase
agreements) may not exceed 33 1/3% of its assets (at market
value); additional securities may not be purchased when
borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets.
OTHER INFORMATION
Municipal Money Portfolio's investment policies include additional
restrictions which are described in Part B. Municipal Money
Portfolio's investment objective is non-fundamental and may be
changed by the Board of Trustees without investor approval.
Investors will be notified of any material change in such
policies. Municipal Money Portfolio's fundamental policies may be
changed only with investor approval.
ITEM 5. MANAGEMENT OF THE TRUST.
TRUSTEES
The Board of Trustees of the Trust has overall management
responsibility for the Trust and Municipal Money Portfolio. See
Part B for the names of and other information about the trustees
and officers.
ADVISER
The Trust has retained the services of Stein Roe & Farnham
Incorporated (the "Adviser"), One South Wacker Drive, Chicago,
Illinois 60606, as investment adviser and administrator of
Municipal Money Portfolio. The Adviser is responsible for the
investment management and administration of Municipal Money
Portfolio, subject to the direction of the Board. The Adviser is
registered as an investment adviser under the Investment Advisers
Act of 1940. The Adviser was organized in 1986 to succeed to the
business of Stein Roe & Farnham, a partnership that had advised
and managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Mutual Insurance Company
("Liberty Mutual").
INVESTOR SERVICES
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned indirect subsidiary of Liberty
Mutual, pursuant to a separate service
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agreement, also provides certain investor accounting and
recordkeeping services for Municipal Money Portfolio.
FEES AND EXPENSES
In return for its services, the Adviser receives a monthly fee
from Municipal Money Portfolio, computed and accrued daily, based
on an annualized rate of 0.25 of 1% of average net assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to Municipal Money
Portfolio, including computation of the Portfolio's net asset
value and calculation of its net income and capital gains and
losses on disposition of its assets.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
portfolio securities. In doing so, the Adviser seeks to obtain
the best combination of price and execution, which involves a
number of judgmental factors.
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for
Municipal Money Portfolio.
ITEM 5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE.
A response to Item 5A has been omitted pursuant to paragraph 4 of
Instruction F of the General Instructions to Form N-1A.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
Investments in the Trust have no preemptive or conversion rights
and are fully paid and non-assessable, except as set forth below.
The Trust is not required to hold annual meetings of investors,
and has no current intention to do so, but the Trust will hold
special meetings of investors when, in the judgment of the
trustees, it is necessary or desirable to submit matters for an
investor vote. Changes in fundamental policies will be submitted
to investors for approval. An investors' meeting will be held
upon the written, specific request to the trustees of investors
holding in the aggregate not less than 10% of the Interests in a
series. Investors have under certain circumstances (e.g., upon
application and submission of certain specified documents to the
trustees by a specified number of shareholders) the right to
communicate with other investors in connection with requesting a
meeting of investors for the purpose of removing one or more
trustees. Investors also have the right to remove one or more
trustees without a meeting by a declaration in writing by a
specified number of investors. Upon liquidation of the Trust or a
series thereof, investors would be entitled to share pro rata in
the net assets available for distribution to investors (unless
another sharing method is required for Federal income tax reasons,
in accordance with the sharing method adopted by the trustees).
The Trust reserves the right to create and issue a number of
series, in which case investors in each series would participate
solely in the earnings, dividends, and assets of
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the particular series. Interests in any series of the Trust may
be divided into two or more classes of Interests having such preferences
or special or relative rights or privileges as the trustees of the Trust
may determine. Currently, the Trust has only one class of one series.
The Trust is organized as a trust under the laws of the
Commonwealth of Massachusetts. Under the Declaration of Trust,
the trustees are authorized to issue Interests in the Trust. Each
investor in a series is entitled to vote in proportion to the
amount of its investment in the series. Investments in the Trust
may not be transferred, but an investor may withdraw all or a
portion of his investment at any time at net asset value.
Investors in any series of the Trust (e.g., investment companies,
insurance company separate accounts, and common and commingled
trust funds) may be held personally, jointly and severally liable
for all obligations of that series of the Trust. However, the
risk of an investor in a series incurring financial loss on
account of such liability is limited to circumstances in which
both inadequate insurance exists and the Trust itself is unable to
meet its obligations.
It is intended that the assets, income, and distributions will be
managed in such a way that an investor in a series will be able to
satisfy the requirements of Subchapter M of the Code for
qualification as a regulated investment company, assuming that the
investor invested all of its assets in the series.
The net income of a series of the Trust shall consist of (i) all
income accrued less the amortization of any premium, on the assets
of the series, less (ii) all actual and any accrued expenses of
the series determined in accordance with generally accepted
accounting principles. Income includes discount earned (including
both original issue and, by election, market discount) on discount
paper accrued ratably to the date of maturity and any net realized
gains or losses on the assets of the series. All of the net
income of a series is allocated among the investors in the series
in accordance with their Interests (unless another sharing method
is required for Federal income tax reasons, in accordance with the
sharing method adopted by the trustees).
Under the anticipated method of operation of the Trust, the Trust
will not be subject to any Federal income tax. However, each
investor in a series of the Trust will be taxed on its share (as
determined in accordance with the governing instruments of the
Trust) of the series' ordinary income and capital gain in
determining its income tax liability. The determination of such
share will be made in accordance with an allocation method
designed to satisfy the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations promulgated thereunder.
Distributions of net income and capital gain are to be made pro
rata to investors in accordance with their investment in Municipal
Money Portfolio. For Federal income tax purposes, however,
income, gain, or loss may be allocated in a manner other than pro
rata, if necessary to reflect gains or losses properly allocable
to fewer than all investors as a result of contributions of
securities to a series or redemptions of portions of an investor's
unrealized gain or loss in series assets.
ITEM 7. PURCHASE OF SECURITIES.
Interests in Municipal Money Portfolio are issued solely in
private placement transactions that do not involve any "public
offering" within the meaning if Section 4(2) of the
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1933 Act. Investments in Municipal Money Portfolio may be made
only by investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities
that are "accredited investors" within the meaning of Regulation D
under the 1933 Act. This Registration Statement does not constitute
an offer to sell or the solicitation of any offer to buy any "security"
within the meaning of the 1933 Act.
An investment in Municipal Money Portfolio may be made without a
sales load. All investments are made at net asset value next
determined if an order is received by SteinRoe Services Inc., the
Portfolio's investor accounting and recordkeeping agent, by the
designated cutoff time. The net asset value of Municipal Money
Portfolio is determined as of the close of trading on the New York
Stock Exchange (currently 3:00 p.m., Chicago time) every day the
New York Stock Exchange is open for trading ("business day") by
dividing the difference between the values of the Portfolio's
assets and liabilities by the number of shares outstanding. Net
asset value will not be determined on days when the Exchange is
closed unless, in the judgment of the Board of Trustees, the net
asset value should be determined on any such day, in which case
the determination will be made at 3:00 p.m., Chicago time.
The valuation of Municipal Money Portfolio's portfolio securities
is based on their amortized cost, which does not take into account
unrealized gains or losses, in an attempt to maintain its net
asset value at $1.00 per share. The extent of any deviation
between the Portfolio's net asset value based upon market
quotations or equivalents and $1.00 per share based on amortized
cost will be examined by the Board of Trustees. If such deviation
were to exceed 1/2 of 1%, the Board would consider what action, if
any, should be taken, including selling portfolio instruments,
increasing, reducing or suspending distributions, or redeeming
shares in kind. Other assets and securities of the Portfolio for
which this valuation method does not produce a fair value are
valued at a fair value determined by the Board.
Each investor in Municipal Money Portfolio may add to or reduce
its investment in the Portfolio on each business day. On each
such business day, the value of each investor's Interest in the
Portfolio will be determined by multiplying the net asset value of
the Portfolio by the percentage, effective for that business day,
that represents that investor's share of the aggregate Interests
in the Portfolio. Any additions or withdrawals which are to be
effective on that day will then be effected. The investor's
percentage of the aggregate Interests in the Portfolio will then
be recomputed as the percentage equal to the fraction (i) the
numerator of which is the 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 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 on the following business day.
There is no minimum initial or subsequent investment in Municipal
Money Portfolio.
