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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. 4 [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 two series: SR&F Municipal Money Market Portfolio
("Municipal Money Portfolio") and SR&F Growth Investor Portfolio
("Growth Investor 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. There are
currently no investors in the Growth Investor Portfolio; it is
anticipated that the only investors in the Portfolio will be Stein
Roe Young Investor Fund (a series of Stein Roe Investment Trust),
and Colonial Young Investor Fund (a series of Colonial Trust I).
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.
MUNICIPAL MONEY PORTFOLIO
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
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Moody's Investors Service, Inc. ("Moody's"), VMIG 1 or VMIG 2 /1/;
(ii) notes rated within the two highest short-term municipal
ratings assigned by Moody's, MIG 1 or MIG 2, or within the highest
rating assigned by Standard & Poor's Corporation ("S&P"), /2/ SP-
l+; (iii) municipal commercial paper (short-term promissory notes)
rated Prime-1 by Moody's, or A-l by S&P; (iv) municipal bonds,
including industrial development bonds, rated within the two
highest ratings assigned to municipal bonds by S&P, AAA or AA, or
by Moody's, Aaa or Aa; (v) securities not rated as described in
(i) through (iv) but determined by the Board of Trustees to be at
least equal in quality to one or more of the foregoing ratings,
although other types of obligations of the same issuer might not
be within the foregoing ratings; (vi) securities backed by the
full faith and credit of the U.S. Government; or (vii) securities
as to which the payment of principal and interest is
collateralized by securities issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities ["U.S.
Government Securities"] deposited in an escrow for the benefit of
holders of the securities. In accordance with SEC Rule 2a-7 under
the Investment Company Act, each security in which Municipal Money
Portfolio invests will be U.S. dollar denominated and (i) rated
(or be issued by an issuer that is rated with respect to its
short-term debt) within the two highest rating categories for
short-term debt by at least two nationally recognized statistical
rating organizations ("NRSRO") or, if rated by only one NRSRO,
rated within the two highest rating categories by that NRSRO, or,
if unrated, determined by or under the direction of the Board of
Trustees to be of comparable quality, and (ii) determined by or
under the direction of the Board of Trustees to present minimal
credit risks.
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
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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.
/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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industrial user involved. Municipal Securities may bear either
fixed or variable rates of interest. Variable rate securities
bear rates of interest that are adjusted periodically according to
formulae intended to minimize fluctuation in values of the
instruments.
Within the principal classifications of Municipal Securities,
there are various types of instruments, including municipal bonds,
municipal notes, municipal leases, custodial receipts, and
participation certificates. Municipal notes include tax, revenue,
and bond anticipation notes of short maturity, generally less than
three years, which are issued to obtain temporary funds for
various public purposes. Municipal lease securities, and
participation certificates therein, evidence certain types of
interests in lease or installment purchases contract obligations
of a municipal authority or other entity. Custodial receipts
represent ownership in future interest or principal payments (or
both) on certain Municipal Securities and are underwritten by
securities dealers or banks. Some Municipal Securities may not be
backed by the faith, credit, and taxing power of the issuer and
may involve "non-appropriation" clauses which provide that the
municipal authority is not obligated to make lease or other
contractual payments, unless specific annual appropriations are
made by the municipality. 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.
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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 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).
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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/
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); or (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. The Portfolio may not make
loans except that it may (1) purchase money market instruments and
enter into repurchase agreements; (2) acquire publicly-distributed
or privately-placed debt securities; and (3) participate in an
interfund lending program with other Stein Roe Funds. It may not
borrow money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the Portfolio's aggregate borrowings
(including reverse repurchase agreements) nor its aggregate loans
at any one time may exceed 33 1/3% of the value of its total
assets.
GROWTH INVESTOR PORTFOLIO
INVESTMENT OBJECTIVE
Growth Investor Portfolio's investment objective is long-term
capital appreciation. It seeks to achieve its objective by
investing primarily in common stocks and other equity-type
securities that, in the opinion of Stein Roe & Farnham
Incorporated (the "Adviser"), have long-term appreciation
potential.
BASIC INVESTMENT STRATEGY
Under normal circumstances, at least 65% of Growth Investor
Portfolio's total assets will be invested in securities of
companies that, in the opinion of the Adviser, directly or through
one or more subsidiaries, affect the lives of young people. Such
companies may include companies that produce products or services
that children or teenagers use, are aware of, or could potentially
have an interest in.
Although Growth Investor Portfolio invests primarily in common
stocks and other equity-type securities (such as preferred stocks,
securities convertible into or exchangeable for common stocks, and
warrants or rights to purchase common stocks), it may invest up to
35% of its total assets in debt securities. The Portfolio may
invest in securities of smaller emerging companies as well as
securities of well-seasoned companies of any size. Smaller
companies, however, involve higher risks in that they typically
have limited product lines, markets, and financial or management
resources. In addition, the
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/3/The policy expressed in this sentence is a fundamental policy
of Municipal Money Portfolio.
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securities of smaller companies may trade less frequently and have
greater price fluctuation than larger companies, particularly
those operating in countries with developing markets. The
Portfolio may also employ investment techniques described
elsewhere in this prospectus. (See Risks and Investment
Considerations and Fees and Expenses.)
OTHER INVESTMENT PRACTICES
Debt securities. In pursuing its investment objective, Growth
Investor Portfolio may invest in debt securities. A debt security
is an obligation of a borrower to make payments of principal and
interest to the holder of the security. To the extent the
Portfolio invests in debt securities, such holdings will be
subject to interest rate risk and credit risk. Interest rate risk
is the risk that the value of a portfolio will fluctuate in
response to changes in interest rates. Generally, the debt
component of a portfolio will tend to decrease in value when
interest rates rise and increase in value when interest rates
fall. Credit risk is the risk that an issuer will be unable to
make principal and interest payments when due. Investments in
debt securities are limited to those that are rated within the
four highest grades (generally referred to as "investment grade")
assigned by a nationally recognized statistical rating
organization. Investments in unrated debt securities are limited
to those deemed to be of comparable quality by the Adviser.
Securities rated within the fourth highest grade may possess
speculative characteristics. If the rating of a security held by
the Portfolio is lost or reduced below investment grade, the
Portfolio is not required to dispose of the security--the Adviser
will, however, consider that fact in determining whether the
Portfolio should continue to hold the security. When the Adviser
considers a temporary defensive position advisable, the Portfolio
may invest without limitation in high-quality fixed income
securities, or hold assets in cash or cash equivalents.
Foreign Securities. Growth Investor Portfolio may invest up to
25% of its total assets in foreign securities. (See Risks and
Investment Considerations.) In addition to, or in lieu of, such
direct investment, the Portfolio may construct a synthetic foreign
position by (a) purchasing a debt instrument denominated in one
currency, generally U.S. dollars; and (b) concurrently entering
into a forward contract to deliver a corresponding amount of that
currency in exchange for a different currency on a future date and
at a specified rate of exchange. Because of the availability of a
variety of highly liquid U.S. dollar debt instruments, a synthetic
foreign position utilizing such U.S. dollar instruments may offer
greater liquidity than direct investment in foreign currency debt
instruments. In connection with the purchase of foreign
securities, the Portfolio may contract to purchase an amount of
foreign currency sufficient to pay the purchase price of the
securities at the settlement date. Such a contract involves the
risk that the value of the foreign currency may decline relative
to the value of the dollar prior to the settlement date--this risk
is in addition to the risk that the value of the foreign security
purchased may decline.
Lending portfolio securities; reverse repurchase agreements.