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Municipal Money Portfolio and SteinRoe Services Inc. reserve the
right to cease accepting investments at any time or to reject any
investment order.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in Municipal Money Portfolio may redeem all or any
portion of its investment at the next determined net asset value
if a withdrawal request in proper form is furnished by the
investor to SteinRoe Services Inc., the Portfolio's investor
accounting agent, by the designated cutoff time. The proceeds of
a withdrawal will be paid by the Portfolio in Federal funds
normally on the business day the withdrawal is effected, but in
any event within seven days. Investments in Municipal Money
Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
withdrawal may be suspended or the payment of the withdrawal
proceeds postponed during any period in which the New York Stock
Exchange is closed (other than weekends or holidays) or trading on
such Exchange is restricted, or, to the extent otherwise permitted
by the Investment Company Act of 1940, as amended, if an emergency
exists.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
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PART B
ITEM 10. COVER PAGE.
SR&F BASE TRUST
P.O. Box 804058, Chicago, Illinois 60680
800-338-2550
Statement of Additional Information Dated November 1, 1995
This Statement of Additional Information is not a prospectus
but provides additional information that should be read in
conjunction with the prospectus contained in Part A of this
Registration Statement, which may be obtained at no charge
by telephoning 800-338-2550.
ITEM 11. TABLE OF CONTENTS.
General Information and History........................12
Investment Objective and Policies......................12
Management of the Trust................................19
Control Persons and Principal Holders of Securities....21
Investment Management and Administrative Services......21
Brokerage Allocation and Other Practices...............22
Capital Stock and Other Securities.....................24
Purchase, Redemption, and Pricing of Securities........26
Tax Status.............................................28
Underwriter............................................30
Calculation of Performance Data........................30
Financial Statements...................................30
Glossary...............................................30
Appendix...............................................32
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
The basic investment policies and strategies of Municipal Money
Portfolio are described in Part A, Item 4. The following
supplements the information contained in Part A regarding certain
miscellaneous investment practices in which Municipal Money
Portfolio may engage and the risks associated therewith.
When-Issued and Delayed-Delivery Securities. Municipal Money
Portfolio may purchase securities on a when-issued or delayed-
delivery basis, as described in Part A. Municipal Money Portfolio
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.
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At the time Municipal Money Portfolio 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 Portfolio 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 Portfolio and held by the custodian
throughout the period of the obligation.
Reverse Repurchase Agreements. Municipal Money Portfolio may also
enter into reverse repurchase agreements (defined in the Glossary)
with banks and securities dealers. Use of a reverse repurchase
agreement may be preferable to a regular sale and later repurchase
of the securities because it avoids certain market risks and
transaction costs.
Municipal Money Portfolio's reverse repurchase agreements and any
other borrowings may not exceed 33 1/3% of its total assets, and
the Portfolio may not purchase additional securities when its
borrowings, less proceeds receivable from the sale of portfolio
securities, exceed 5% of its total assets.
Standby Commitments. Municipal Money Portfolio may obtain standby
commitments when it purchases 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. Municipal Money Portfolio 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 Municipal Money
Portfolio should exceed the current value of the underlying
securities, Municipal Money Portfolio 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
Portfolio's business relationship with the issuer. Municipal
Money Portfolio will enter into standby commitments only with
banks and securities dealers that, in the opinion of the Adviser,
present minimal credit risks. However, if a securities dealer or
bank is unable to meet its obligation to repurchase the security
when Municipal Money Portfolio exercises a standby commitment, the
Portfolio 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 Municipal Money
Portfolio's net asset value.
Short Sales. Municipal Money Portfolio may make short sales
"against the box." In a short sale, the Portfolio sells a
borrowed security and is required to return the identical security
to the lender. A short sale "against the box" involves the sale
of a security with respect to which the Portfolio already owns an
equivalent security in kind and amount. A short sale "against the
box" enables the Portfolio to obtain the current market price of a
security which it desires to sell but is unavailable for
settlement.
Line of Credit. Subject to restriction (4) under Investment
Restrictions, Municipal Money Portfolio may establish and maintain
a line of credit with a major bank in order to permit borrowing on
a temporary basis to meet share redemption requests in
circumstances in which temporary borrowing may be preferable to
liquidation of portfolio securities.
<PAGE> 14
Rated Securities. For a description of the ratings applied by
rating services to debt securities, please refer to the Appendix.
Except with respect to Municipal Securities with a demand feature
(see the definition of "short-term" in the Glossary) acquired by
Municipal Money Portfolio, the fact that the rating of a Municipal
Security held by the Portfolio may be lost or reduced below the
minimum level applicable to its original purchase by the Portfolio
does not require that obligation to be sold, but the Adviser will
consider such fact in determining whether the Portfolio should
continue to hold the obligation. In the case of Municipal
Securities with a demand feature acquired by Municipal Money
Portfolio, if the quality of such a security falls below the
minimum level applicable at the time of acquisition, the Portfolio
must dispose of the security within a reasonable period of time
either by exercising the demand feature or by selling the security
in the secondary market, unless the Board of Trustees determines
that it is in the best interests of the Portfolio and its
shareholders to retain the security.
To the extent that the ratings accorded by Moody's or S&P for
Municipal Securities may change as a result of changes in such
organizations, or changes in their rating systems, Municipal Money
Portfolio 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.
Taxable Securities. Assets of Municipal Money Portfolio that are
not invested in Municipal Securities may be held in cash or
invested in short-term taxable investments /4/ 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 such as certificates of deposit
and bankers' acceptances of domestic banks having total assets in
excess of $1 billion, and corporate commercial paper rated Prime-1
by Moody's or A-1 by S&P at the time of purchase, or, if unrated,
issued or guaranteed by an issuer with outstanding debt rated Aa
or better by Moody's or AA or better by S&P; and (4) repurchase
agreements with banks and securities dealers. Municipal Money
Portfolio limits repurchase agreements to those that are short-
term, subject to restriction 18 under Investment Restrictions
(although the underlying securities may not be short-term).
AMT Securities. Although Municipal Money Portfolio currently
limits its investments in Municipal Securities to those the
interest on which is exempt from the regular Federal income tax,
it may invest 100% of its total assets in Municipal Securities the
interest on which is subject to the Federal alternative minimum
tax ("AMT").
Participation Interests. Municipal Money Portfolio may purchase
participation interests or certificates of participation in all or
part of specific holdings of Municipal Securities, but does not
intend to do so unless the tax-exempt status of those
participation interests or certificates of participation is
confirmed to the satisfaction of the Board of Trustees, which may
include consideration of an opinion of counsel as to the tax-
exempt status. Each participation interest would meet the
prescribed quality standards of the Portfolio or be backed by an
irrevocable letter of credit or guarantee of a bank that meets the
- -------------------------
/4/ The policies described in this paragraph are fundamental for
Municipal Money Portfolio.
- ------------------------------
<PAGE> 15
prescribed quality standards of the Portfolio. Some participation
interests are illiquid securities.
Municipal Money Portfolio 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
Portfolio will seek to minimize these risks by investing primarily
in those "non-appropriation" lease obligations where (1) the
nature of the leased equipment or property is such that its
ownership or use is essential to a governmental function of the
municipality, (2) the lease obligor has maintained good market
acceptability in the past, (3) the investment is of a size that
will be attractive to institutional investors, and (4) the
underlying leased equipment has elements of portability and/or use
that enhance its marketability in the event foreclosure on the
underlying equipment were ever required.
The Board of Trustees has delegated to the Adviser the
responsibility to determine the credit quality of participation
interests. The determinations concerning the liquidity and
appropriate valuation of a municipal lease obligation, as with
any other municipal security, are made based on all relevant
factors. These factors may include, among others: (1) the
frequency of trades and quotes for the obligation; (2) the
number of dealers willing to purchase or sell the security
and the number of other potential buyers; (3) the willingness
of dealers to undertake to make a market in the security; and
(4) the nature of the marketplace trades, including the time
needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer.
Zero Coupon Bonds. Municipal Money 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 Portfolio 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.
Portfolio Turnover. Although the Portfolio 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. The turnover rate for Municipal Money Portfolio in the
future may vary greatly from year to year, and when portfolio
changes are deemed appropriate due to market or other conditions,
such turnover rate may be greater than might otherwise be
anticipated. A high rate of portfolio turnover may result in
increased transaction expenses and the realization of capital
gains or losses. Distributions of any net realized gains are
subject to Federal income tax.
INVESTMENT RISKS
The Federal bankruptcy statutes relating to the debts of political
subdivisions and authorities of states of the United States
provide that, in certain circumstances, such subdivisions or
authorities may be authorized to initiate bankruptcy proceedings
without prior notice to or consent of creditors, which proceedings
could result in material and adverse changes in the rights of
holders of their obligations.
<PAGE> 16
Lawsuits challenging the validity under state constitutions of
present systems of financing public education have been initiated
or adjudicated in a number of states, and legislation has been
introduced to effect changes in public school financing in some
states. In other instances there have been lawsuits challenging
the issuance of pollution control revenue bonds or the validity of
their issuance under state or Federal law which could ultimately
affect the validity of those Municipal Securities or the tax-free
nature of the interest thereon. In addition, from time to time
proposals have been introduced in Congress to restrict or
eliminate the Federal income tax exemption for interest on
Municipal Securities, and similar proposals may be introduced in
the future. Some of the past proposals would have applied to
interest on Municipal Securities issued before the date of
enactment, which would have adversely affected their value to a
material degree. If such proposals are enacted, the availability
of Municipal Securities for investment by Municipal Money
Portfolio and the value of its portfolio would be affected and, in
such an event, the Portfolio would reevaluate its investment
objectives and policies.
Because Municipal Money Portfolio may invest in industrial
development bonds, its shares may not be an appropriate investment
for "substantial users" of facilities financed by industrial
development bonds or for "related persons of substantial users."
In addition, Municipal Money Portfolio may invest in Municipal
Securities issued after the effective date of the Tax Reform Act
of 1986 (the "1986 Act"), which may be subject to retroactive
taxation if they fail to continue to comply after issuance with
certain requirements imposed by the 1986 Act.
Although the banks and securities dealers from which Municipal
Money Portfolio may acquire repurchase agreements and standby
commitments, and the entities from which it may purchase
participation interests in Municipal Securities, will be those
that the Adviser believes to be financially sound, there can be no
assurance that they will be able to honor their obligations to the
Portfolio.
INVESTMENT RESTRICTIONS
Municipal Money Portfolio operates under the following investment
restrictions. Municipal Money Portfolio may not:
(1) 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 [however, in the
case of a guarantor of securities (including an issuer of a
letter of credit), the value of the guarantee (or letter of
credit) may be excluded from this computation if the
aggregate value of securities owned by the Portfolio and
guaranteed by such guarantor (plus any other investments of
the Portfolio in
<PAGE> 17
securities issued by the guarantor) does not
exceed 10% of the Portfolio's total assets]; /5/
(2) 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);
(3) make loans to other persons, except that the Portfolio may
invest up to 100% of its assets in debt obligations,
including money market instruments;
(4) borrow, except that the Portfolio may borrow up to 33 1/3% of
its total assets, taken at current value at the time of such
borrowing, from banks as a temporary measure for
extraordinary or emergency purposes but not to increase
portfolio income (the total of reverse repurchase agreements
and such borrowings will not exceed 33 1/3% of its total
assets and the Portfolio will not purchase additional
securities at a time when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of
its total assets);
(5) mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by
the Portfolio except as may be necessary in connection with
borrowings mentioned in (4) above;
(6) 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;
(7) purchase portfolio securities for the Portfolio from, or sell
portfolio securities to, any of the officers, directors, or
trustees of the Trust or of its investment adviser;
(8) purchase or sell commodities or commodities contracts or oil,
gas, or mineral programs;
(9) purchase any securities other than those described in Part A
under Basic Investment Strategy and Other Investment
Practices;
(10) issue any senior security except to the extent permitted
under the Investment Company Act of 1940;
The above restrictions (other than material within brackets) are
fundamental policies of the Portfolio, which may be changed only
with the approval of a "majority of its outstanding voting
securities" as defined in the Investment Company Act of 1940. The
Portfolio has also adopted the following restrictions that may be
required by various laws and administrative positions. These
restrictions are not fundamental and may be changed by the Board
of Trustees without a vote of shareholders. The 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;
- ---------------------------------
/5/ In the case of a security that is insured as to payment of
principal and interest, the related insurance policy is not deemed
a security, nor is it subject to this investment restriction.
- -----------------------------
<PAGE> 18
(c) make investments in the securities of other investment
companies, except in connection with a merger, consolidation,
or reorganization;
(d) purchase or sell real estate (other than Municipal Securities
or money market securities secured by real estate or
interests therein or such securities issued by companies
which invest in real estate or interests therein);
(e) act as an underwriter of securities, except that it may
participate as part of a group in bidding, or bid alone, for
the purchase of Municipal Securities directly from an issuer
for the its own portfolio;
(f) purchase or retain securities of an issuer if 5% of the
securities of such issuer are owned by those trustees and
officers of the Trust who own individually more than 1/2 of
1% of such securities;
(g) sell securities short unless (1) the Portfolio owns or has the
right to obtain securities equivalent in kind and amount to
those sold short at no added cost or (2) the securities sold
are "when issued" or "when distributed" securities which the
Portfolio expects to receive in a recapitalization,
reorganization, or other exchange for securities the
Portfolio contemporaneously owns or has the right to obtain
and provided that it may purchase standby commitments and
securities subject to a demand feature entitling the
Portfolio to require sellers of securities to the Portfolio
to repurchase them upon demand by the Portfolio;
(h) invest more than 5% of its total assets (taken at market
value at the time of a particular investment) in securities
of issuers (other than issuers of federal agency obligations
or securities issued or guaranteed by any foreign country or
asset-backed securities) that, together with any predecessors
or unconditional guarantors, have been in continuous
operation for less than three years ("unseasoned issuers");
(i) invest more than 15% of its total assets (taken at market
value at the time of a particular investment) in restricted
securities /6/ and securities of unseasoned issuers;
(j) invest more than 10% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities, including repurchase agreements maturing in more
than seven days.
(k) purchase shares of other open-end investment companies, except
in connection with a merger, consolidation, acquisition, or
reorganization; or
(l) 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.
- --------------------------
/6/ As long as it is required to do so by the Ohio Division of
Securities, the Trust will consider a security eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 to
be a restricted security.
<PAGE> 19
ITEM 14. MANAGEMENT OF THE TRUST.
The officers and trustees of the Trust are listed below.
<TABLE>
<CAPTION>
POSITION(s) HELD
NAME AGE WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING THE PAST FIVE YEARS
- ------------------- --- --------------------- ---------------------------------------------------------------
<S> <C> <C> <C>
Gary A. Anetsberger 39 Senior Vice-President Vice-President of Stein Roe & Farnham Incorporated (the "Adviser")
since January, 1991; associate of the Adviser prior thereto
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of the Adviser and director
(1)(2) of the Adviser since June, 1992; senior vice president and director
of marketing of Citibank Illinois prior thereto
Jilaine Hummel Bauer 40 Executive Vice-President; Senior Vice President (since April, 1992) and Assistant Secretary
Secretary (since May, 1990) of the Adviser; vice president of the Adviser
prior thereto
Kenneth L. Block (3) 75 Trustee Chairman Emeritus of A. T. Kearney, Inc. (international management
consultants)
William W. Boyd 69 Trustee Chairman and Director of Sterling Plumbing Group, Inc.
(manufacturer of plumbing products) since 1992; chairman,
president, and chief executive officer of Sterling Plumbing Group,
Inc. prior thereto
N. Bruce Callow 49 Executive Vice-President President of the Investment Counsel division of the Adviser since
June, 1994; senior vice president of trust and financial services
for The Northern Trust prior thereto
Lindsay Cook (1) 43 Trustee Senior Vice President of Liberty Financial Companies, Inc. (the
indirect parent of the Adviser)
Philip D. Hausken 37 Vice-President Corporate Counsel for the Adviser since July, 1994; assistant
regional director, midwest regional office of the Securities and
Exchange Commission prior thereto
Stephen P. Lautz 38 Vice-President Vice President of the Adviser since May, 1994; associate of the
Adviser prior thereto
Francis W. Morley 75 Trustee Chairman of Employer Plan Administrators and Consultants Co.