Growth Investor Portfolio may make loans of its portfolio
securities to broker-dealers and banks and enter into reverse
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repurchase agreements subject to certain restrictions described in
Part B. The Portfolio may invest in securities purchased on a
when-issued or delayed-delivery basis. Although the payment terms
of these securities are established at the time the Portfolio
enters into the commitment, the securities may be delivered and
paid for a month or more after the date of purchase, when their
value may have changed. The Portfolio will make such commitments
only with the intention of actually acquiring the securities, but
may sell the securities before settlement date if it is deemed
advisable for investment reasons.
Derivatives. Consistent with its objective, Growth Investor
Portfolio may invest in a broad array of financial instruments and
securities, including conventional, exchange-traded and non-
exchange-traded options, futures contracts, futures options,
forward contracts, securities collateralized by underlying pools
of mortgages or other receivables, floating rate instruments, and
other instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or
security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, or an interest rate.
The Portfolio does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to Part B.
Options and Futures. In seeking to achieve its desired investment
objective, provide additional revenue, or to hedge against changes
in security prices, interest rates or currency fluctuations,
Growth Investor Portfolio may: (1) purchase and write both call
options and put options on securities, indexes and foreign
currencies; (2) enter into interest rate, index and foreign
currency futures contracts; (3) write options on such futures
contracts; and (4) purchase other types of forward or investment
contracts linked to individual securities, indexes, or other
benchmarks. The Portfolio may write a call or put option only if
the option is covered. As the writer of a covered call option,
the Portfolio foregoes, during the option's life, the opportunity
to profit from increases in market value of the security covering
the call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid market
will exist when the Portfolio seeks to close out a position. In
addition, because futures positions may require low margin
deposits, the use of futures contracts involves a high degree of
leverage and may result in losses in excess of the amount of the
margin deposit.
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RISK FACTORS
Growth Investor Portfolio is designed for long-term investors who
desire to participate in the stock market and places an emphasis
on companies that appeal to young investors. These investors can
accept more investment risk and volatility than the stock market
in general but want less investment risk and volatility than
aggressive capital appreciation Portfolios. Of course, there can
be no guarantee that the Portfolio will achieve its objective.
The Portfolio is also designed to be a fun, educational experience
for young investors and their parents.
While the Portfolio seeks to reduce risk by investing in a
diversified portfolio, diversification does not eliminate all
risk. The Portfolio will not, however, invest more than 25% of
the total value of its assets (at the time of investment) in the
securities of companies in any one industry. By investing in
companies whose products or services appeal to young investors,
the Portfolio emphasizes various consumer goods sectors.
Although the Portfolio does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
portfolio securities must be held. Accordingly, the portfolio
turnover rate may vary significantly from year to year, but is not
expected to exceed 100% under normal market conditions. A high
rate of portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses. (See
Distributions and Income Taxes.) The Portfolio is not intended to
be an income-producing investment, although it may produce income.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, less market liquidity, more market
volatility, less developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
INVESTMENT RESTRICTIONS
Growth Investor Portfolio will not invest more than 5% of its
assets in the securities of any one issuer. This restriction
applies only to 75% of the Portfolio's portfolio, but does not
apply to securities of the U.S. Government or repurchase
agreements for such securities, and would not prevent the
Portfolio from investing all of its assets in shares of another
investment company having the identical investment objective.
The Portfolio will not invest more than 25% of its total assets
(at the time of investment) in the securities of companies in any
one industry.
The Portfolio will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest all
of its assets in shares of another investment company having the
identical investment objective.
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The Portfolio may not make loans except that it may (1) purchase
money market instruments and enter into repurchase agreements; (2)
acquire publicly-distributed or privately-placed debt securities;
(3) lend its portfolio securities under certain conditions; and
(4) participate in an interfund lending program with other Stein
Roe Funds. The Portfolio may not borrow money, except for non-
leveraging, temporary, or emergency purposes or in connection with
participation in the interfund lending program. Neither the
Portfolio's aggregate borrowings (including reverse repurchase
agreements) nor its aggregate loans at any one time may exceed 33
1/3% of the value of its total assets.
The Portfolio may invest in repurchase agreements,/4/ provided
that it will not invest more than 5% of its net assets in
repurchase agreements maturing in more than seven days, and any
other illiquid securities. An investment in illiquid securities
could involve relatively greater risks and costs to the Portfolio.
OTHER INFORMATION
Each Portfolio's investment policies include additional
restrictions which are described in Part B. Each 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. 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 each 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 each
Portfolio. The Adviser is responsible for the investment
management and administration of each 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 agreement, also provides
certain investor accounting and recordkeeping services for each
Portfolio.
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/4/ A repurchase agreement involves a sale of securities to the
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
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FEES AND EXPENSES
In return for its services, the Adviser receives a monthly fee
from each Portfolio, computed and accrued daily. The annualized
rate for Municipal Money Portfolio is 0.25% of average net assets;
and that of Growth Investor Portfolio is 0.60% of the first $500
million of average net assets, 0.55% of the next $500 million, and
0.50% thereafter.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to each 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 and any options and futures transactions. 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 each
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 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
<PAGE>13
privileges as the trustees of the Trust may determine. Currently,
the Trust has two series, each with only one class.
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 a
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 a Portfolio are issued solely in private placement
transactions that do not involve any "public offering" within the
meaning if Section 4(2) of the 1933 Act. Investments in a
Portfolio may be made only by investment companies, insurance
company separate accounts, common or commingled trust funds, or
similar organizations or
<PAGE>14
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 a 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 Portfolios'
investor accounting and recordkeeping agent, by the designated
cutoff time. The net asset value of each Portfolio is determined
as of the close of trading on the New York Stock Exchange ("NYSE")
(currently 3:00 p.m., Central time) every day the NYSE 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 NYSE 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.,
Central 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.
For Growth Investor Fund, each security traded on a national stock
exchange is valued at its last sale price on that exchange on the
day of valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the last
sale price on the day of valuation is available from NASDAQ is
valued at that price. All other over-the-counter securities for
which reliable quotations are available are valued at the latest
bid quotation.
Each investor in a 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.
<PAGE>15
There is no minimum initial or subsequent investment in a
Portfolio.
Each 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 a 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 Portfolios' 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 a 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 NYSE is closed
(other than weekends or holidays) or trading on the NYSE 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.
<PAGE> 16
PART B
ITEM 10. COVER PAGE.
SR&F BASE TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
Statement of Additional Information Dated July 19, 1996
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........................16
Investment Objective and Policies......................16
Management of the Trust................................37
Control Persons and Principal Holders of Securities....39
Investment Management and Administrative Services......39
Brokerage Allocation and Other Practices...............41
Capital Stock and Other Securities.....................43
Purchase, Redemption, and Pricing of Securities........45
Tax Status.............................................46
Underwriter............................................49
Calculation of Performance Data........................49
Financial Statements...................................49
Glossary...............................................50
Appendix...............................................51
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
The basic investment policies and strategies of each Portfolio are
described in Part A, Item 4. The following supplements the
information contained in Part A regarding certain miscellaneous
investment practices in which a Portfolio may engage and the risks
associated therewith.
When-Issued and Delayed-Delivery Securities. Each Portfolio may
purchase securities on a when-issued or delayed-delivery basis, as
described in Part A. A 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.
<PAGE>17
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. Each Portfolio may also enter into
reverse repurchase agreements with banks and securities dealers.
A reverse repurchase agreement is a repurchase agreement in which
a Portfolio is the seller of, rather than the investor in,
securities and agrees to repurchase them at an agreed-upon time
and price. 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.
At the time a Portfolio enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S. Government
securities or other "high-grade" debt obligations) of the
Portfolio having a value 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. The use of these investment strategies, as
well as borrowing under a line of credit as described below, may
increase net asset value fluctuation.
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. Each 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 its restriction on borrowing under
Investment Restrictions, a Portfolio may establish and maintain a
line of credit with a major bank in order to
<PAGE> 18
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.