(2)(3) (designer, administrator, and communicator of employee benefit
plans)
Charles R. Nelson (3) 53 Trustee Van Voorhis Professor of Political Economy of the University of
Washington
Nicolette D. Parrish 45 Vice-President; Senior Compliance Administrator for the Adviser since November, 1995;
Assistant Secretary senior legal assistant for the Adviser prior thereto
Sharon R. Robertson 33 Controller Accounting Manager for the Adviser's Mutual Funds division
Janet B. Rysz 40 Assistant Secretary Assistant Secretary of the Adviser
Gordon R. Worley (3) 76 Trustee Private investor
<PAGE> 20
Hans P. Ziegler 54 Executive Vice-President Chief Executive Officer of the Adviser since May, 1994; president
of the Investment Counsel division of the Adviser from July, 1993
to June, 1994; president and chief executive officer, Pitcairn
Financial Management Group prior thereto
Margaret O. Zwick 29 Treasurer Compliance Manager for the Adviser's Mutual Funds division since
August, 1995; held positions of Compliance Accountant, Section
Manager, Supervisor, and Fund Accountant with the division
<FN>
(1) Trustee who is an "interested person" of the Trust and of the
Adviser, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope and
results of the audit.
</TABLE>
Each trustee and officer of the Trust holds the same position with
Stein Roe Municipal Trust and certain of the trustees and officers
of the Trust are also trustees or officers of other investment
companies managed by the Adviser. The address of Mr. Block is 11
Woodley Road, Winnetka, Illinois 60093; that of Mr. Boyd is 2900
Golf Road, Rolling Meadows, Illinois 60008; that of Mr. Cook is
600 Atlantic Avenue, Boston, Massachusetts 02210; that of Mr.
Morley is 20 North Wacker Drive, Suite 2275, Chicago, Illinois
60606; that of Mr. Nelson is Department of Economics, University
of Washington, Seattle, Washington 98195; that of Mr. Worley is
1407 Clinton Place, River Forest, Illinois 60305; and that of the
officers is One South Wacker Drive, Chicago, Illinois 60606.
Officers and trustees affiliated with the Adviser serve without
any compensation from the Trust. In compensation for their
services to the Trust, trustees who are not "interested persons"
of the Trust or the Adviser are paid an attendance fee from each
series of the Trust for each meeting of the Board or committee
thereof attended at which business for that series is conducted.
The attendance fees (other than for a Nominating Committee
meeting) are based on each series' net assets as of the preceding
December 31. For a series with net assets of less than $251
million, the fee is $200 per meeting; with $251 million to $500
million, $350; with $501 million to $750 million, $500; with $750
million to $1 billion, $650; and with over $1 billion in net
assets, $800. Each non-interested trustee also receives an
aggregate of $500 for attending each meeting of the Nominating
Committee. The Trust has no retirement or pension plans. The
following table sets forth compensation paid during the fiscal
year ended June 30, 1995 to each of the trustees:
Total Compensation
Aggregate Paid to Trustees
Compensation from the Trust and
from the the Stein Roe Fund
Name of Trustee Trust* Complex (19 Funds)
- --------------- ------------ ------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Kenneth L. Block $1,700 $74,850
William W. Boyd 800 48,200
Francis W. Morley 1,700 76,400
Charles R. Nelson 1,700 77,200
Gordon R. Worley 1,700 74,850
- -----------------
<PAGE> 21
*Attendance fees for the Base Trust trustees were paid by the
Adviser for the fiscal year ended June 30, 1995.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of the effective date of this Registration Statement, there
were two record holders of Municipal Money Portfolio: Stein Roe
Municipal Money Market Fund and Colonial Municipal Money Market
Fund.
ITEM 16. INVESTMENT MANAGEMENT AND ADMINISTRATIVE SERVICES.
The Trust has retained the services of Stein Roe & Farnham
Incorporated (the "Adviser") as investment adviser and
administrator for Municipal Money Portfolio. The Adviser is a
wholly owned subsidiary of SteinRoe Services Inc. ("SSI"), which
is a wholly owned subsidiary of Liberty Financial Companies,
Inc.), which is a majority-owned subsidiary of Liberty Mutual
Equity Corporation, which is a wholly owned subsidiary of Liberty
Mutual Insurance Company ("Liberty Mutual"). Liberty Mutual is a
mutual insurance company, principally in the property/casualty
insurance field, organized under the laws of Massachusetts in
1912.
The directors of the Adviser are Gary L. Countryman, Kenneth R.
Leibler, Timothy K. Armour, N. Bruce Callow, and Hans P. Ziegler.
Mr. Countryman is Chairman and Chief Executive Officer of Liberty
Mutual Insurance Company; Mr. Leibler is President and Chief
Executive Officer of Liberty Financial Companies, Inc.; Mr. Armour
is President of the Adviser's Mutual Funds division; Mr. Callow is
President of the Adviser's Investment Counsel Division; and Mr.
Ziegler is Chief Executive Officer of the Adviser. The business
address of Mr. Countryman is 175 Berkeley Street, Boston,
Massachusetts 02117; that of Mr. Leibler is Federal Reserve Plaza,
Boston, Massachusetts 02210; that of Messrs. Armour, Callow, and
Ziegler is One South Wacker Drive, Chicago, Illinois 60606.
The Adviser and its predecessor have been providing investment
advisory services since 1932. The Adviser acts as investment
adviser to wealthy individuals, trustees, pension and profit
sharing plans, charitable organizations, and other institutional
investors. As of June 30, 1995, the Adviser managed over $22.4
billion in assets: over $4.9 billion in equities and over $17.5
billion in fixed-income securities (including $2.3 billion in
municipal securities). The $22.4 billion in managed assets
included over $5.5 billion held by open-end mutual funds managed
by the Adviser (approximately 21% of the mutual fund assets were
held by clients of the Adviser). These mutual funds were owned by
over 148,000 shareholders. The $5.5 billion in mutual fund assets
included over $550 million in over 33,000 IRA accounts. In
managing those assets, the Adviser utilizes a proprietary
computer-based information system that maintains and regularly
updates information for approximately 6,500 companies. The
Adviser also monitors over 1,400 issues via a proprietary credit
analysis system. At June 30, 1995, the Adviser employed
approximately 17 research analysts and 34 account managers. The
average investment-related experience of these individuals was 19
years.
Please refer to the description of the Adviser, management
agreement and fees in Part A, Item 5. The Adviser provides office
space and executive and other personnel to the
<PAGE> 22
Trust. Municipal Money Portfolio pays all expenses other than
those paid by the Adviser, including but not limited to printing
and postage charges and securities registration and custodian fees
and expenses incidental to its organization.
The advisory agreements also provide that neither the Adviser nor
any of its directors, officers, stockholders (or partners of
stockholders), agents, or employees shall have any liability to
the Trust or any shareholder for any error of judgment, mistake of
law or any loss arising out of any investment, or for any other
act or omission in the performance by the Adviser of its duties
under the advisory agreement, except for liability resulting from
willful misfeasance, bad faith or gross negligence on the
Adviser's part in the performance of its duties or from reckless
disregard by the Adviser of the Adviser's obligations and duties
under the advisory agreement.
Any expenses that are attributable solely to the organization,
operation, or business of Municipal Money Portfolio shall be paid
solely out of Municipal Money Portfolio's assets. Any expenses
incurred by the Trust that are not solely attributable to a
particular series of the Trust are apportioned in such manner as
the Adviser determines is fair and appropriate, unless otherwise
specified by the Board of Trustees.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with the Trust, the Adviser
receives a fee for performing certain bookkeeping and accounting
services for Municipal Money Portfolio. For these services, the
Adviser receives an annual fee of $25,000 plus .0025 of 1% of
average net assets over $50 million.
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Trust. It is responsible for holding all securities and cash of
Municipal Money Portfolio, receiving and paying for securities
purchased, delivering against payment securities sold, receiving
and collecting income from investments, making all payments
covering expenses of the Portfolio, and performing other
administrative duties, all as directed by authorized persons. The
custodian does not exercise any supervisory function in such
matters as purchase and sale of portfolio securities, payment of
dividends, or payment of expenses of the Portfolio. Municipal
Money Portfolio may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Ernst & Young LLP, 233
South Wacker Drive, Chicago, Illinois 60606. The independent
auditors audit and report on the Portfolio's annual financial
statements, review certain regulatory reports and the Portfolio's
Federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to do
so by the Trust.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Adviser places the orders for the purchase and sale of
portfolio securities for Municipal Money Portfolio.
<PAGE> 23
Municipal Money Portfolio purchases portfolio securities both in
underwritings and in the over-the-counter market. Included in the
price paid to an underwriter of a portfolio security is the spread
between the price paid by the underwriter to the issuer and the
price paid by the purchaser. The Portfolio's purchases and sales
of portfolio securities in the over-the-counter market usually are
transacted with a broker or dealer on a net basis, without any
brokerage commission being paid by the Portfolio, but do reflect
the spread between the bid and asked prices. The Adviser may also
transact purchases of portfolio securities directly with the
issuers.
The Adviser's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price
and execution. The best net price, giving effect to transaction
charges, if any, and other costs, normally is an important factor
in this decision, but a number of other judgmental factors may
also enter into the decision. These include: the Adviser's
knowledge of current transaction costs; the nature of the security
being traded; the size of the transaction; the desired timing of
the trade; the activity existing and expected in the market for
the particular security; confidentiality; the execution, clearance
and settlement capabilities of the broker or dealer selected and
others that are considered; the Adviser's knowledge of the
financial stability of the broker or dealer selected and such
other brokers or dealers; and the Adviser's knowledge of actual or
apparent operational problems of any broker or dealer.
Recognizing the value of these factors, the Portfolio may incur a
transaction charge in excess of that which another broker or
dealer may have charged for effecting the same transaction.
Evaluations of the reasonableness of the costs of portfolio
transactions, based on the foregoing factors, are made on an
ongoing basis by the Adviser's staff and reports are made annually
to the Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to be
capable of providing the best combination of price and execution
with respect to a particular portfolio transaction for the
Portfolio, the Adviser often selects a broker or dealer that has
furnished it with research products or services such as research
reports, subscriptions to financial publications and research
compilations, compilations of securities prices, earnings,
dividends and similar data, and computer data bases, quotation
equipment and services, research-oriented computer software and
services, and services of economic and other consultants.
Selection of brokers or dealers is not made pursuant to an
agreement or understanding with any of the brokers or dealers;
however, the Adviser uses an internal allocation procedure to
identify those brokers or dealers who provide it with research
products or services and the amount of research products or
services they provide, and endeavors to direct sufficient
commissions generated by its clients' accounts in the aggregate,
including the Portfolio, to such brokers or dealers to ensure the
continued receipt of research products or services the Adviser
feels are useful. In certain instances, the Adviser receives from
brokers and dealers products or services which are used both as
investment research and for administrative, marketing, or other
non-research purposes. In such instances, the Adviser makes a
good faith effort to determine the relative proportions of such
products or services which may be considered as investment
research. The portion of the costs of such products or services
attributable to research usage may be defrayed by the Adviser
(without prior agreement or understanding, as noted above) through
brokerage commissions generated by transactions of clients
(including the Portfolio), while the portions of the costs
attributable to non-research usage of such products or services
<PAGE> 24
is paid by the Adviser in cash. No person acting on behalf of the
Portfolio is authorized, in recognition of the value of research
products or services, to pay a price in excess of that which
another broker or dealer might have charged for effecting the same
transaction. Research products or services furnished by brokers
and dealers through whom transactions are effected may be used in
servicing any or all of the clients of the Adviser and not all
such research products or services are used in connection with the
management of the Portfolio.
The Board has reviewed the legal developments pertaining to and
the practicability of attempting to recapture underwriting
discounts or selling concessions when portfolio securities are
purchased in underwritten offerings. The Board has been advised
by counsel that recapture by a mutual fund currently is not
permitted under the Rules of Fair Practice of the National
Association of Securities Dealers ("NASD"). Therefore, except
with respect to purchases of Municipal Securities which are not
subject to NASD Rules, Municipal Money Portfolio will not attempt
to recapture underwriting discounts or selling concessions.
Municipal Money Portfolio 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 for the Portfolio.
The Board periodically reviews Municipal Money Portfolio's efforts
to recapture concessions and whether it is in the best interests of
the Portfolio to continue to attempt to recapture underwriting
discounts or selling concessions.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Declaration of Trust, the trustees are authorized to
issue Interests in the Trust. Investors are entitled to
participate pro rata in distributions of taxable income, loss,
gain, and credit of the Trust (unless another sharing method is
required for Federal income tax reasons in accordance with the
sharing method adopted by the trustees). Upon liquidation or
dissolution of the Trust, investors are entitled to share pro rata
in the net assets available for distribution to its investors
(unless another sharing method is required for Federal income tax
reasons, in accordance with the sharing method adopted by the
trustees). Investments in the Trust have no preferences,
preemptive, conversion, or similar rights and are fully paid and
nonassessable, except as set forth below. Investments in the
Trust may not be transferred. No certificates representing an
investor's Interest in the Trust will be issued.
Each whole Interest (or fractional Interest) 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 Interest (or
fractional Interest) in United States dollars determined at the
close of business on the record date (for example, an Interest
having a net asset value of $10.50 would be entitled to 10.5
votes). As a common law 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
the Trust's outstanding Interests, 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 holders
<PAGE> 25
as required by Section 16(c) of the Investment
Company Act of 1940. All Interests of the Trust are voted
together in the election of trustees. On any other matter
submitted to a vote of holders, Interests are voted by individual
series and not in the aggregate, except that Interests are voted
in the aggregate when required by the Investment Company Act of
1940 or other applicable law. When the Board of Trustees
determines that the matter affects only the interests of one or
more series, holders of the unaffected series are not entitled to
vote on such matters.
The Trust may enter into a merger or consolidation or sell all or
substantially all of its assets if approved by the vote of two-
thirds of its investors (with the vote of each being in proportion
to the respective percentages of the Interests in the Trust),
except that if the trustees recommend such sale of assets, the
approval by vote of a majority of the investors (with the votes of
each being in proportion to their respective percentages of the
Interests of the Trust) will be sufficient. The Trust will
dissolve upon the complete withdrawal, resignation, retirement, or
bankruptcy of any investor and will terminate unless reconstituted
and continued with the consent of all remaining investors. The
Trust may also be terminated (i) if approved by the vote of two-
thirds of its investors (with the votes of each being in
proportion to the amount of their investment), or (ii) by the
trustees by written notice to its investors. The Declaration of
Trust contains a provision limiting the life of the Trust to a
term of years; consequently, the Trust will terminate on
December 31, 2080.
The Trust is organized as a trust under the laws of the
Commonwealth of Massachusetts. Investors in any series of the
Trust may be held personally liable, jointly and severally, for
the obligations and liabilities of that series, subject, however,
to indemnification by that series in the event that there is
imposed upon an investor a greater portion of the liabilities and
obligations of the series than its proportionate interest in the
series. The Declaration of Trust also provides that the Trust
shall maintain appropriate insurance (for example, fidelity
bonding and errors and omissions insurance) for the protection of
the Trust, its investors, trustees, officers, employees, and
agents covering possible tort and other liabilities. Thus, the
risk of an investor incurring financial loss on account of
investor liability is limited to circumstances in which both
inadequate insurance exists and the Trust itself is unable to meet
its obligations.
The Declaration of Trust further provides that obligations of the
Trust are not binding upon the trustees individually but only upon
the property of the Trust and that the trustees will not be liable
for any action or failure to act, but nothing in the Declaration
of Trust protects a trustee against any liability 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.
The Trust reserves the right to create and issue any number of
series, in which case investors in each series would participate
only in the earnings and assets of the particular series.
Investors in each series would be entitled to vote separately to
approve advisory agreements or changes in investment policy, but
investors of all series may vote together in election or selection
of trustees, principal underwriters, and accountants for the
Trust. Upon liquidation or dissolution of the Trust, the
investors in each series would be entitled to share pro rata in
the net assets of their respective series available for
distribution to investors (unless another sharing method is
required for Federal income
<PAGE> 26
tax reasons, in accordance with the sharing method adopted by
the trustees). Interests of any series of the Trust may be divided
into two or more classes of Interests having such preferences or
special or relative privileges as the trustees of the Trust may
determine.
Although it is expected that the Trust will initially have 10 or
fewer investors, the number of investors in the Trust will in no
case exceed 500 in order to satisfy certain tax requirements.