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 /5/ 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,
- ----------------
/5/ The policies described in this paragraph are fundamental for
Municipal Money Portfolio.
- ----------------
<PAGE>19
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
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.
Portfolio Turnover. Although neither Portfolio purchases
securities with a view toward rapid turnover, there are no
limitations on the length of time that portfolio securities must
be held. Portfolio turnover can occur for a number of reasons
such as general conditions in the securities markets, more
favorable investment opportunities in other securities, or other
factors relating to the desirability of holding or changing a
portfolio investment. Because of Growth Investor Portfolio's
flexibility of investment and emphasis on growth of capital, it
may have greater portfolio turnover than that of mutual funds that
have primary objectives of income or maintenance of a balanced
investment position. The future turnover rate for a Portfolio may
vary greatly from year to year. A high rate of portfolio turnover
in a Portfolio, if it should occur, would result in increased
transaction expense, which must be borne by the Portfolio. High
portfolio turnover may also result in the realization of capital
gains or losses and, to the
<PAGE>20
extent net short-term capital gains are realized, any
distributions resulting from such gains will be considered
ordinary income for federal income tax purposes.
Defensive Investments. When the Adviser considers a temporary
defensive position advisable, Growth Investor Portfolio may
invest, without limitation, in high-quality fixed income
securities or hold assets in cash or cash equivalents.
Derivatives. Consistent with its objective, Growth Investor
Portfolio may invest in a broad array of financial instruments and
securities, including conventional exchange-traded and non-
exchange-traded options, futures contracts, futures options,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or
security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate, or a
currency.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because it is more
efficient or less costly than direct investment that cannot be
readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives.
The Portfolio currently does not intend to invest, nor has it
during its past fiscal year invested, more than 5% of its net
assets in any type of Derivative, except for options, futures
contracts, and futures options. (See Options and Futures below.)
Some mortgage-backed debt securities are of the "modified pass-
through type," which means the interest and principal payments on
mortgages in the pool are "passed through" to investors. During
periods of declining interest rates, there is increased likelihood
that mortgages will be prepaid, with a resulting loss of the full-
term benefit of any premium paid by the Portfolio on purchase of
such securities; in addition, the proceeds of prepayment would
likely be invested at lower interest rates.
Mortgage-backed securities provide either a pro rata interest in
underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") that represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities, and are usually issued in multiple classes each
of which has different payment rights, prepayment risks, and yield
characteristics. Mortgage-backed securities involve the risk of
prepayment on the underlying mortgages at a faster or slower rate
than the established schedule. Prepayments generally increase
with falling interest rates and decrease with rising rates but
they also are influenced by economic, social, and market factors.
If
<PAGE>21
mortgages are pre-paid during periods of declining interest rates,
there would be a resulting loss of the full-term benefit of any
premium paid by the Portfolio on purchase of the CMO, and the
proceeds of prepayment would likely be invested at lower interest
rates.
Non-mortgage asset-backed securities usually have less prepayment
risk than mortgage-backed securities, but have the risk that the
collateral will not be available to support payments on the
underlying loans that finance payments on the securities
themselves.
Floating rate instruments provide for periodic adjustments in
coupon interest rates that are automatically reset based on
changes in amount and direction of specified market interest
rates. In addition, the adjusted duration of some of these
instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with an
adjusted duration of 2 would increase by approximately 2%.
Foreign Securities. Growth Investor Portfolio may invest up to
25% of its total assets in foreign securities, which may entail a
greater degree of risk (including risks relating to exchange rate
fluctuations, tax provisions, or expropriation of assets) than
does investment in securities of domestic issuers. For this
purpose, foreign securities do not include American Depositary
Receipts (ADRs) or securities guaranteed by a United States
person. ADRs are receipts typically issued by an American bank or
trust company evidencing ownership of the underlying securities.
The Portfolio may invest in sponsored or unsponsored ADRs. In the
case of an unsponsored ADR, the Portfolio is likely to bear its
proportionate share of the expenses of the depository and it may
have greater difficulty in receiving shareholder communications
than it would have with a sponsored ADR.
With respect to portfolio securities that are issued by foreign
issuers or denominated in foreign currencies, the Portfolio's
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely,
if the dollar rises in value relative to the yen, the dollar value
of the yen-denominated stock will fall. (See discussion of
transaction hedging and portfolio hedging under Currency Exchange
Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions in which are generally denominated in foreign
currencies, and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United
<PAGE>22
States; less public information with respect to issuers of
securities; less governmental supervision of stock exchanges,
securities brokers, and issuers of securities; lack of uniform
accounting, auditing, and financial reporting standards; lack of
uniform settlement periods and trading practices; less liquidity
and frequently greater price volatility in foreign markets than in
the United States; possible imposition of foreign taxes; possible
investment in securities of companies in developing as well as
developed countries; and sometimes less advantageous legal,
operational, and financial protections applicable to foreign sub-
custodial arrangements.
Although the Portfolio will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange transactions
may be conducted either on a spot (i.e., cash) basis at the spot
rate for purchasing or selling currency prevailing in the foreign
exchange market or through forward currency exchange contracts
("forward contracts"). Forward contracts are contractual
agreements to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at
the time of the contract. Forward contracts are usually entered
into with banks and broker-dealers, are not exchange traded, and
are usually for less than one year, but may be renewed.
Growth Investor Portfolio's foreign currency exchange transactions
are limited to transaction and portfolio hedging involving either
specific transactions or portfolio positions. Transaction hedging
is the purchase or sale of forward contracts with respect to
specific receivables or payables of the Portfolio arising in
connection with the purchase and sale of its portfolio securities.
Portfolio hedging is the use of forward contracts with respect to
portfolio security positions denominated or quoted in a particular
foreign currency. Portfolio hedging allows the Portfolio to limit
or reduce its exposure in a foreign currency by entering into a
forward contract to sell such foreign currency (or another foreign
currency that acts as a proxy for that currency) at a future date
for a price payable in U.S. dollars so that the value of the
foreign-denominated portfolio securities can be approximately
matched by a foreign-denominated liability. The Portfolio may not
engage in portfolio hedging with respect to the currency of a
particular country to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in
its portfolio denominated or quoted in that particular currency,
except that the Portfolio may hedge all or part of its foreign
currency exposure through the use of a basket of currencies or a
proxy currency where such currencies or currency act as an
effective proxy for other currencies. In such a case, the
Portfolio may enter into a forward contract where the amount of
the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket
hedging technique may be more efficient and economical than
entering into separate forward contracts for each currency held in
the Portfolio. The Portfolio may not engage in "speculative"
currency exchange transactions.
<PAGE>23
At the maturity of a forward contract to deliver a particular
currency, the Portfolio may either sell the portfolio security
related to such contract and make delivery of the currency, or it
may retain the security and either acquire the currency on the
spot market or terminate its contractual obligation to deliver the
currency by purchasing an offsetting contract with the same
currency trader obligating it to purchase on the same maturity
date the same amount of the currency.
It is impossible to forecast with absolute precision the market
value of portfolio securities at the expiration of a forward
contract. Accordingly, it may be necessary for the Portfolio to
purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is
less than the amount of currency the Portfolio is obligated to
deliver and if a decision is made to sell the security and make
delivery of the currency. Conversely, it may be necessary to sell
on the spot market some of the currency received upon the sale of
the portfolio security if its market value exceeds the amount of
currency the Portfolio is obligated to deliver.