This number may be increased or decreased should such requirements
change. Similarly, if Congress enacts certain proposed amendments
to the Code, it may be desirable for the Trust to elect the status
of a regulated investment company ("RIC") as that term is defined
in Subchapter M of the Code, which would require that the Trust
first change its organizational status from that of a
Massachusetts trust to that of a Massachusetts business trust
("MBT") or other entity treated as a corporation under the Code.
The Trust's Declaration of Trust empowers the trustees, on behalf
of the Trust, to change the Trust's organizational form to that of
a MBT or otherwise reorganize as an entity treated as a
corporation under the Code and to elect RIC status without a vote
of the investors. Any such action on the part of the trustees on
behalf of the Trust would be contingent upon there being no
adverse tax consequences to such action.
ITEM 19. PURCHASE, REDEMPTION, AND PRICING OF SECURITIES.
Interests in Municipal Money Portfolio will be issued solely in
private placement transactions that do not involve any "public
offering" within the meaning of Section 4(2) of the 1933 Act.
Investments in Municipal Money Portfolio may only be made by
investment companies, insurance company separate accounts, common
or commingled trust funds, or similar organizations or entities
that are "accredited investors" within the meaning of Regulation D
under the 1933 Act. This Registration Statement does not
constitute an offer to sell or the solicitation of an offer to buy
any "security" within the meaning of the 1933 Act.
The net asset value per share of Municipal Money Portfolio is
determined by dividing its total assets (i.e., the total current
market value of its investment in the Portfolio) less its
liabilities (including accrued expenses and dividends payable), by
the total number of shares of the Portfolio outstanding at the
time of the determination. Municipal Money Portfolio's net asset
value per share is calculated as of 3:00 p.m. (Chicago time) on
each day the New York Stock Exchange is open for trading.
The value of each investor's investment in Municipal Money
Portfolio will be based on its pro rata share of the total net
asset value of the Portfolio (i.e., the value of its portfolio
securities and other assets less its liabilities) as of the same
date and time.
Please refer to Purchase of Securities in Part A, which is
incorporated herein by reference. Municipal Money Portfolio
values its portfolio by the "amortized cost method" by which it
attempts to maintain its net asset value at $1.00 per share. This
involves valuing an instrument at its cost and thereafter assuming
a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the
market value of the instrument. Although this method provides
certainty in valuation, it may result in periods during which
value as determined by amortized cost is higher or lower than the
price the Portfolio would receive if it sold the instrument.
<PAGE> 27
Other assets are valued at a fair value determined in good faith
by the Board of Trustees.
In connection with Municipal Money Portfolio's use of amortized
cost and the maintenance of its per share net asset value of
$1.00, the Trust has agreed, with respect to Municipal Money
Portfolio: (i) to seek to maintain a dollar-weighted average
portfolio maturity appropriate to its objective of maintaining
relative stability of principal and not in excess of 90 days; (ii)
not to purchase a portfolio instrument with a remaining maturity
of greater than thirteen months (for this purpose Municipal Money
Portfolio considers that an instrument has a maturity of thirteen
months or less if it is a "short-term" obligation as defined in
the Glossary); and (iii) to limit its purchase of portfolio
instruments to those instruments that are denominated in U.S.
dollars which the Board of Trustees determines present minimal
credit risks and that are of eligible quality as determined by any
major rating service as defined under SEC Rule 2a-7 or, in the
case of any instrument that is not rated, of comparable quality as
determined by the Board.
Municipal Money Portfolio has also agreed to establish procedures
reasonably designed to stabilize its price per share as computed
for the purpose of sales and redemptions at $1.00. Such
procedures include review of its portfolio holdings by the Board
of Trustees, at such intervals as it deems appropriate, to determine
whether its net asset value calculated by using available market
quotations or market equivalents deviates from $1.00 per share
based on amortized cost. Calculations are made to compare the
value of its investments valued at amortized cost with market
value. Market values are obtained by using actual quotations
provided by market makers, estimates of market value, values from
yield data obtained from reputable sources for the instruments,
values obtained from the Adviser's matrix, or values obtained from
an independent pricing service. Any such service might value
Municipal Money Portfolio's investments based on methods which
include consideration of: yields or prices of Municipal Securities
of comparable quality, coupon, maturity and type; indications as
to values from dealers; and general market conditions. The
service may also employ electronic data processing techniques, a
matrix system, or both to determine valuations.
In connection with Municipal Money Portfolio's use of the
amortized cost method of portfolio valuation to maintain its net
asset value at $1.00 per share, the Portfolio might incur or
anticipate an unusual expense, loss, depreciation, gain or
appreciation that would affect its net asset value per share or
income for a particular period. The extent of any deviation
between the net asset value based upon available market quotations
or market equivalents and $1.00 per share based on amortized cost
will be examined by the Board of Trustees as it deems appropriate.
If such deviation exceeds 1/2 of 1%, the Board of Trustees will
promptly consider what action, if any, should be initiated. In
the event the Board of Trustees determines that a deviation exists
that may result in material dilution or other unfair results to
investors or existing shareholders, it will take such action as it
considers appropriate to eliminate or reduce to the extent
reasonably practicable such dilution or unfair results. Actions
which the Board might take include: selling portfolio instruments
prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; increasing, reducing, or suspending
dividends or distributions from capital or capital gains; or
redeeming shares in kind. The Board might also establish a net
asset value per share by using market values, as a result of which
the net asset value might deviate from $1.00 per share.
<PAGE> 28
ITEM 20. TAX STATUS.
The Trust is organized as a trust under the laws of the
Commonwealth of Massachusetts. Under the anticipated method of
operation of the Trust, the Trust will not be subject to any
Federal income tax, nor is it expected to have any Massachusetts
income tax liability. The Trust is applying for a private letter
ruling from the Internal Revenue Service to confirm its Federal
tax treatment in certain respects. Each investor in Municipal
Money Portfolio will be taxed on its share (as determined in
accordance with the governing instruments of the Trust) of the
Portfolio's ordinary income and capital gain in determining its
income tax liability. The determination of such share will be
made in accordance with a method designed to satisfy the Code and
regulations promulgated thereunder. There can be no assurance,
however, that the Internal Revenue Service will agree with such a
method of allocation.
Municipal Money Portfolio's taxable year end is June 30.
Although, as described above, the Portfolio will not be subject to
Federal income tax, it will file appropriate income tax returns.
It is intended that Municipal Money Portfolio's assets, income,
and distributions will be managed in such a way that an investor
in Municipal Money Portfolio will be able to satisfy the
requirements of Subchapter M of the Code for qualification as a
RIC, assuming that the investor invests all of its assets in the
Portfolio.
There are certain tax issues that will be relevant to only certain
of the investors, specifically investors that are segregated asset
accounts and investors who contribute assets rather than cash to
Municipal Money Portfolio. It is intended that such segregated
asset accounts will be able to satisfy diversification
requirements applicable to them and that such contributions of
assets will not be taxable provided certain requirements are met.
Such investors are advised to consult their own tax advisors as to
the tax consequences of an investment in Municipal Money
Portfolio.
ADDITIONAL INCOME TAX CONSIDERATIONS
In order for Colonial Municipal Money Market Fund, Stein Roe
Municipal Money Market Fund, or any other investment company
investing in the Municipal Portfolio 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, gains from the sale of stock or securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts) derived with
respect to its business of investing in stock, securities, or
currencies. In addition, gains realized on the sale or other
disposition of any of the following held or less than three months
must be limited to less than 30% of its annual gross income: (i)
stock or securities, (ii) options, futures, or forward contracts
(other than on foreign currencies), and (iii) foreign currencies
and currency forward contracts that are not directly related to
its principal business of investing in stocks, securities, and
options and futures with respect to stocks or securities. Each of
Colonial Municipal Money Market Fund, Stein Roe Municipal Money
Market Fund, and any such other investment company will also be
required to distribute each year at least 90% of its investment
company taxable income (in order to escape Federal income tax
<PAGE> 29
on distributed amounts) and to meet certain tax diversification
requirements. Because Colonial Municipal Money Market Fund,
Stein Roe Municipal Money Market Fund, or any other investment
company may invest all of its assets in Municipal Money Portfolio,
the Portfolio must satisfy all of these tax requirements in order
for such other investment company to satisfy them. In order to
avoid realizing excessive gains on securities held less than three
months, Municipal Money Portfolio may be required to defer the
closing out of certain positions beyond the time when it would
otherwise be advantageous to do so. Year-end mark-to-market gains
on positions open for less than three months as of the end of
Municipal Money Portfolio's fiscal year are not considered gains
on securities held for less than three months for purposes of the
30% test.
Municipal Money Portfolio will allocate at least annually to the
Colonial Municipal Money Market Fund, Stein Roe Municipal Money
Market Fund and its other shareholders its distributive share of
any net investment income and net capital gains which have been
recognized for Federal income tax purposes (including unrealized
gains at the end of the Portfolio's taxable year on certain
options and futures transactions that are required to be marked-
to-market).
Municipal Money Portfolio 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 Portfolio
intends to retain for its shareholders the tax-exempt status with
respect to tax-exempt income received by the Portfolio. The
distributions will be designated as "exempt-interest dividends,"
taxable ordinary income, and capital gains. Municipal Money
Portfolio 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 Portfolio's total income during the year.
Accordingly, income derived from each of these sources by the
Portfolio 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 Portfolio 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.
Because capital gain distributions reduce net asset value, if a
shareholder purchases shares shortly before a record date he will,
in effect, receive a return of a portion of his investment in such
distribution. The distribution would nonetheless be taxable to
him, even if the net asset value of shares were reduced below his
cost. However, for Federal income tax purposes the shareholder's
original cost would continue as his tax basis.
Because the taxable portion of the Portfolio'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.
<PAGE> 30
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of the Portfolio 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 Portfolio 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 Portfolio
unsuitable for tax reasons. Corporate investors may also wish to
consult their own tax advisers before purchasing shares. In
addition, certain property and casualty insurance companies,
financial institutions, and United States branches of foreign
corporations may be adversely affected by the tax treatment of the
interest on Municipal Securities.
ITEM 21. UNDERWRITERS.
Inapplicable.
ITEM 22. CALCULATION OF PERFORMANCE DATA.
Inapplicable.
ITEM 23. FINANCIAL STATEMENTS
Inapplicable
GLOSSARY
IN-THE-MONEY. A call option on a futures contract is "in-the-
money" if the value of the futures contract that is the subject of
the option exceeds the exercise price. A put option on a futures
contract is "in-the-money" if the exercise price exceeds the value
of the futures contract that is the subject of the option.
ISSUER. For purposes of diversification under the Investment
Company Act of 1940, identification of the issuer (or issuers) of
a Municipal Security depends on the terms and conditions of the
obligation. If the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the
obligation is backed only by the assets and revenues of the
<PAGE> 31
subdivision, such subdivision would be regarded as the sole
issuer. Similarly, if the obligation is backed only by the assets
and revenues of the non-governmental user, the non-governmental
user would be deemed to be the sole issuer. In addition, if the
bond is backed by the full faith and credit of the U.S.
Government, agencies or instrumentalities of the U.S. Government
or U.S. Government Securities, the U.S. Government or the
appropriate agency or instrumentality would be deemed to be the
sole issuer, and would not be subject to the 5% limitation
applicable to investments in a single issuer as described under
Investment Restrictions in Part A and restriction number (1) under
Investment Restrictions in this Part B. If, in any case, the
creating municipal government or another entity guarantees an
obligation or issues a letter of credit to secure the obligation,
the guarantee (or letter of credit) would be considered a separate
security issued by such government or entity and would be
separately valued and included in the issuer limitation. In the
case of Municipal Money Portfolio, guarantees and letters of
credit described in this paragraph from banks whose credit is
acceptable to the Portfolio are not restricted in amount by the
restriction against investing more than 25% of their total assets
in securities of non-governmental issuers whose principal business
activities are in the same industry.
SHORT-TERM. This term, as used with respect to Municipal Money
Portfolio, refers to an obligation of one of the following types,
measured from the date of an investment by the Portfolio in the
obligation (regardless of the duration of the obligation from the
date of original issuance):
1. An obligation of the issuer to pay the entire principal and
accrued interest in no more than thirteen months;
2. An obligation (regardless of the duration before its maturity)
issued or guaranteed by the U.S. Government or by its agencies
or instrumentalities, bearing a variable rate of interest
providing for automatic establishment, no less frequently than
annually, of a new rate or successive new rates of interest by
a formula, that can reasonably be expected to have a market
value approximating its principal amount (a) whenever a new
interest rate is established, in the case of an obligation
having a variable rate of interest, or (b) at any time, in the
case of an obligation having a "floating rate of interest" that
changes concurrently with any change in an identified market
interest rate to which it is pegged;
3. Any other obligation (regardless of the duration before its
maturity) that: (a) has a demand feature entitling the holder
to receive from an issuer the entire principal [or, under the
circumstances described under Basic Investment Strategy in Part
A for Municipal Money Portfolio, the issuer of a guarantee or a
letter of credit with respect to a participation interest in
the obligation (acquired from such issuer)], (i) at any time
upon no more than thirty days' notice or (ii) at specified
intervals not exceeding thirteen months and upon no more than
thirty days' notice, (b)(i) has a variable rate of interest
that changes on set dates or (ii) has a floating rate of
interest (as defined in 2 above), and (c) can reasonably be
expected to have a market value approximating its principal
amount (i) whenever a new rate of interest is established, in
the case of an obligation having a variable rate of interest,
or (ii) at any time, in the case of an obligation having a
floating rate of interest; provided that, with respect to each
such obligation that is not rated eligible quality by Moody's or
<PAGE> 32
S&P, the Board of Trustees has determined that the
obligation is of eligible quality; or
4. A repurchase agreement that is to be fully performed (or that
the Portfolio may require be performed) in not more than
thirteen months (regardless of the maturity of the obligation
to which the repurchase agreement relates).
VARIABLE RATE DEMAND SECURITY. This type of security is a
Variable Rate Security (as defined in Part A under Municipal
Securities) which has a demand feature entitling the purchaser to
resell the security to the issuer of the demand feature at an
amount approximately equal to amortized cost or the principal
amount thereof, which may be more or less than the price the
Portfolio paid for it. The interest rate on a Variable Rate
Demand Security also varies either according to some objective
standard, such as an index of short-term tax-exempt rates, or
according to rates set by or on behalf of the issuer.
APPENDIX--RATINGS OF MUNICIPAL SECURITIES
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion as
to the credit quality of the security being rated. However, the
ratings are general and are not absolute standards of quality or
guarantees as to the creditworthiness of an issuer. Consequently,
the Adviser believes that the quality of Municipal Securities
should be continuously reviewed and that individual analysts give
different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell or
hold a security, because it does not take into account market
value or suitability for a particular investor. When a security
has received a rating from more than one service, each rating
should be evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating
services from other sources that they consider reliable. Ratings
may be changed, suspended or withdrawn as a result of changes in
or unavailability of such information, or for other reasons. The
Adviser, through independent analysis, attempts to discern
variations in credit ratings of the published services, and to
anticipate changes in credit ratings. The following is a
description of the characteristics of certain ratings used by
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P").
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
<PAGE> 33
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: Those bonds in the Aa, A, Baa, Ba, and B groups which
Moody's believes possess the strongest investment attributes are
designated by the symbols Aa 1, A 1, Baa 1, Ba 1, and B 1.
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.
<PAGE> 34
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 (Aaa, Aa, A) and
their meanings is identical to that of its Municipal Bond ratings
as set forth above, except for the numerical modifiers. Moody's
applies numerical modifiers 1, 2, and 3 in the Aa and A
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.
<PAGE> 35
RATINGS BY S&P:
MUNICIPAL BONDS:
AAA. Bonds rated AAA have the highest rating. Capacity to pay
interest and repay principal is extremely strong.
AA. Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the higher rated issues only
in small degree.
A. Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than bonds in higher-rated categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category
than for bonds in higher-rated categories.
BB, B, CCC, CC, AND C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C1. The rating C1 is reserved for income bonds on which no
interest is being paid.
D. Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears. The D rating also is issued
upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
NOTE: The ratings from AA to CCC may be modified by the addition
of a plus (+) or minus (-) sign to show relative standing within
the major ratings categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful
completion of the project being financed by the debt being rated
and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of
the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comment
on the likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay
principal and interest. Those issues determined to possess
overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay
principal and interest.