If the Portfolio retains the portfolio security and engages in an
offsetting transaction, the Portfolio will incur a gain or a loss
to the extent that there has been movement in forward contract
prices. If the Portfolio engages in an offsetting transaction, it
may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between
the Portfolio's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for
the purchase of the currency, the Portfolio will realize a gain to
the extent the price of the currency it has agreed to sell exceeds
the price of the currency it has agreed to purchase. Should
forward prices increase, the Portfolio will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds
the price of the currency it has agreed to sell. A default on the
contract would deprive the Portfolio of unrealized profits or
force the Portfolio to cover its commitments for purchase or sale
of currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for the Portfolio to hedge against a devaluation that is
so generally anticipated that the Portfolio is not able to
contract to sell the currency at a price above the devaluation
level it anticipates. The cost to the Portfolio of engaging in
currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and
prevailing market conditions. Since currency exchange
transactions are usually conducted on a principal basis, no fees
or commissions are involved.
Lending of Portfolio Securities. Subject to the restriction on
lending under Investment Restrictions in this Part B, Growth
Investor Portfolio may lend its portfolio securities to broker-
dealers and banks. Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a current
basis in an amount at least equal to the market value of the
securities loaned by the Portfolio. Cash collateral for
securities loaned will be invested in liquid high-grade debt
securities. The Portfolio would continue to receive the
equivalent of the interest or dividends paid by the issuer on the
securities loaned, and would also receive an additional return
that may be in the form of a
<PAGE>24
fixed fee or a percentage of the collateral. The Portfolio would
have the right to call the loan and obtain the securities loaned
at any time on notice of not more than five business days. The
Portfolio would not have the right to vote the securities during
the existence of the loan but would call the loan to permit voting
of the securities if, in the Adviser's judgment, a material event
requiring a shareholder vote would otherwise occur before the loan
was repaid. In the event of bankruptcy or other default of the
borrower, the Portfolio could experience both delays in
liquidating the loan collateral or recovering the loaned
securities and losses, including (a) possible decline in the value
of the collateral or in the value of the securities loaned during
the period while the Portfolio seeks to enforce its rights
thereto, (b) possible subnormal levels of income and lack of
access to income during this period, and (c) expenses of enforcing
its rights.
Rule 144A Securities. Growth Investor Portfolio may purchase
securities that have been privately placed but that are eligible
for purchase and sale under Rule 144A under the 1933 Act. That
Rule permits certain qualified institutional buyers, such as the
Portfolio, to trade in privately placed securities that have not
been registered for sale under the 1933 Act. The Adviser, under
the supervision of the Board of Trustees, will consider whether
securities purchased under Rule 144A are illiquid and thus subject
to the Portfolio's restriction of investing no more than 15% of
its net assets in illiquid securities. A determination of whether
a Rule 144A security is liquid or not is a question of fact. In
making this determination, the Adviser will consider the trading
markets for the specific security, taking into account the
unregistered nature of a Rule 144A security. In addition, the
Adviser could consider the (1) frequency of trades and quotes, (2)
number of dealers and potential purchasers, (3) dealer
undertakings to make a market, and (4) nature of the security and
of marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of
transfer). The liquidity of Rule 144A securities would be
monitored and, if as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the
Portfolio's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the
Portfolio does not invest more than 5% of its assets in illiquid
securities. Investing in Rule 144A securities could have the
effect of increasing the amount of the Portfolio's assets invested
in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. The Portfolio does not
expect to invest as much as 5% of its total assets in Rule 144A
securities that have not been deemed liquid by the Adviser. (See
restriction (m) under Investment Restrictions.)
Options on Securities and Indexes. Consistent with its objective,
Growth Investor Portfolio may purchase and write both call options
and put options on securities and on indexes, and enter into
interest rate and index futures contracts, and may purchase or
sell options on such futures contracts ("futures options") in
order to achieve its desired investment objective, to provide
additional revenue, or to hedge against changes in security prices
or interest rates. The Portfolio may purchase and write both call
options and put options on foreign currencies and enter into
foreign currency futures contracts and futures options in order to
provide additional revenue or to hedge against changes in currency
fluctuations. The Portfolio may also use other types of options,
futures contracts, and futures options currently traded or
subsequently developed and traded, provided the Board of Trustees
determines that their use is consistent with the Portfolio's
investment objective.
<PAGE>25
The Portfolio may purchase and sell put options and call options
on securities, indexes or foreign currencies in standardized
contracts traded on recognized securities exchanges, boards of
trade, or similar entities, or quoted on NASDAQ. The Portfolio
may purchase agreements, sometimes called cash puts, that may
accompany the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the
purchaser (holder) of the option, in return for a premium, the
right to buy from (call) or sell to (put) the seller (writer) of
the option the security underlying the option (or the cash value
of the index) at a specified exercise price at any time during the
term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver
the underlying security or foreign currency upon payment of the
exercise price or to pay the exercise price upon delivery of the
underlying security or foreign currency. Upon exercise, the
writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An
index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial
instruments or securities, or certain economic indicators.)
The Portfolio will write call options and put options only if they
are "covered." For example, in the case of a call option on a
security, the option is "covered" if the Portfolio owns the
security underlying the call or has an absolute and immediate
right to acquire that security without additional cash
consideration (or, if additional cash consideration is required,
cash or cash equivalents in such amount are held in a segregated
account by its custodian) upon conversion or exchange of other
securities held in its portfolio.
If an option written by the Portfolio expires, the Portfolio
realizes a capital gain equal to the premium received at the time
the option was written. If an option purchased by the Portfolio
expires, the Portfolio realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may be
closed out by an offsetting purchase or sale of an option of the
same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when the Portfolio desires.
The Portfolio will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Portfolio will realize a capital loss. If the premium received
from a closing sale transaction is more than the premium paid to
purchase the option, the Portfolio will realize a capital gain or,
if it is less, the Portfolio will realize a capital loss. The
principal factors affecting the market value of a put or a call
option include supply and demand, interest rates, the current
market price of the underlying security or index in relation to
the exercise price of the option, the volatility of the underlying
security or index, and the time remaining until the expiration
date.
A put or call option purchased by the Portfolio is an asset of the
Portfolio, valued initially at the premium paid for the option.
The premium received for an option written by the Portfolio is
recorded as a deferred credit. The value of an option purchased
or
<PAGE>26
written is marked-to-market daily and is valued at the closing
price on the exchange on which it is traded or, if not traded on
an exchange or no closing price is available, at the mean between
the last bid and asked prices.
Risks Associated with Options. There are several risks associated
with transactions in options. For example, there are significant
differences between the securities markets, the currency markets,
and the options markets that could result in an imperfect
correlation between these markets, causing a given transaction not
to achieve its objectives. A decision as to whether, when and how
to use options involves the exercise of skill and judgment, and
even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when the
Portfolio seeks to close out an option position. If the Portfolio
were unable to close out an option that it had purchased on a
security, it would have to exercise the option in order to realize
any profit or the option would expire and become worthless. If
the Portfolio were unable to close out a covered call option that
it had written on a security, it would not be able to sell the
underlying security until the option expired. As the writer of a
covered call option on a security, the Portfolio foregoes, during
the option's life, the opportunity to profit from increases in the
market value of the security covering the call option above the
sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased or written by the
Portfolio, the Portfolio would not be able to close out the
option. If restrictions on exercise were imposed, the Portfolio
might be unable to exercise an option it has purchased.
Futures Contracts and Options on Futures Contracts. Growth
Investor Portfolio may use interest rate futures contracts, index
futures contracts, and foreign currency futures contracts. An
interest rate, index or foreign currency futures contract provides
for the future sale by one party and purchase by another party of
a specified quantity of a financial instrument or the cash value
of an index /6/ at a specified price and time. A public market
exists in futures contracts covering a number of indexes
(including, but not limited to: the Standard & Poor's 500 Index;
the Value Line Composite Index; and the New York Stock Exchange
Composite Index) as well as financial instruments (including, but
not limited to: U.S. Treasury bonds; U.S. Treasury notes;
Eurodollar certificates of deposit; and foreign currencies).
Other index and financial instrument futures contracts are
available and it is expected that additional futures contracts
will be developed and traded.
The Portfolio may purchase and write call and put futures options.
Futures options possess many of the same characteristics as
options on securities, indexes and foreign currencies (discussed
above). A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short
position (put) in a futures
- ------------------
/6/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities no physical delivery of those securities is
made.
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<PAGE>27
contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder
acquires a long position in the futures contract and the writer is
assigned the opposite short position. In the case of a put
option, the opposite is true. The Portfolio might, for example,
use futures contracts to hedge against or gain exposure to
fluctuations in the general level of stock prices, anticipated
changes in interest rates or currency fluctuations that might
adversely affect either the value of the Portfolio's securities or
the price of the securities that the Portfolio intends to
purchase. Although other techniques could be used to reduce or
increase the Portfolio's exposure to stock price, interest rate,
and currency fluctuations, the Portfolio may be able to achieve
its exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
The Portfolio will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade, or similar entity, or quoted on an automated quotation
system.
The success of any futures transaction depends on the Adviser
correctly predicting changes in the level and direction of stock
prices, interest rates, currency exchange rates and other factors.
Should those predictions be incorrect, the Portfolio's return
might have been better had the transaction not been attempted;
however, in the absence of the ability to use futures contracts,
the Adviser might have taken portfolio actions in anticipation of
the same market movements with similar investment results but,
presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by the
Portfolio, the Portfolio is required to deposit with its custodian
(or broker, if legally permitted) a specified amount of cash or
U.S. Government securities or other securities acceptable to the
broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded
and may be modified during the term of the contract. The initial
margin is in the nature of a performance bond or good faith
deposit on the futures contract, which is returned to the
Portfolio upon termination of the contract, assuming all
contractual obligations have been satisfied. The Portfolio
expects to earn interest income on its initial margin deposits. A
futures contract held by the Portfolio is valued daily at the
official settlement price of the exchange on which it is traded.
Each day the Portfolio pays or receives cash, called "variation
margin," equal to the daily change in value of the futures
contract. This process is known as "marking-to-market."
Variation margin paid or received by the Portfolio does not
represent a borrowing or loan by the Portfolio but is instead
settlement between the Portfolio and the broker of the amount one
would owe the other if the futures contract had expired at the
close of the previous day. In computing daily net asset value,
the Portfolio will mark-to-market its open futures positions.
The Portfolio is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by
it. Such margin deposits will vary depending on the nature of the
underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Portfolio.
<PAGE>28
Although some futures contracts call for making or taking delivery
of the underlying securities, usually these obligations are closed
out prior to delivery by offsetting purchases or sales of matching
futures contracts (same exchange, underlying security or index,
and delivery month). If an offsetting purchase price is less than
the original sale price, the Portfolio realizes a capital gain, or
if it is more, the Portfolio realizes a capital loss. Conversely,
if an offsetting sale price is more than the original purchase
price, the Portfolio realizes a capital gain, or if it is less,
the Portfolio realizes a capital loss. The transaction costs must
also be included in these calculations.
Risks Associated with Futures. There are several risks associated
with the use of futures contracts and futures options. A purchase
or sale of a futures contract may result in losses in excess of
the amount invested in the futures contract. In trying to
increase or reduce market exposure, there can be no guarantee that
there will be a correlation between price movements in the futures
contract and in the portfolio exposure sought. In addition, there
are significant differences between the securities and futures
markets that could result in an imperfect correlation between the
markets, causing a given transaction not to achieve its
objectives. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand for
futures, futures options and the related securities, including
technical influences in futures and futures options trading and
differences between the securities market and the securities
underlying the standard contracts available for trading. For
example, in the case of index futures contracts, the composition
of the index, including the issuers and the weighting of each
issue, may differ from the composition of the Portfolio's
portfolio, and, in the case of interest rate futures contracts,
the interest rate levels, maturities, and creditworthiness of the
issues underlying the futures contract may differ from the
financial instruments held in the Portfolio's portfolio. A
decision as to whether, when and how to use futures contracts
involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because
of market behavior or unexpected stock price or interest rate
trends.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The
daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous
day's settlement price at the end of the current trading session.
Once the daily limit has been reached in a futures contract
subject to the limit, no more trades may be made on that day at a
price beyond that limit. The daily limit governs only price
movements during a particular trading day and therefore does not
limit potential losses because the limit may work to prevent the
liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive
trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures
contracts to substantial losses. Stock index futures contracts
are not normally subject to such daily price change limitations.
There can be no assurance that a liquid market will exist at a
time when the Portfolio seeks to close out a futures or futures
option position. The Portfolio would be exposed to possible loss
on the position during the interval of inability to close, and
would continue to be required to meet margin requirements until
the position is closed. In addition, many of the contracts
discussed above are relatively new instruments without a
<PAGE>29
significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue
to exist.
Limitations on Options and Futures. If other options, futures
contracts, or futures options of types other than those described
herein are traded in the future, Growth Investor Portfolio may
also use those investment vehicles, provided the Board of Trustees
determines that their use is consistent with the Portfolio's
investment objective.
The Portfolio will not enter into a futures contract or purchase
an option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by the Portfolio plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," /7/ would exceed 5%
of the Portfolio's total assets.
When purchasing a futures contract or writing a put option on a
futures contract, the Portfolio must maintain with its custodian
(or broker, if legally permitted) cash or cash equivalents
(including any margin) equal to the market value of such contract.
When writing a call option on a futures contract, the Portfolio
similarly will maintain with its custodian cash or cash
equivalents (including any margin) equal to the amount by which
such option is in-the-money until the option expires or is closed
out by the Portfolio.
The Portfolio may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent the Portfolio has
written call options on specific securities in its portfolio, the
value of those securities will be deducted from the current market
value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," the Portfolio will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within the
meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of the Portfolio, after taking into account unrealized
profits and unrealized losses on any such contracts it has entered
into [in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section 190.01(x)
of the Commission Regulations) may be excluded in computing such
5%].
- -------------------
/7/ A call option 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 is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- -------------------
<PAGE>30
As long as the Portfolio continues to sell its shares in certain
states, the Portfolio's options and futures transactions will also
be subject to certain non-fundamental investment restrictions set
forth under Investment Restrictions in this Part B.
Taxation of Options and Futures. If Growth Investor Portfolio
exercises a call or put option that it holds, the premium paid for
the option is added to the cost basis of the security purchased
(call) or deducted from the proceeds of the security sold (put).
For cash settlement options and futures options exercised by the
Portfolio, the difference between the cash received at exercise
and the premium paid is a capital gain or loss.
If a call or put option written by the Portfolio is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by the Portfolio, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in capital
gain or loss. If an option written by the Portfolio was in-the-
money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If the Portfolio writes an equity call option /8/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to the extent
it does not exceed the unrealized gains on the securities covering
the option, may be subject to deferral until the securities
covering the option have been sold.
A futures contract held until delivery results in capital gain or
loss equal to the difference between the price at which the
futures contract was entered into and the settlement price on the
earlier of delivery notice date or expiration date. If the
Portfolio delivers securities under a futures contract, the
Portfolio also realizes a capital gain or loss on those
securities.
For federal income tax purposes, the Portfolio generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on futures,
futures options and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a
- ------------------
/8/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500
index).
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<PAGE>31
later taxable year. Sale of futures contracts or writing of call
options (or futures call options) or buying put options (or
futures put options) that are intended to hedge against a change
in the value of securities held by the Portfolio: (1) will affect
the holding period of the hedged securities; and (2) may cause
unrealized gain or loss on such securities to be recognized upon
entry into the hedge.