<PAGE> 36
Notes due in three years or less normally receive a note rating.
Notes maturing beyond three years normally receive a bond rating,
although the following criteria are used in making that
assessment:
- - Amortization schedule (the larger the final maturity relative to
other maturities, the more likely the issue will be rated as a
note).
- - Source of payment (the more dependent the issue is on the market
for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as
part of their provisions a demand feature. The first rating
addresses the likelihood of repayment of principal and interest as
due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the
long-term maturity and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example,
AAA/A-1+). Normally, demand notes receive note rating symbols
combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree to safety.
A-1. This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong.
Those issues determined to possess overwhelming safety
characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their
meanings is substantially the same as its Municipal Bond ratings
set forth above.
<PAGE> 37
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
None.
(b) Exhibits [Note: As used herein, the term "Registration
Statement" refers to the Registration Statement of the
Registrant on Form N-1A under the Securities Act of 1940,
File No. 811-7996.]
1. Declaration of Trust of Registrant as amended through
August 1, 1995. (Exhibit 1 to Amendment No. 2 to
Registration Statement.)*
2. By-Laws of Registrant. . (Exhibit 2 to Amendment No. 2
to Registration Statement.)*
3. Inapplicable.
4. Inapplicable.
5. Form of Management Agreement between Registrant and Stein
Roe & Farnham Incorporated.. (Exhibit 5 to Amendment
No. 2 to Registration Statement.)*
6. Inapplicable pursuant to Instruction F.4 to Form N-1A.
7. Inapplicable.
8. Custodian Agreement between Registrant and State Street
Bank and Trust Company.. (Exhibit 8 to Amendment No. 2
to Registration Statement.)*
9. (a) Form of Investor Service Agreement between Registrant
and SteinRoe Services Inc.. (Exhibit 9(a) to Amendment
No. 2 to Registration Statement.)*
(b) Form of Bookkeeping and Accounting Agreement between
Registrant and Stein Roe & Farnham Incorporated..
(Exhibit 9(b) to Amendment No. 2 to Registration
Statement.)*
10. Inapplicable pursuant to Instruction F.4 of Form N-1A.
11. Inapplicable pursuant to Instruction F.4 of Form N-1A.
12. Inapplicable pursuant to Instruction F.4 of Form N-1A.
13. Inapplicable.
14. Inapplicable.
15. Inapplicable.
16. Inapplicable.
17. Inapplicable.
18. Inapplicable.
-------
*Incorporated by reference.
<PAGE> 38
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
The Registrant does not consider that it is directly or indirectly
controlled by, or under common control with, other persons within
the meaning of this Item.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Title of Class Number of Record Holders
------------------------------------- ------------------------
SR&F Municipal Money Market Portfolio 2
ITEM 27. INDEMNIFICATION.
Reference is made to Article X of the Registrant's Declaration of
Trust (Exhibit 1) with respect to indemnification of the trustees
and officers of Registrant against liabilities which may be
incurred by them in such capacities.
Registrant, its trustees and officers, its investment adviser, the
other investment companies advised by the adviser, and persons
affiliated with them are insured against certain expenses in
connection with the defense of actions, suits, or proceedings, and
certain liabilities that might be imposed as a result of such
actions, suits, or proceedings. Registrant will not pay any
portion of the premiums for coverage under such insurance that
would (1) protect any trustee or officer against any liability to
Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office or (2) protect its investment adviser or
principal underwriter, if any, against any liability to Registrant
or its shareholders to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of its duties, or by reason of its
reckless disregard of its duties and obligations under its
contract or agreement with the Registrant; for this purpose the
Registrant will rely on an allocation of premiums determined by
the insurance company.
Colonial Tax-Exempt Money Market Fund ("Colonial Fund"), a series of
Colonial Trust IV ("Colonial Trust") invests substantially all of
its assets in a portfolio of Registrant. In that connection,
trustees and officers of Registrant have signed the registration
statement of Colonial Trust ("Colonial Registration Statement") on
behalf of Registrant insofar as the Colonial Registration Statement
relates to Colonial Fund, and Colonial Trust, on behalf of Colonial
Fund, has agreed to indemnify Registrant and its trustees and officers
against certain liabilities which may be incurred by them.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Stein Roe & Farnham Incorporated (the "Adviser") is a wholly owned
subsidiary of SteinRoe Services Inc. ("SSI"), which is a wholly
owned subsidiary of Liberty Financial Companies, Inc.), which is a
majority-owned subsidiary of Liberty Mutual Equity Corporation,
which is a wholly owned subsidiary of Liberty Mutual Insurance
Company. The Adviser acts as investment adviser to individuals,
trustees, pension and profit-sharing plans, charitable
organizations, and other investors. In addition to Registrant, it
also acts as investment adviser to other no-load investment
companies having different investment policies.
<PAGE> 39
During the past two years, neither the Adviser nor any of its
directors or officers, except for Gary L. Countryman, Kenneth R.
Leibler, and N. Bruce Callow has been engaged in any business,
profession, vocation, or employment of a substantial nature either
on their own account or in the capacity of director, officer,
partner, or trustee, other than as an officer or associate of the
Adviser. Mr. Countryman is President of Liberty Mutual Insurance
Company and Liberty Mutual Fire Insurance Company; Mr. Leibler is
President and Chief Operating Officer of Liberty Financial
Companies, Inc.; Mr. Callow was senior vice president of trust
and financial services of The Northern Trust Company prior to
June, 1994.
Certain directors and officers of the Adviser also serve and have
during the past two years served in various capacities as
officers, directors, or trustees of SSI and of the Registrant,
Stein Roe Income Trust, SteinRoe Investment Trust, Stein Roe
Municipal Trust, SteinRoe Variable Investment Trust, investment
companies managed by the Adviser. A list of such capacities is
given below. (SteinRoe Services Inc., Stein Roe Income Trust,
SteinRoe Investment Trust, Stein Roe Municipal Trust, and the
Registrant are located at One South Wacker Drive, Chicago,
Illinois 60606; the address of SteinRoe Variable Investment Trust
is Federal Reserve Plaza, 600 Atlantic Avenue, Boston,
Massachusetts 02210.)
POSITION FORMERLY HELD
CURRENT POSITION WITHIN PAST TWO YEARS
STEINROE SERVICES INC.
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President; Secretary
Gary L. Countryman Director; Chairman
Kenneth J. Kozanda Vice President; Treasurer
Alfred F. Kugel Vice President
Kenneth R. Leibler Director
Keith J. Rudolf Vice President
Hans P. Ziegler Director, President, Vice
Chairman
SR&F BASE TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Ann H. Benjamin Vice-President
N. Bruce Callow Executive Vice-President
Michael T. Kennedy Vice-President
Stephen P. Lautz Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
<PAGE> 40
STEIN ROE INCOME TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Ann H. Benjamin Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Michael T. Kennedy Vice-President
Stephen P. Lautz Vice-President
Steven P. Luetger Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEINROE INVESTMENT TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Daniel K. Cantor Vice-President
Robert A. Christensen Vice-President
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
Harvey B. Hirschhorn Vice-President
Alfred F. Kugel Trustee
Stephen P. Lautz Vice-President
Lynn C. Maddox Vice-President
Richard B. Peterson Vice-President
Gloria J. Santella Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE MUNICIPAL TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Joanne T. Costopoulos Vice-President
Stephen P. Lautz Vice-President
Lynn C. Maddox Vice-President
M. Jane McCart Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
<PAGE> 41
STEINROE VARIABLE INVESTMENT TRUST
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin Vice President
Robert A. Christensen Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President
ITEM 29. PRINCIPAL UNDERWRITERS.
Inapplicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Jilaine Hummel Bauer
Executive Vice-President and Secretary
SR&F Base Trust
One South Wacker Drive
Chicago, Illinois 60606.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
Inapplicable.
<PAGE> 42
SIGNATURES
Pursuant to the requirements of the Investment Company Act of
1940, the Registrant has duly caused this 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
1st day of November, 1995.
SR&F BASE TRUST
By: TIMOTHY K. ARMOUR
Trustee and President
<PAGE> 43
SR&F BASE TRUST
INDEX TO EXHIBITS FILED WITH THIS REGISTRATION STATEMENT
Exhibit
Number Description
- ------- -----------
None