If the Portfolio were to enter into a short index future, short
index futures option or short index option position and the
Portfolio's portfolio were deemed to "mimic" the performance of
the index underlying such contract, the option or futures contract
position and the Portfolio's stock positions would be deemed to be
positions in a mixed straddle, subject to the above-mentioned loss
deferral rules.
In order for the Portfolio to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition,
gains realized on the sale or other disposition of securities held
for less than three months must be limited to less than 30% of the
Portfolio's annual gross income. Any net gain realized from
futures (or futures options) contracts will be considered gain
from the sale of securities and therefore be qualifying income for
purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the
Portfolio may be required to defer the closing out of certain
positions beyond the time when it would otherwise be advantageous
to do so.
The Portfolio distributes to shareholders annually any net capital
gains that have been recognized for federal income tax purposes
(including year-end mark-to-market gains) on options and futures
transactions. Such distributions are combined with distributions
of capital gains realized on other investments, and shareholders
are advised of the nature of the payments.
INVESTMENT RISKS--MUNICIPAL MONEY PORTFOLIO
The federal bankruptcy statutes relating to the debts of political
subdivisions and authorities of states of the United States
provide that, in certain circumstances, such subdivisions or
authorities may be authorized to initiate bankruptcy proceedings
without prior notice to or consent of creditors, which proceedings
could result in material and adverse changes in the rights of
holders of their obligations.
Lawsuits challenging the validity under state constitutions of
present systems of financing public education have been initiated
or adjudicated in a number of states, and legislation has been
introduced to effect changes in public school financing in some
states. In other instances there have been lawsuits challenging
the issuance of pollution control revenue bonds or the validity of
their issuance under state or federal law which could ultimately
affect the validity of those Municipal Securities or the tax-free
nature of the interest thereon. In addition, from time to time
proposals have been introduced in Congress to restrict or
eliminate the federal income tax exemption for interest on
Municipal Securities, and similar proposals may be introduced in
the future. Some of the past proposals would have applied to
interest on Municipal Securities issued before the date of
enactment, which would have adversely affected their value to a
material degree. If
<PAGE>32
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
The following investment restrictions (other than material within
brackets) are fundamental policies of Municipal Money Portfolio.
Fundamental policies may be changed only with the approval of a
"majority of its outstanding voting securities" as defined in the
Investment Company Act of 1940. 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 securities issued by the guarantor) does not exceed
10% of the Portfolio's total assets]; /9/
(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, although it may (a) participate in an
interfund lending program with other Stein Roe Funds provided that
no such loan may be made if, as a result, the aggregate of such
loans would exceed 33 1/3% of the value of its total assets; (b)
purchase
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/9/ 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>33
money market instruments and enter into repurchase agreements; and
(c) acquire publicly-distributed or privately-placed debt
securities;
(4) borrow except that it may (a) borrow for non-leveraging,
temporary or emergency purposes and (b) engage in reverse
repurchase agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law; it may borrow from banks, other Stein Roe Funds,
and other persons to the extent permitted by applicable law;
(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 Municipal Money 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. This Portfolio may not:
(a) own more than 10% of the outstanding voting securities of
an issuer;
(b) invest in companies for the purpose of exercising control
or management;
(c) make investments in the securities of other investment
companies, except in connection with a merger, consolidation, or
reorganization;
(d) 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;
<PAGE>34
(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 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.
Following are the fundamental investment restrictions of Growth
Investor Portfolio. This Portfolio may not:
(1) with respect to 75% of its total assets, invest more than
5% of its total assets, taken at market value at the time of a
particular purchase, in the securities of a single issuer, except
for securities issued or guaranteed by the Government of the U.S.
or any of its agencies or instrumentalities or repurchase
agreements for such securities;
(2) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer;
(3) act as an underwriter of securities, except insofar as it
may be deemed an underwriter for purposes of the Securities Act of
1933 on disposition of securities acquired subject to legal or
contractual restrictions on resale;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein), commodities, or commodity contracts, except
that it may enter into (a) futures and options on futures and (b)
forward contracts for the purpose of facilitating payment for a
foreign security;
<PAGE>35
(5) make loans, although it may (a) lend portfolio securities
and participate in an interfund lending program with other Stein
Roe Funds provided that no such loan may be made if, as a result,
the aggregate of such loans would exceed 33 1/3% of the value of
its total assets (taken at market value at the time of such
loans); (b) purchase money market instruments and enter into
repurchase agreements; and (c) acquire publicly-distributed or
privately-placed debt securities;
(6) borrow except that it may (a) borrow for non-leveraging,
temporary or emergency purposes, (b) engage in reverse repurchase
agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law, and (c) enter into futures and options
transactions; it may borrow from banks, other Stein Roe Funds, and
other persons to the extent permitted by applicable law;
(7) invest in a security if more than 25% of its total assets
(taken at market value at the time of a particular purchase) would
be invested in the securities of issuers in any particular
industry, except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; or
(8) issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
Following are the non-fundamental investment objectives of Growth
Investor Portfolio. This Portfolio may not:
(a) invest in any of the following: (i) interests in oil,
gas, or other mineral leases or exploration or development
programs (except readily marketable securities, including but not
limited to master limited partnership interests, that may
represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls, straddles,
spreads, or any combination thereof (except that it may enter into
transactions in options, futures, and options on futures); (iii)
shares of other open-end investment companies, except in
connection with a merger, consolidation, acquisition, or
reorganization; and (iv) limited partnerships in real estate
unless they are readily marketable;
(b) invest in companies for the purpose of exercising control
or management;
(c) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of its total assets (valued at time of purchase) in
the case of any one other investment company and 10% of such
assets (valued at time of purchase) in the case of all other
investment companies in the aggregate; any such purchases are to
be made in the open market where no profit to a sponsor or dealer
results from the purchase, other than the customary broker's
commission, except for securities acquired as part of a merger,
consolidation or acquisition of assets;
<PAGE>36
(d) purchase or hold securities of an issuer if 5% of the
securities of such issuer are owned by those officers, trustees,
or directors of the Trust or of its investment adviser, who each
own beneficially more than 1/2 of 1% of the securities of that
issuer;
(e) mortgage, pledge, or hypothecate its assets, except as
may be necessary in connection with permitted borrowings or in
connection with options, futures, and options on futures;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American stock
exchange;
(g) write an option on a security unless the option is issued
by the Options Clearing Corporation, an exchange, or similar
entity;
(h) invest more than 25% of its total assets (valued at time
of purchase) in securities of foreign issuers (other than
securities represented by American Depositary Receipts (ADRs) or
securities guaranteed by a U.S. person);
(i) buy or sell an option on a security, a futures contract,
or an option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered through
the facilities of a recognized securities association or listed on
a recognized exchange or similar entity;
(j) purchase a put or call option if the aggregate premiums
paid for all put and call options exceed 20% of its net assets
(less the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
(k) purchase securities on margin (except for use of short-
term credits as are necessary for the clearance of transactions),
or sell securities short unless (i) it owns or has the right to
obtain securities equivalent in kind and amount to those sold
short at no added cost or (ii) the securities sold are "when
issued" or "when distributed" securities which it expects to
receive in a recapitalization, reorganization, or other exchange
for securities it contemporaneously owns or has the right to
obtain and provided that transactions in options, futures, and
options on futures are not treated as short sales;
(l) 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");
(m) invest more than 5% of its total assets (taken at market
value at the time of a particular investment) in restricted
securities, other than securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933;
(n) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in restricted
securities and securities of unseasoned issuers;
<PAGE>37
(o) invest more than 5% 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.
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 40 Senior Vice-President Controller of the Mutual Funds division of Stein Roe &
Farnham Incorporated (the "Adviser"); senior vice president
of Stein Roe since April, 1996; vice president of Stein Roe,
January, 1991 to April, 1996
Timothy K. Armour 47 President; Trustee President of the Mutual Fund division of the Adviser and
(1)(2) director 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 General counsel and secretary of the Adviser since November,
Secretary 1995; senior vice president of the Adviser since April,
1992; vice president of the Adviser prior thereto
Kenneth L. Block (3) 76 Trustee Chairman Emeritus of A. T. Kearney, Inc. (international
management consultants)
William W. Boyd (3) 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 50 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) 44 Trustee Senior Vice President of Liberty Financial Companies, Inc.
(the indirect parent of the Adviser)
Douglas A. Hacker 40 Trustee Senior vice president and chief financial officer, United
Airlines, since July, 1994; senior vice president--Finance,
United Airlines, February, 1993 to July, 1994; vice
president--corporate & fleet planning, American Airlines,
1991 to February, 1993
Philip D. Hausken 38 Vice-President Vice President of the Adviser since November, 1995; 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 39 Vice-President Vice President of the Adviser since May, 1994; associate of
the Adviser prior thereto
Francis W. Morley 76 Trustee Chairman of Employer Plan Administrators and Consultants Co.
(2)(3) (designer, administrator, and communicator of employee
benefit plans)
<PAGE>38
Charles R. Nelson (3) 53 Trustee Van Voorhis Professor of Political Economy of the University
of Washington
Nicolette D. Parrish 46 Vice-President; Senior Compliance Administrator for the Adviser since
Assistant Secretary November, 1995; senior legal assistant for the Adviser prior
thereto
Sharon R. Robertson 34 Controller Accounting Manager for the Adviser's Mutual Funds division
Janet B. Rysz 40 Assistant Secretary Assistant Secretary of the Adviser
Thomas C. Theobald 58 Trustee Managing partner, William Blair Capital Partners (private
equity fund) since 1994; chief executive officer and chairman
of the Board of Directors of Continental Bank Corporation,
1987-1994
Gordon R. Worley (3) 76 Trustee Private investor
Hans P. Ziegler 55 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, Stein Roe Investment Trust, and Stein
Roe Income Trust, 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. Hacker is P.O. Box 66100,
Chicago, IL 60666; that of Mr. Morley is 20 North Wacker Drive,
Suite 2275, Chicago, Illinois 60606; that of Mr. Nelson is
Department of Economics, University of Washington, Seattle,
Washington 98195; that of Mr. Theobald is Suite 3300, 222 West
Adams Street, Chicago, IL 60606; 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
<PAGE>39
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 $72,800
William W. Boyd 800 52,500
Francis W. Morley 1,700 73,750
Charles R. Nelson 1,700 74,550
Gordon R. Worley 1,700 72,200
____________________
*Messrs Armour, Boyd, and Cook were elected trustees of the
Trust on January 17, 1995. Messrs. Hacker and Theobald were
elected trustees on June 18, 1996 and, therefore, received no
compensation for the fiscal year ended June 30, 1995.
**Attendance fees for the Base Trust trustees were paid by the
Adviser for the fiscal year ended June 30, 1995.
***During the period ended June 30, 1995, the Stein Roe Fund
Complex consisted of one series of Base Trust, four series of
Stein Roe Municipal Trust, six series of Stein Roe Income
Trust, and eight series of Stein Roe Investment Trust.
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; and there were no record holders of Growth Investor
Portfolio.
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 each Portfolio. The Adviser is a wholly owned
subsidiary of SteinRoe Services Inc. ("SSI"), which is a wholly
owned subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which is a majority-owned subsidiary of Liberty
Mutual Equity Corporation, which is a wholly owned subsidiary of
Liberty Mutual Insurance Company. Liberty Mutual Insurance
Company is a mutual insurance company, principally in the
property/casualty insurance field, organized under the laws of
Massachusetts in 1912.
The directors of Stein Roe are Kenneth R. Leibler, C. Allen
Merritt, Jr., Timothy K. Armour, N. Bruce Callow, and Hans P.
Ziegler. Mr. Leibler is President and Chief Executive Officer of
Liberty Financial; Mr. Merritt is Senior Vice President and
Treasurer of Liberty Financial; Mr. Armour is President of Stein
Roe's Mutual Funds division; Mr. Callow is President of Stein
Roe's Investment Counsel division; and Mr. Ziegler is Chief
<PAGE>40
Executive Officer of Stein Roe. The business address of Messrs.
Leibler and Merritt is Federal Reserve Plaza, Boston,
Massachusetts 02210; and 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 Trust. Each
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. For the fiscal year ended June 30, 1995, the
Trust did not pay the Adviser any fees. For the fiscal year ended
June 30, 1996, the Adviser received aggregate fees of $290,904
from the Municipal Money Market Portfolio.
The management agreement also provides that neither the Adviser
nor any of its directors, officers, stockholders (or partners of
stockholders), agents, or employees shall have any liability to
the Trust or any shareholder 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 a Portfolio shall be paid solely out of
that 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 each Portfolio. For these services, the Adviser
receives an annual fee of $25,000 plus .0025 of 1% of average net
assets over $50 million.
<PAGE>41
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
each 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 Municipal Money Portfolio are Ernst &
Young LLP, 233 South Wacker Drive, Chicago, Illinois 60606;
independent public accountants for Growth Investor Portfolio are
Arthur Andersen LLP, 33 West Monroe Street, Chicago, Illinois
60603. The auditors audit and report on the Portfolios' annual
financial statements, review certain regulatory reports and the
Portfolios' 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 each Portfolio, including options and
futures transactions for Growth Investor Portfolio.
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
<PAGE>42
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 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.
With respect to Growth Investor Portfolio's purchases and sales of
portfolio securities transacted with a broker or dealer on a net
basis, the Adviser may also consider the part, if any, played by
the broker or dealer in bringing the security involved to the
Adviser's attention, including investment research related to the
security and provided to 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
<PAGE>43
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.
The Trust has arranged for its custodian to act as a soliciting
dealer to accept any fees available to the custodian as a
soliciting dealer in connection with any tender offer for
portfolio securities. The custodian will credit any such fees
received against its custodial fees. In addition, the Board of
Trustees 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. However, 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.
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 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
<PAGE>44
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 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.
<PAGE>45
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 a 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 a 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 each 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. Each Portfolio's net asset value per share is
calculated as of 3:00 p.m. (Central time) on each day the New York
Stock Exchange is open for trading.
The value of each investor's investment in a 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.
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
<PAGE>46
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.
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
<PAGE>47
income tax liability. The Trust has received a private letter
ruling from the Internal Revenue Service to confirm its federal
tax treatment in certain respects. Each investor in a 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, and that
of Growth Investor Portfolio is September 30. Although, as
described above, the Portfolios will not be subject to federal
income tax, they will file appropriate income tax returns.
It is intended that each Portfolio's assets, income, and
distributions will be managed in such a way that an investor in
the 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 a
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 a Portfolio.
ADDITIONAL INCOME TAX CONSIDERATIONS
In order for an investment company investing in a 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 such 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 on
distributed amounts) and to meet certain tax diversification
requirements. Because such investment companies may invest all of
their assets in a 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, a 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 a Portfolio's fiscal year are not
<PAGE>48
considered gains on securities held for less than three months for
purposes of the 30% test.
Each Portfolio will allocate at least annually to its 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).
Each 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. Municipal Money 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.
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.
<PAGE>49
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.
Growth Investor Portfolio expects that less than 100% of its
dividends will qualify for the deduction for dividends received by
corporate shareholders.
To the extent Growth Investor Portfolio invests in foreign
securities, it may be subject to withholding and other taxes
imposed by foreign countries. Tax treaties between certain
countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax
credits with respect to such taxes, subject to certain provisions
and limitations contained in the Code. Specifically, if more than
50% of Growth Investor Portfolio's total assets at the close of
any fiscal year consist of stock or securities of foreign
corporations, Growth Investor Portfolio may file an election with
the Internal Revenue Service pursuant to which shareholders of
Growth Investor Portfolio will be required to (i) include in
ordinary gross income (in addition to taxable dividends actually
received) their pro rata shares of foreign income taxes paid by
Growth Investor Portfolio even though not actually received, (ii)
treat such respective pro rata shares as foreign income taxes paid
by them, and (iii) deduct such pro rata shares in computing their
taxable incomes, or, alternatively, use them as foreign tax
credits, subject to applicable limitations, against their United
States income taxes. Shareholders who do not itemize deductions
for federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign taxes paid by Growth
Investor Portfolio, although such shareholders will be required to
include their share of such taxes in gross income. Shareholders
who claim a foreign tax credit may be required to treat a portion
of dividends received from Growth Investor Portfolio as separate
category income for purposes of computing the limitations on the
foreign tax credit available to such shareholders. Tax-exempt
shareholders will not ordinarily benefit from this election
relating to foreign taxes. Each year, Growth Investor Portfolio
will notify shareholders of the amount of (i) each shareholder's
pro rata share of foreign income taxes paid by the Portfolio and
(ii) the portion of dividends which represents income from each
foreign country, if the Portfolio qualifies to pass along such
credit.
ITEM 21. UNDERWRITERS.
Inapplicable.
ITEM 22. CALCULATION OF PERFORMANCE DATA.
Inapplicable.
ITEM 23. FINANCIAL STATEMENTS
Inapplicable
<PAGE>50
GLOSSARY
ISSUER. For purposes of diversification under the Investment
Company Act of 1940, identification of the issuer (or issuers) of
a Municipal Security depends on the terms and conditions of the
obligation. If the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the
obligation is backed only by the assets and revenues of the
subdivision, such subdivision would be regarded as the sole
issuer. Similarly, if the obligation is backed only by the assets
and revenues of the non-governmental user, the non-governmental
user would be deemed to be the sole issuer. In addition, if the
bond is backed by the full faith and credit of the U.S.
Government, agencies or instrumentalities of the U.S. Government
or U.S. Government Securities, the U.S. Government or the
appropriate agency or instrumentality would be deemed to be the
sole issuer, and would not be subject to the 5% limitation
applicable to investments in a single issuer as described under
Investment Restrictions in 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
<PAGE>51
exceeding thirteen months and upon no more than thirty days'
notice, (b)(i) has a variable rate of interest that changes on
set dates or (ii) has a floating rate of interest (as defined
in 2 above), and (c) can reasonably be expected to have a
market value approximating its principal amount (i) whenever a
new rate of interest is established, in the case of an
obligation having a variable rate of interest, or (ii) at any
time, in the case of an obligation having a floating rate of
interest; provided that, with respect to each such obligation
that is not rated eligible quality by Moody's or S&P, the
Board of Trustees has determined that the obligation is of
eligible quality; or
4. A repurchase agreement that is to be fully performed (or that
the 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
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.
<PAGE>52
Although the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such bonds.
Aa. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa. Bonds rated Baa are considered medium grade obligations;
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds,
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon
the completion of some act or the fulfillment of some condition
are rated conditionally. These are bonds secured by (a) earnings
of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or
elimination of basis of condition.
<PAGE>53
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.
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
<PAGE>54
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.
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.
<PAGE>55
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay
principal and interest. Those issues determined to possess
overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay
principal and interest.
Notes due in three years or less normally receive a note rating.
Notes maturing beyond three years normally receive a bond rating,
although the following criteria are used in making that
assessment:
- - Amortization schedule (the larger the final maturity relative to
other maturities, the more likely the issue will be rated as a
note).
- - Source of payment (the more dependent the issue is on the market
for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as
part of their provisions a demand feature. The first rating
addresses the likelihood of repayment of principal and interest as
due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the
long-term maturity and the commercial paper rating symbols are
usually used to denote the put (demand) option (for example,
AAA/A-1+). Normally, demand notes receive note rating symbols
combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree to safety.
A-1. This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong.
Those issues determined to possess overwhelming safety
characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their
meanings is substantially the same as its Municipal Bond ratings
set forth above.
<PAGE>56
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. 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) Investor Service Agreement between Registrant and
SteinRoe Services Inc. (Exhibit 9(a) to Amendment
No. 2 to Registration Statement,)*
(b) 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.
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.
<PAGE>57
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Title of Class Number of Record Holders
- ------------------------------------- ---------------------
SR&F Municipal Money Market Portfolio 2
SR&F Growth Investor Portfolio 0
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.
During the past two years, neither the Adviser nor any of its
directors or officers, except for Kenneth R. Leibler, C. Allen
Merritt, Jr., N. Bruce Callow, Bruno Bertocci, and David
<PAGE>58
P. Harris 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. Leibler
is President and Chief Executive Officer of Liberty Financial
Companies, Inc.; Mr. Merritt is Senior Vice President and
Treasurer of Liberty Financial Companies, Inc.; Mr. Callow was
senior vice president of trust and financial services for The
Northern Trust prior to June, 1994. Messrs. Bertocci and Harris
were global equity portfolio managers with Rockefeller & Co. prior
to May, 1995 and, commencing January 1, 1996, are dually employed
by Colonial Management Associates, Inc. as vice presidents and
portfolio managers.
Certain directors and officers of the Adviser also serve and have
during the past two years served in various capacities as
officers, directors, or trustees of SSI and of the Registrant,
Stein Roe Income Trust, Stein Roe Investment Trust, 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,
Stein Roe 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 WITHIN
CURRENT POSITION PAST TWO YEARS
------------------- --------------
STEINROE SERVICES INC.
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President; Secretary
Philip D. Hausken Vice President
Kenneth J. Kozanda Vice President; Treasurer
Stephen P. Lautz Vice President
Kenneth R. Leibler Director
C. Allen Merritt, Jr. Director; Vice President
Hans P. Ziegler Director, President, Vice Chairman
Chairman
SR&F BASE TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Ann H. Benjamin Vice-President
N. Bruce Callow Executive Vice-President
Philip D. Hausken 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> 59
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
Philip D. Hausken Vice-President
Michael T. Kennedy Vice-President
Stephen P. Lautz Vice-President
Steven P. Luetger Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEIN ROE INVESTMENT TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Bruno Bertocci Vice-President
David P. Brady Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Daniel K. Cantor Vice-President
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
David P. Harris Vice-President
Philip D. Hausken Vice-President
Harvey B. Hirschhorn Vice-President
Alfred F. Kugel Trustee
Stephen P. Lautz Vice-President
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Richard B. Peterson Vice-President
Gloria J. Santella Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE MUNICIPAL TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Joanne T. Costopoulos Vice-President
<PAGE> 60
Philip D. Hausken Vice-President
Stephen P. Lautz Vice-President
Lynn C. Maddox Vice-President
M. Jane McCart Vice-President
Anne E. Marcel Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEINROE VARIABLE INVESTMENT TRUST
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President
LFC UTILITIES TRUST
Gary A. Anetsberger Vice President
Ophelia L. Barsketis Vice President
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> 61
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
18th day of July, 1996.
SR&F BASE TRUST
By TIMOTHY K. ARMOUR
Timothy K. Armour
Trustee and President
<PAGE> 62
SR&F BASE TRUST
INDEX TO EXHIBITS FILED WITH THIS REGISTRATION STATEMENT
Exhibit
Number Description
- -------- ------------
None
